1992 (1) TMI 19 - HC - Income Tax

House Property, Industrial Company, Industrial Undertaking, Manufacture Or Produce, Manufacture Or Production

Summary

Issues Involved: Interpretation of "manufactures or produces articles" under section 80J(4)(iii) of the Income-tax Act, 1961, and whether the construction of multi-storeyed buildings qualifies for deductions under this section.

Issue-Wise Detailed Analysis:

1. Interpretation of "manufactures or produces articles":

The central issue is whether the activity of constructing multi-storeyed buildings and selling flats can be considered as manufacturing or producing articles under section 80J(4)(iii) of the Income-tax Act, 1961. The Tribunal had held that such construction qualifies as manufacturing or producing articles, thus entitling the assessee to deductions under section 80J.

2. Revenue's Contention:

The Revenue argued that buildings cannot be construed as "articles" and that constructing buildings does not equate to manufacturing or producing articles. They cited several decisions, including CIT v. Oricon Pvt. Ltd., CIT v. N. U. C. (P.) Ltd., and CIT v. Shah Construction Co. Ltd., where construction companies were not treated as industrial companies under the Finance Act, which defines "industrial company" to include activities like manufacturing or processing goods but not construction of buildings.

3. Assessee's Argument:

The assessee's counsel distinguished the cases cited by the Revenue, arguing that those decisions were rendered in different contexts. He contended that the term "article" is broader than "goods" and can include immovable property like buildings. He cited the Orissa High Court's decision in CIT v. N. C. Budharaja and Co., which held that a dam could be considered an article under section 80HH of the Income-tax Act, 1961.

4. Court's Analysis:

The court examined the meaning of "article" in common parlance and various legal contexts. It referred to definitions in the Shorter Oxford English Dictionary and Webster's Third International Dictionary, concluding that "article" generally refers to movable property. The court also noted that the Constitution of India equates "articles" with "goods," implying that "articles" should not include immovable property like buildings.

5. Differentiation Between "Construction" and "Manufacture":

The court highlighted the distinction between "construction" and "manufacture" in the definition of "industrial company" under the Finance Act. The definition includes only the construction of ships and not buildings, reinforcing that construction and manufacturing are distinct activities.

6. Conclusion:

The court concluded that the expression "manufactures or produces articles" cannot include the construction of buildings or apartments. Therefore, the Tribunal was incorrect in holding that the construction of multi-storeyed buildings qualifies as manufacturing or producing articles under section 80J(4)(iii) of the Income-tax Act, 1961. The question was answered in the negative, against the assessee.

Judgment:

The court held that the activity of constructing multi-storeyed buildings does not qualify as manufacturing or producing articles under section 80J(4)(iii) of the Income-tax Act, 1961. Consequently, the assessee is not entitled to relief under section 80J for the assessment years in question. There were no orders as to costs.