1986 (6) TMI 65 - AT - Income Tax

Issues Involved:
1. Entitlement of the assessee-company to investment allowance under section 32A of the Income-tax Act, 1961.
2. Classification of the assessee-company as a small-scale industrial undertaking.
3. Applicability of sub-clauses (ii) and (iii) of section 32A(2)(b) to the assessee-company.
4. Relevance of case laws cited by the Commissioner.
5. Interpretation of legislative intent behind the amendment to section 32A.

Issue-wise Detailed Analysis:

1. Entitlement of the assessee-company to investment allowance under section 32A of the Income-tax Act, 1961:
The assessee-company claimed investment allowance for the assessment years 1978-79 and 1980-81, which was initially allowed by the Income Tax Officer (ITO). The Commissioner, however, revised these orders under section 263, contending that the assessee was not entitled to such allowance. The Tribunal found that the assessee, engaged in construction work, was entitled to investment allowance under section 32A, as the legislative intent was to extend benefits to small-scale industrial undertakings.

2. Classification of the assessee-company as a small-scale industrial undertaking:
The Commissioner argued that the assessee did not qualify for investment allowance as it was a construction company and not engaged in manufacturing or production. However, the Tribunal noted that the assessee's capital was less than Rs. 10 lakhs, classifying it as a small-scale industrial undertaking. The Tribunal emphasized that the legislative amendments aimed to assist small-scale industrial undertakings by removing disqualifications imposed on other industrial units.

3. Applicability of sub-clauses (ii) and (iii) of section 32A(2)(b) to the assessee-company:
The Tribunal analyzed sub-clauses (ii) and (iii) of section 32A(2)(b). Sub-clause (ii) allows investment allowance for small-scale industrial undertakings without restrictions, while sub-clause (iii) imposes restrictions on other industrial undertakings. The Tribunal concluded that the disqualifications in sub-clause (iii) do not apply to small-scale industrial undertakings, thereby entitling the assessee to investment allowance.

4. Relevance of case laws cited by the Commissioner:
The Commissioner cited CIT v. N. U. C. (P.) Ltd. and CIT v. Shah Construction Co. Ltd. to support his decision. The Tribunal found these cases irrelevant as they were decided under different sections and contexts. The Tribunal also dismissed the relevance of the Full Bench decision in ITO v. Hydle Constructions (P.) Ltd., stating it had no direct application to the present case.

5. Interpretation of legislative intent behind the amendment to section 32A:
The Tribunal referred to the Finance Minister's speech and explanatory notes from the Finance (No. 2) Bill, 1977, which highlighted the government's intent to encourage small-scale industrial undertakings by extending investment allowance benefits. The Tribunal emphasized that legislative amendments aimed to provide additional concessions to small-scale units, and a narrow interpretation would defeat this purpose. The Tribunal's interpretation aligned with the Supreme Court's decision in K.P. Varghese v. ITO, which allows reference to legislative intent for understanding statutory provisions.

Conclusion:
The Tribunal concluded that the assessee-company was entitled to investment allowance under section 32A. The Commissioner's order was reversed, and the ITO's original orders were restored. The appeals were allowed, affirming the assessee's entitlement to the claimed investment allowance.

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