1989 (12) TMI 77 - AT - Income Tax

Summary

Issues:
- Departmental appeal against CIT(A) order granting investment allowance under section 32A of the I.T. Act to the assessee.
- Interpretation of whether a company engaged in construction activity is entitled to investment allowance as per the provisions of the I.T. Act.
- Comparison of the definition of an industrial company with the eligibility for investment allowance for construction activities.

Analysis:
The Appellate Tribunal ITAT BOMBAY-D heard a departmental appeal against the CIT(A) order granting investment allowance under section 32A of the I.T. Act to the assessee, who was engaged in construction activity. The Department contended that the findings of the CIT(A) were incorrect, citing a decision of the Bombay High Court in a similar case. The Tribunal noted that the relevant Finance Act referred to the manufacture or production of an article or thing, and based on previous court decisions, construction companies were not considered industrial companies. However, the Tribunal upheld the order of the CIT(A) stating that the assessee, though not entitled to the concessional rate of tax for industrial companies, could still claim investment allowance under section 32A of the I.T. Act.

The Tribunal referred to previous court judgments to support its decision. In the case of CIT v. N.U.C. (P.) Ltd., the Bombay High Court distinguished between construction and manufacturing activities in defining an industrial company. It was held that a construction company not engaged in building ships would not be considered an industrial company. Similarly, in CIT v. Shah Construction Co. Ltd., the court emphasized the interpretation of the term 'industrial company' in the context of investment allowance claims. The Tribunal clarified that while 'industrial undertaking' was not explicitly defined, common understanding indicated that the assessee, engaged in construction activities, could be considered an industrial undertaking and therefore eligible for investment allowance.

The Tribunal concluded that there was no legal impediment for an assessee engaged in construction activities, excluding ship construction, to claim investment allowance for assets used in construction. Therefore, the CIT(A) was justified in granting the investment allowance to the assessee. Ultimately, the appeal by the Department was dismissed, affirming the decision of the CIT(A) to allow the investment allowance to the assessee engaged in construction activity.