2010 (7) TMI 782 - HC - Income Tax

Whether Tribunal was right in law in allowing depreciation on foreign cars in view of the provisions of section 32(1)(ii) Held that - purpose of exclusion by way of proviso of claims for depreciation of imported cars incorporated by the second proviso to Section 32 (1)(ii) of the Act was not to deny depreciation on foreign cars used in foreign countries for business abroad. It cannot be denied that cars used for business abroad at a foreign site is eligible for claiming depreciation, but for the proviso. There is no justification to read the proviso as excluding the said benefit which is otherwise a legitimate claim, claim of the assessee for depreciation on foreign cars used at foreign sites for its business is clearly admissible. decision against the revenue and in favour of the assessee Whether Tribunal was right in law holding the construction business as industrial undertaking and allowing deductions u/s 80J & 80-HH when the different courts have held contrary to that Held that - activity of the assessee, as already mentioned above, is construction and fabrication of mechanized houses, which cannot be equated to manufacture and production of articles or things, questions referred have to be answered in favour of the revenue and against the assessee. The assessee was not entitled to deduction under Sections 80J and 80HH of the Act

Summary

Issues:
1. Whether depreciation can be allowed on foreign cars used for business purposes abroad.
2. Whether a construction business can be considered an industrial undertaking for claiming deductions under Sections 80J and 80HH of the Income Tax Act.

Issue 1: Depreciation on Foreign Cars
The case involved the allowance of depreciation on foreign cars used for business purposes abroad. The Assessing Officer initially disallowed the claim based on a provision in the Income Tax Act. However, the Tribunal overturned this decision, emphasizing that the provision aimed to curb ostentatious expenditure on imported cars used within the country. The Tribunal held that the provision should be liberally interpreted, allowing depreciation on foreign cars used abroad for business purposes. The Court agreed with the Tribunal's interpretation, stating that the exclusion of benefits under the provision did not extend to legitimate claims for depreciation on foreign cars used at foreign sites for business activities. Consequently, the Court decided in favor of the assessee regarding the allowance of depreciation on foreign cars used abroad for business purposes.

Issue 2: Construction Business as an Industrial Undertaking
The second issue revolved around whether a construction business could be considered an industrial undertaking for claiming deductions under Sections 80J and 80HH of the Income Tax Act. The Assessing Officer initially disallowed the deduction, citing that a company engaged in construction of civil works did not fall under the definition of 'industrial undertaking.' The CIT(A) upheld the assessee's plea, which was further affirmed by the Tribunal. However, the Court referred to a Supreme Court judgment emphasizing that construction activities like building dams, bridges, and roads do not constitute manufacturing or production of articles or things. As the assessee's business involved construction and fabrication of mechanized houses, it did not meet the criteria of an industrial undertaking as per the Act. Therefore, the Court ruled in favor of the revenue, stating that the assessee was not entitled to deductions under Sections 80J and 80HH of the Income Tax Act.

In conclusion, the judgment addressed the issues of allowing depreciation on foreign cars used for business abroad and determining whether a construction business qualifies as an industrial undertaking for claiming specific deductions under the Income Tax Act. The Court ruled in favor of the assessee regarding depreciation on foreign cars used for business purposes abroad but sided with the revenue in denying deductions under Sections 80J and 80HH for the construction business, as it did not meet the criteria of an industrial undertaking as per the Act.