1984 (1) TMI 75 - AT - Income Tax

Summary

Issues:
1. Entitlement to investment allowance on tractors and trailers for an assessee firm engaged in construction work.
2. Determination of whether the assessee qualifies as an industrial undertaking.
3. Interpretation of the term 'industrial undertaking' under section 32A(2)(b)(iii) of the Income-tax Act, 1961.
4. Analysis of relevant case laws and circulars to ascertain eligibility for investment allowance.
5. Examination of whether tractors and trailers qualify for investment allowance.

Analysis:

The judgment concerns an appeal by an assessee against the order of the Commissioner (Appeals) regarding the entitlement to investment allowance on tractors and trailers. The primary issue is whether the assessee-firm, engaged in construction work, is eligible for investment allowance on tractors and trailers used in the business. The assessee claimed investment allowance, contending that tractors and trailers are machinery and thus qualify for the allowance. However, the ITO and the Commissioner (Appeals) rejected this claim, stating that the business of construction of a dam and road does not constitute an industrial undertaking, hence disallowing the investment allowance.

The crux of the matter revolves around whether the assessee can be classified as an industrial undertaking as per the provisions of section 32A(2)(b)(iii) of the Income-tax Act, 1961. The definition of 'industrial undertaking' in the said section encompasses businesses engaged in construction, manufacture, or production of articles or things not specified in the Eleventh Schedule. The judgment delves into precedents like the Orissa High Court's decision in the case of N.C. Budharaja & Co., which established that construction activities can be considered industrial undertakings if not specified in the Eleventh Schedule.

Further, the judgment analyzes relevant case laws such as National Projects Construction Corpn. Ltd. v. CIT and Progressive Engg. Co. v. ITO to ascertain the scope of 'industrial undertaking.' These cases highlight that businesses involved in construction activities can qualify as industrial undertakings, thereby making them eligible for investment allowances under section 32A. The judgment also references amendments in the Income-tax Act, emphasizing that machinery used in construction activities is eligible for investment allowance if not specified in the Eleventh Schedule.

Regarding the eligibility of tractors and trailers for investment allowance, the judgment examines the decision of the Calcutta High Court in the case of Orissa Minerals Development Co. Ltd., which differentiated tractors and dumpers from road transport vehicles. By aligning with the Calcutta High Court's interpretation and the CBDT circular, the judgment concludes that tractors and trailers are eligible for investment allowance based on the distinct categorization of machinery and road transport vehicles.

In conclusion, the judgment establishes the eligibility of the assessee for investment allowance on tractors and trailers, emphasizing the classification of the business as an industrial undertaking and the distinct categorization of machinery used in construction activities.