1990 (7) TMI 64 - HC - Income Tax

Issues Involved:
1. Entitlement to deduction under section 80-I of the Income-tax Act, 1961.
2. Classification of the assessee's manufactured cranes as "priority industry" under the Sixth Schedule to the Income-tax Act, 1961.
3. Interpretation of item No. 8A and item No. 8B under the First Schedule to the Industries (Development and Regulation) Act, 1951.

Detailed Analysis:

1. Entitlement to Deduction under Section 80-I of the Income-tax Act, 1961:
The assessee-company, engaged in the manufacture and sale of heavy-duty cranes, claimed relief under section 80-I of the Income-tax Act, 1961, for the assessment years 1971-72 and 1972-73. The Income-tax Officer disallowed this claim for both years. However, the Appellate Assistant Commissioner allowed the claim for the assessment year 1972-73, and this decision was upheld by the Tribunal. The Department referred the case to the High Court under section 256(1) of the Income-tax Act, 1961.

2. Classification of the Assessee's Manufactured Cranes as "Priority Industry":
The core issue was whether the assessee's activity of manufacturing heavy-duty cranes qualified as a "priority industry" under the Sixth Schedule to the Income-tax Act, 1961, thereby entitling it to deductions under section 80-I. According to section 80B(7), "priority industry" includes the manufacture or production of articles specified in the Sixth Schedule. The Sixth Schedule references "Industrial machinery" under item No. 8A, which includes major items of specialized equipment used in specific industries.

3. Interpretation of Item No. 8A and Item No. 8B:
Item No. 8A of the First Schedule to the Industries (Development and Regulation) Act, 1951, lists major items of specialized equipment used in specific industries, such as textile machinery, jute machinery, sugar machinery, etc. Item No. 8B, on the other hand, deals with general items of machinery used in several industries, including cranes.

The court had to determine if the cranes manufactured by the assessee were specialized equipment under item No. 8A or general machinery under item No. 8B. The assessee argued that its cranes were specifically designed for industries listed under item No. 8A and not for general use across multiple industries. The Appellate Assistant Commissioner and the Tribunal accepted this argument for the assessment year 1972-73, recognizing the specialized nature of the cranes.

The court noted that for equipment to fall under item No. 8A, it must:
(a) Be a major item of equipment.
(b) Be specialized equipment.
(c) Be used in specific industries listed in sub-items (1) to (11) of item No. 8A.

The court found that the assessee's cranes met these criteria as they were designed to meet the specific needs of individual plants in industries like sugar, chemical, textile, and cement. These cranes were not general items of machinery but specialized equipment integral to the plants of specific industries.

Conclusion:
The court concluded that the Tribunal was correct in granting the assessee relief under section 80-I for the assessment year 1972-73. The cranes manufactured by the assessee were specialized equipment used in specific industries, thus qualifying as a "priority industry" under item No. 8A of the First Schedule to the Industries (Development and Regulation) Act, 1951. The court rejected the Department's argument that only the machinery explicitly listed in sub-items (1) to (11) of item No. 8A would qualify for the benefit under section 80-I.

The court emphasized that section 80-I should be liberally construed to encourage priority industries, aligning with the objective of the provision. As a result, the question referred to the court was answered in the affirmative, favoring the assessee, with no order as to costs.

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