1994 (7) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Investment allowance on machineries used in the manufacture of glass fibre and its yarn.
2. Computation of "the capital employed" for the purpose of section 80J.
3. Depreciation on the furnace used in melting glass.
4. Investment allowance on fire extinguishers, electrical works, fire hydrant extensions, and piping work.
5. Salary paid to car drivers while working out disallowance under section 37(3A).

Detailed Analysis:

1. Investment Allowance on Machineries Used in the Manufacture of Glass Fibre and Its Yarn:
The Commissioner of Income-tax (CIT) directed the Assessing Officer (AO) to withdraw the investment allowance for the assessment years 1978-79, 1979-80, and 1981-82, arguing that glass fibres and yarn fall under item 17 of Schedule Eleventh of the IT Act, i.e., "glass and glassware." The assessee contended that glass fibre, used for insulation and other purposes, is distinct from glass and glassware, which are hard and transparent. The Tribunal upheld the assessee's view, referencing the Supreme Court's decision in Atul Glass Industries (P.) Ltd. v. Collector of Central Excise, which emphasized the functional test for product identification. The Tribunal concluded that "glass fibre and its yarn" and "glass and glassware" are distinct items, treated differently by dealers and consumers, and classified separately under the Central Excise Act. Therefore, the investment allowance should not be withdrawn.

2. Computation of "the Capital Employed" for the Purpose of Section 80J:
The CIT directed the AO to exclude work-in-progress while computing the capital employed for the assessment year 1979-80. The assessee argued that this issue was already decided in its favor by the Bombay High Court in CIT v. Alcock Ashdown & Co. Ltd. The Tribunal agreed with the assessee, citing the High Court's principle that capital utilized for acquiring any asset for a business becomes employed in the business, regardless of whether the asset is actually used. Thus, work-in-progress should be included in the capital employed.

3. Depreciation on the Furnace Used in Melting Glass:
The CIT found that the AO wrongly allowed 100% depreciation on the furnace used in melting glass for the assessment year 1983-84, as the assessee was not considered a company manufacturing glass or glassware. The Tribunal's decision on this issue is not explicitly detailed in the provided text.

4. Investment Allowance on Fire Extinguishers, Electrical Works, Fire Hydrant Extensions, and Piping Work:
The CIT directed the AO to withdraw the investment allowance for these items for the assessment year 1984-85, arguing they had no close nexus with the production process. The Tribunal's decision on this issue is not explicitly detailed in the provided text.

5. Salary Paid to Car Drivers While Working Out Disallowance Under Section 37(3A):
The CIT noted that the AO failed to consider the salary paid to car drivers while working out disallowance under section 37(3A) for the assessment year 1984-85. The Tribunal's decision on this issue is not explicitly detailed in the provided text.

Conclusion:
The Tribunal decided in favor of the assessee on the issues of investment allowance for machineries used in the manufacture of glass fibre and its yarn, and the inclusion of work-in-progress in the computation of capital employed for section 80J. The Tribunal's decisions on the other issues are not explicitly detailed in the provided text. The appeal ITA No. 3995/Bom./88 was partly allowed.