1984 (10) TMI 65 - AT - Income Tax

Summary

Issues:
1. Claim of investment allowance under section 32A of the IT Act for machinery in a cold storage.
2. Entitlement to deduction under section 80J of the IT Act for borrowed capital in an industrial undertaking.
3. Depreciation rate on the cold storage building.

Analysis:

Issue 1: Claim of Investment Allowance under Section 32A
The assessee, a firm running a cold storage, claimed investment allowance under section 32A of the IT Act for machinery installed in the cold storage. The Income Tax Officer (ITO) rejected the claim stating that the processing of goods in the cold storage did not amount to the manufacture or production of any article or thing. The Commissioner of Income Tax (Appeals) agreed with the ITO. However, the Appellate Tribunal referred to various decisions and held that a cold storage producing cold air for the preservation of goods qualifies for investment allowance as it amounts to the production of an article or thing. The Tribunal distinguished previous cases where investment allowance was denied to cold storages and allowed the claim in favor of the assessee.

Issue 2: Entitlement to Deduction under Section 80J
The assessee claimed a deduction under section 80J of the IT Act for borrowed capital employed in the industrial undertaking. The ITO allowed the deduction only on the invested capital and not on the borrowed capital. The Commissioner of Income Tax (Appeals) upheld the decision based on existing law. However, the Tribunal cited High Court decisions stating that borrowed money employed as capital in an industrial undertaking is eligible for deduction. The Tribunal directed the ITO to keep the matter pending and decide in accordance with the decision of the Supreme Court due to retrospective amendments in the law.

Issue 3: Depreciation Rate on Cold Storage Building
The department challenged the depreciation rate allowed by the Commissioner of Income Tax (Appeals) on the cold storage building. The department argued that the rate should be lower based on a decision of the Punjab & Haryana High Court. However, the Tribunal held that a building with insulated walls used as a freezing chamber in a cold storage qualifies for a higher depreciation rate of 15 percent as it is part of the air-conditioning plant. The Tribunal found no dispute in principle between the decisions cited and upheld the higher depreciation rate for the cold storage building.

In conclusion, the Appellate Tribunal partially allowed the assessee's appeal and dismissed the department's appeal based on the analysis of the issues related to investment allowance, deduction under section 80J, and depreciation rate on the cold storage building.