1994 (4) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for investment allowance under section 32A of the Income Tax Act for the assessment years 1989-90 and 1990-91.
2. Treatment of stamp duty and filing fees paid to the Registrar of Companies for increasing authorized capital as capital expenditure for the assessment year 1990-91.

Detailed Analysis:

1. Eligibility for Investment Allowance under Section 32A of the Income Tax Act:

Facts and Background:
The assessee, a resident company, installed plant and machinery and claimed both depreciation and investment allowance for the assessment years 1989-90 and 1990-91. The Assessing Officer (AO) rejected the claim for investment allowance on the grounds that the twisting and re-winding of synthetic yarn did not amount to manufacture, and thus, the twisted and re-wound yarn was not a new product eligible for investment allowance.

Assessment Year 1989-90:
The assessee installed plant and machinery worth Rs. 7,09,650 and electrical installations totaling Rs. 10,73,546. The AO held that the activities did not result in the manufacture of a new article or thing, and thus, the assessee was not entitled to investment allowance.

Assessment Year 1990-91:
The assessee carried on texturising and twisting activities, claiming that the processed yarn became a different commercial commodity called 'twisted yarn.' The AO maintained that the processing did not result in the manufacture of a new article, and the yarn remained the same before and after processing.

CIT(A) Decision:
The CIT(A) upheld the AO's decision, relying on the Full Bench decision of the Punjab & Haryana High Court in Niemla Textile Finishing Mills (P.) Ltd. v. ITO and the Supreme Court's observations in Union of India v. Delhi Cloth & General Mills Co. Ltd. The CIT(A) concluded that the processing activities did not amount to manufacture or production of a new article.

Tribunal's Analysis:
The Tribunal considered various case laws and the detailed manufacturing process provided by the assessee. The Tribunal noted that the raw material (POY) underwent texturising and twisting processes but continued to be a raw material for fabric manufacture. The Tribunal referred to the Supreme Court's test of manufacture in Ujagar Prints, which states that a new and distinct article must emerge from the process. The Tribunal concluded that the processed yarn did not meet this criterion and upheld the authorities' decision that the assessee was not eligible for investment allowance.

Conclusion:
The Tribunal upheld the findings of the AO and CIT(A), concluding that the assessee's processing activities did not amount to manufacture, and thus, the assessee was not entitled to investment allowance under section 32A.

2. Treatment of Stamp Duty and Filing Fees as Capital Expenditure:

Facts and Background:
For the assessment year 1990-91, the assessee paid stamp duty of Rs. 40,000 and filing fees of Rs. 5,250 to the Registrar of Companies for increasing the authorized capital. The AO disallowed these expenses as capital expenditure.

CIT(A) Decision:
The CIT(A) confirmed the AO's decision, relying on the judgment of the Bombay High Court in Richardson Hindustan Ltd. v. CIT and several other decisions, treating the expenses as capital expenditure.

Tribunal's Analysis:
The Tribunal, after hearing the learned counsel for the assessee and the Departmental Representative, upheld the CIT(A)'s order, respectfully following the Bombay High Court's judgment.

Conclusion:
The Tribunal upheld the disallowance of stamp duty and filing fees as capital expenditure, confirming the CIT(A)'s order.

Final Outcome:
The appeals were dismissed, and the Tribunal upheld the decisions of the AO and CIT(A) on both issues.