1991 (9) TMI 106 - AT - Income Tax

Summary

Issues:
1. Depreciation rate on trucks
2. Disallowance of investment allowance on fork lift trucks based on item No. 5 of 11th Schedule

Analysis:
1. The first issue raised was the rate of depreciation applied by the ITO on trucks. However, this ground was not pressed during the appeal hearing, as it was deemed of academic interest at that stage.

2. The main contention in the appeal was the disallowance of the investment allowance claimed on additions to fork lift trucks. The ITO disallowed the claim, arguing that fork lift trucks should be considered as road transport vehicles, not plant and machinery. The CIT(Appeals) upheld the disallowance based on the assessee's engagement in the manufacture of items specified in item No. 5 of the 11th Schedule of the Act.

3. The assessee argued that at the relevant time, their business of manufacturing aerated waters and bottling was not covered under item No. 5 of the 11th Schedule. They pointed out that the Explanation added by the Finance Act, defining "blended flavoring concentrates," should not be applied retrospectively as it came into effect from 1-4-1988. The assessee relied on legal precedents and the legislative intent to support their claim for investment allowance.

4. On the other hand, the Departmental Representative contended that the amendment was clarificatory in nature, as indicated by the language used in the Explanation to item No. 5 of the 11th Schedule. They argued that the notes on the Finance Bill supported the clarificatory nature of the amendment and its applicability to pending assessments.

5. The Tribunal analyzed the scope and effect of the Explanation to item No. 5 of the 11th Schedule, emphasizing that it would only be operational from the assessment year 1988-89. The Tribunal rejected the retrospective application of the amendment, citing relevant legal decisions and the legislative intent. They directed the AO to allow the investment allowance on the cost of fork lift trucks, ruling in favor of the assessee.

6. Ultimately, the appeal was allowed in part, with the Tribunal siding with the assessee's argument regarding the eligibility for investment allowance on fork lift trucks.