1994 (11) TMI 1 - HC - Income Tax

Whether Tribunal was right in law and fact in finding that the assessee is entitled to investment allowance under section 32A - Whether Tribunal was right in law and fact in finding that the activity of the assessee would be well within the term business of construction in. section 32A(2)(b)(iii) - Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and fact in finding that the assessee is an industrial company

Summary

Issues:
Interpretation of eligibility for investment allowance under section 32A of the Income-tax Act, 1961 for civil construction works; Application of the term 'business' of construction in section 32A(2)(b)(iii); Determination of whether the assessee qualifies as an 'industrial company'.

Analysis:
The case involved a dispute regarding the eligibility of an assessee engaged in civil construction works for investment allowance under section 32A of the Income-tax Act, 1961. The assessing authority initially denied the exemption, stating that the provision did not apply to machinery used in civil construction works and that the assessee was not an industrial undertaking. However, the Commissioner (Appeals) allowed the investment allowance, leading to an appeal by the Revenue, which was upheld by the Tribunal.

Section 32A allows for investment allowance concerning machinery or plant wholly used for the business purposes of the assessee. Sub-section (2)(b)(iii) specifies that the allowance applies to machinery used by an industrial undertaking for the business of construction, manufacture, or production of any article or thing. The Supreme Court's interpretation in CIT v. N. C. Budharaja and Co. clarified that the provision does not encompass the construction of dams, bridges, buildings, roads, canals, or similar structures.

The Court rejected the argument that the Supreme Court's decision was limited to dams and irrigation canals, emphasizing that the provision excludes the construction of immovable items. Therefore, investment allowance is not available for plant and machinery used in such construction. The Court held that the assessee did not meet the conditions for investment allowance under section 32A(2)(b)(iii) due to the nature of the construction work involved.

Regarding the contention on whether the assessee qualifies as an industrial undertaking, the Court emphasized that both conditions of sub-clause (b)(iii) must be met for investment allowance eligibility. As the plant and machinery were not used for the specified purposes, the question of the assessee's industrial undertaking status was deemed irrelevant. Consequently, the Court ruled against the assessee on the question referred by the Tribunal and dismissed the original petitions filed under section 256(2) of the Income-tax Act, 1961.

In conclusion, the judgment answered the question against the assessee and in favor of the Revenue, denying the investment allowance for civil construction works under section 32A. The Court directed the communication of the judgment to the Income-tax Appellate Tribunal for information.