2012 (6) TMI 353 - HC - Income Tax

Investment allowance u/s 32A - job work Held that - In the case of J. B. Kharwar and Sons (1986 (3) TMI 34 (HC)) held that an assessee doing the job work of process of dyeing and printing grey cloth would also be entitled for the relief thereunder as it would amount to manufacture. It is immaterial whether the grey cloth which is subjected to process of dyeing and printing belongs to the assessee or anyone else. The activity which the assessee carries on is manufacturing activity irrespective of the fact whether the grey cloth belongs to it or to its customers. - Decided in favor of assessee.

Summary

Issues:
1. Entitlement to investment allowance under section 32A of the Income-tax Act for an assessee undertaking job work.
2. Interpretation of the term "manufacture" in the context of claiming investment allowance under section 32A.

Issue 1: Entitlement to Investment Allowance
The case involved the assessment of an assessee engaged in manufacturing forging products who also undertook job work for other companies. The assessee claimed investment allowance under section 32A of the Income-tax Act for the assessment years 1983-84 and 1984-85. The Income-tax Officer initially disallowed the allowance, stating that the assessee was not manufacturing any products but only engaging in job works. However, the Commissioner of Income-tax (Appeals) allowed the claim, citing a decision by the Madras High Court that section 32A does not restrict the benefit to manufacturers only. The Income-tax Appellate Tribunal upheld the decision, leading the Revenue to seek clarification on whether the assessee undertaking job work was entitled to investment allowance under section 32A.

Issue 2: Interpretation of "Manufacture"
The Revenue argued that investment allowance under section 32A is not applicable to job works as per section 32A(2)(b)(ii) and (iii) of the Act, which specify the allowance for the business of manufacture or production. However, the court analyzed section 32A(1) which allows for a deduction of investment allowance equal to 25% of the actual cost of specified assets. The court noted that while the legislation excludes certain scenarios from claiming the allowance, job work is not explicitly mentioned. Referring to the decision in Perfect Liners case, the court emphasized that even activities involving purchasing raw materials, processing them, and selling the finished products can be considered manufacturing. Citing the Gujarat High Court's decision in J. B. Kharwar, which recognized job work like dyeing and printing as manufacturing, the court held that job work activities could also qualify for investment allowance under section 32A.

In conclusion, the court ruled in favor of the assessee, stating that undertaking job work can be considered a form of manufacturing or production, making the assessee entitled to investment allowance under section 32A of the Income-tax Act. The judgment aligned with previous decisions interpreting the term "manufacture" broadly to encompass various activities beyond traditional manufacturing processes.