1991 (10) TMI 16 - HC - Income Tax

Issues Involved:
1. Entitlement to investment allowance for new machinery in cold storage under Section 32A(2)(b)(iii) of the Income-tax Act, 1961.
2. Definition and interpretation of "manufacture" and "production" in the context of cold storage operations.

Detailed Analysis:

1. Entitlement to Investment Allowance:

The primary issue was whether the new machinery employed in the cold storage of the assessee was entitled to investment allowance under Section 32A(2)(b)(iii) of the Income-tax Act, 1961. The Income-tax Officer rejected the claim, stating that the operation of the cold storage did not involve the manufacture or production of any article or thing. The Appellate Assistant Commissioner affirmed this view. However, on further appeal, the Income-tax Appellate Tribunal upheld the assessee's contention, relying on the decision of the Punjab and Haryana High Court in CIT v. Yamuna Cold Storage [1981] 129 ITR 728, and directed the modification of the assessment.

2. Definition and Interpretation of "Manufacture" and "Production":

To resolve whether the cold storage operations amounted to "manufacture" or "production," the court examined the ordinary meanings of these terms. It was noted that "manufacture" implies a transformation resulting in a new and different article with a distinctive name, character, or use. The court referred to the Supreme Court's approval of this definition in Union of India v. Delhi Cloth and General Mills Ltd., AIR 1963 SC 791.

Applying this definition, the court concluded that the operation of a cold storage does not result in the manufacture or production of a new and distinct article or thing. The primary purpose of a cold storage is to preserve the articles in their original form and condition, not to transform them into something new. Therefore, the machinery or plant used in a cold storage does not fall within the scope of Section 32A(2)(b)(iii).

The court supported its view with decisions from other High Courts, including Mittal Ice and Cold Storage v. CIT [1986] 159 ITR 18 (Madhya Pradesh High Court) and S. B. Cold Storage Industries P. Ltd. v. CIT [1987] 166 ITR 646 (Calcutta High Court). Both courts held that the operation of a cold storage does not involve the manufacture or production of any new article or thing, thus disqualifying it from investment allowance under Section 32A.

Separate Judgments and Opinions:

The court distinguished its stance from the Punjab and Haryana High Court's decisions in CIT v. Yamuna Cold Storage [1981] 129 ITR 728 and CIT v. S. Warriam Singh Cold Stores [1989] 178 ITR 585. The latter court had found that the operation of a cold storage involved the production of cool air, which was considered a new article or thing. However, the Allahabad High Court disagreed, emphasizing that the business of running a cold storage is to preserve articles, not to produce cool air.

Supreme Court's Pronouncement:

The court also referred to the Supreme Court's decision in Delhi Cold Storage P. Ltd. v. CIT [1991] 191 ITR 656, which clarified that "processing" involves bringing forth some change or alteration in the goods. Since "manufacture" and "production" have a narrower import than "processing," the operation of a cold storage could not be considered as manufacturing or producing any article or thing.

Conclusion:

The court concluded that the machinery or plant used in a cold storage does not qualify for investment allowance under Section 32A(2)(b)(iii) of the Income-tax Act. The question was answered in the negative, in favor of the Revenue and against the assessee, with costs assessed at Rs. 500.

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