2007 (10) TMI 287 - HC - Income Tax

Investment allowance under section 32A - hold that the assessee is not entitled to claim investment allowance on the dewatering equipment used in the construction work - Tribunal is not correct in law in holding that the assessee was entitled to investment allowance under section 32A

Issues Involved:
1. Entitlement to investment allowance under section 32A of the Income-tax Act.
2. Definition and scope of "industrial undertaking" and "construction" under section 32A.
3. Applicability of Supreme Court decisions in CIT v. N. C. Budharaja and Co. and Builders Associations of India v. Union of India.
4. Interpretation of "article" or "thing" in the context of section 32A.
5. Relevance of the decision in CIT v. Shaan Finance P. Ltd.

Issue-Wise Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A:
The primary question was whether the assessee was entitled to investment allowance under section 32A of the Income-tax Act. The assessee claimed investment allowance for two distinct activities: the manufacture of dewatering equipment and the use of such equipment in construction activities. The Tribunal initially allowed the claim, but the Revenue challenged this decision, leading to a detailed examination of section 32A and relevant case law.

2. Definition and Scope of "Industrial Undertaking" and "Construction" under Section 32A:
The assessee argued that the dewatering activity was integral to construction and thus qualified as an industrial undertaking. The Tribunal accepted this view, but the High Court had to consider the Supreme Court's interpretation in CIT v. N. C. Budharaja and Co., which held that "construction" must be read in conjunction with "manufacture or production of any article or thing." Consequently, the court concluded that the assessee's activities did not qualify as an industrial undertaking for the purposes of section 32A.

3. Applicability of Supreme Court Decisions:
The Revenue relied on the Supreme Court's decision in CIT v. N. C. Budharaja and Co., which clarified that the term "construction" in section 32A does not include activities like building dams, bridges, or roads. The High Court agreed with this interpretation, noting that the assessee's activities did not involve the construction of any article or thing. The court also referenced Builders Associations of India v. Union of India, where the Supreme Court reaffirmed its stance in Budharaja, further supporting the Revenue's position.

4. Interpretation of "Article" or "Thing":
The assessee contended that the water extracted during dewatering was an "article" or "thing" under section 32A. The High Court rejected this argument, stating that land, which becomes dewatered, is immovable property and does not qualify as an "article" or "thing." The court distinguished this case from CIT v. Sesa Goa Ltd., where iron ore extracted from land was considered a "thing."

5. Relevance of the Decision in CIT v. Shaan Finance P. Ltd.:
The assessee cited CIT v. Shaan Finance P. Ltd. to support its claim, arguing that investment allowance should be granted even if the machinery is used by another entity. The High Court found this case irrelevant as it dealt with leasing companies using machinery for manufacturing articles or things, unlike the assessee's construction activities. The court emphasized that the assessee's case did not involve leasing or hiring out equipment for manufacturing purposes.

Conclusion:
The High Court concluded that the assessee was not entitled to claim investment allowance on the dewatering equipment used in the construction work undertaken by ECCL. The question of law was answered in the negative, favoring the Revenue and against the assessee. The reference was disposed of accordingly, with separate consequential orders for each connected reference petition.

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