1996 (9) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to weighted deduction under section 35B(1A) of the Income-tax Act.
2. Definition and inclusion of "machinery and plant" for determining small-scale industrial undertaking status.
3. Applicability of section 43(3) of the Income-tax Act concerning the definition of "plant."

Comprehensive, Issue-wise Detailed Analysis:

1. Entitlement to Weighted Deduction under Section 35B(1A) of the Income-tax Act
The primary issue was whether the assessee was entitled to a weighted deduction under section 35B(1A) of the Income-tax Act for the assessment year 1979-80. The initial assessment granted the deduction, but the Income-tax Officer later sought to cancel it under section 154, arguing that the assessee was not a small-scale industrial undertaking. The Tribunal held that the assessee was entitled to the deduction, affirming the first appellate authority's decision.

2. Definition and Inclusion of "Machinery and Plant"
The crux of the matter was whether the cost of transport vehicles should be included in the aggregate value of machinery and plant to determine the small-scale industrial undertaking status. According to section 35B(1A) and section 32A(2), an industrial undertaking is deemed small-scale if the machinery and plant's aggregate value does not exceed Rs. 10 lakhs. The Income-tax Officer included transport vehicles in this calculation, bringing the total to Rs. 10,81,449, thus canceling the deduction.

The first appellate authority and the Tribunal both emphasized that the term "machinery and plant" should exclude vehicles, as indicated by section 32A(2). The first appellate authority reasoned that "machinery and plant" should refer only to items used in production and manufacturing, excluding vehicles, which are specifically barred under section 32A.

3. Applicability of Section 43(3) of the Income-tax Act
The Revenue argued that the term "plant" under section 43(3) includes vehicles, thus justifying their inclusion in the machinery and plant's aggregate value. However, both the first appellate authority and the Tribunal rejected this argument, stating that section 43(3) applies "unless the context otherwise requires." They concluded that in the context of section 35B and section 32A, vehicles should not be included in the definition of "machinery and plant."

The Tribunal further clarified that the legislative intent, as evident from the language of section 32A and section 35B, was to exclude vehicles from the definition of "machinery and plant." Therefore, the inclusion of vehicles would contradict the statutory provisions and legislative intent.

Conclusion
The court upheld the Tribunal's decision, affirming that the assessee was entitled to the weighted deduction under section 35B(1A). The court concluded that the term "machinery and plant" should not include vehicles, aligning with the legislative intent and statutory provisions of sections 32A and 35B. Consequently, the Revenue's attempt to cancel the deduction under section 154 was deemed unjustified.

The judgment was delivered in favor of the assessee, and the question was answered in the affirmative, against the Revenue. A copy of the judgment was ordered to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.