1994 (7) TMI 305 - AT - Income Tax

Summary

Issues Involved:
1. Whether the investment allowance on a dredger under section 32A is allowable for the assessment year 1985-86.
2. Whether the dredger is included in the definition of 'ships' with effect from April 1, 1985, for allowing depreciation.

Issue-wise Detailed Analysis:

1. Investment Allowance on Dredger:
The primary issue revolves around the eligibility of the assessee for investment allowance on a dredger under section 32A of the Income-tax Act for the assessment year 1985-86. The Revenue's appeal challenges the Commissioner of Income-tax (Appeals)'s direction to allow investment allowance on a dredger. The learned Departmental Representative cited the Bombay Bench 'B' decision in Thane Reti Vita Utpadak Sahakari Society Ltd. v. ITO [1991] 39 ITD 163, arguing that the assessee's activity of removing sand from the sea/river bed does not qualify as construction, manufacture, or production activity, and thus, the assessee is not entitled to investment allowance under section 32A. The learned counsel for the assessee, however, distinguished this decision and cited various High Court rulings (Andhra Pradesh, Karnataka, Madras) to argue that the activity undertaken by the assessee amounts to manufacturing or production activity.

2. Definition of 'Ships' and Depreciation Schedule Amendment:
The assessment year in question is 1985-86, and an amendment to the depreciation schedule effective from April 1, 1985, included dredgers within the definition of "ships" for depreciation purposes. The Tribunal examined whether this inclusion also affects the rate of investment allowance. The learned counsel for the assessee argued that the amendment and the High Court decisions support the view that the assessee's activities should be considered manufacturing, thus qualifying for investment allowance.

Judgment Analysis:

Judicial Member's View:
The Judicial Member emphasized that the amendment to the depreciation schedule effective from April 1, 1985, which included dredgers as ships, is crucial. The Judicial Member relied on High Court decisions that supported considering similar activities as manufacturing or production. The Judicial Member concluded that the assessee's activities of removing, cleaning, and processing sand from the sea bed constitute a manufacturing process, thus qualifying for investment allowance. The Judicial Member also noted that the Bombay Bench 'B' decision did not consider the amendment or the High Court rulings cited by the assessee. Therefore, the Judicial Member confirmed the Commissioner of Income-tax (Appeals)'s order, allowing the investment allowance.

Accountant Member's View:
The Accountant Member disagreed, emphasizing that the Bombay Bench 'B' decision in Thane Reti Vita Utpadak Sahakari Society Ltd. v. ITO [1991] 39 ITD 163 directly addressed the issue and concluded that such activities do not amount to manufacturing or production. The Accountant Member argued that the inclusion of dredgers in the depreciation schedule as ships does not automatically qualify them for investment allowance under section 32A, as the legislative intent was limited to depreciation purposes. The Accountant Member also noted that the High Court decisions cited by the assessee were not directly relevant to the issue of investment allowance on dredgers. Consequently, the Accountant Member favored allowing the Revenue's appeal.

Third Member's View:
The Third Member, resolving the difference of opinion, sided with the Judicial Member. The Third Member noted that the assessee's use of dredgers for both personal and hire purposes qualifies it as being engaged in the business of operating ships. The Third Member emphasized that the amendment to the depreciation rules, which included dredgers as ocean-going ships, supports the assessee's claim. The Third Member also highlighted that the activities carried out by the assessee, including removing, cleaning, and processing sand, constitute dredging operations and thus qualify for investment allowance. The Third Member concluded that the assessee is entitled to the investment allowance on the dredger for the assessment year 1985-86.

Final Conclusion:
The majority opinion, including the Third Member's view, confirmed the Commissioner of Income-tax (Appeals)'s order, allowing the investment allowance on the dredger for the assessment year 1985-86. The Revenue's appeal was dismissed.