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Issues: Interpretation of whether the product "powder coating" manufactured by the assessee falls within the definition of "paint" for the purpose of claiming investment allowance under section 32A of the Income-tax Act, 1961.
Analysis: The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Income-tax Appellate Tribunal referred the question of law to determine if the product manufactured by the assessee qualified as "paint" under the Eleventh Schedule for investment allowance eligibility for the assessment year 1980-81. The assessee installed new machinery for manufacturing "Hawco Plast Powder Coating" and claimed investment allowance, which was initially disallowed by the Income-tax Officer based on the Eleventh Schedule's entry 26. The Commissioner of Income-tax (Appeals) upheld the decision, leading to an appeal before the Tribunal, which ruled in favor of the assessee. The Commissioner of Income-tax then filed a reference challenging the Tribunal's decision. The court analyzed the definitions of "paint" from various sources, emphasizing that paints are necessarily in liquid form based on Webster's Third New International Dictionary, Organic Coating Technology, Chemical Dictionary, and the Encyclopedia Britannica. The court highlighted that paints, by definition, form a liquid or paste that dries opaque, imparting color to the surface. The court noted that the Hawco Plast Powder Coating, being in a dry form and not requiring conversion to liquid, did not meet the criteria of a "paint." Additionally, chemical changes occur in the powder coating process, distinguishing it from ordinary paints. The court considered expert opinions and evidence presented by the assessee, including a letter from a Consulting Chemical Engineer, to differentiate powder coating from paints. The court also referenced an article from the New York Times, which described powder coating as a protective measure involving plastics ground into diverse formulations. Drawing parallels with other coatings like galvanizing and electroplating, the court concluded that powder coatings are distinct from paints due to their application methods and material composition. Referring to a previous decision in CST v. Colour Chem Ltd., where pigment powders were found not to fall under the term "paints," the court maintained a consistent interpretation of the term "paint." Ultimately, the court held that the product manufactured by the assessee did not fall within the ambit of the Eleventh Schedule's entry 26 as "paint," affirming the Tribunal's decision to allow the investment allowance. The court answered the question in favor of the assessee, disposing of the reference with no costs awarded.
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