1986 (7) TMI 161 - AT - Income Tax

Summary

Issues:
1. Whether ropeway for carriage of timber constitutes a manufacturing activity for investment allowance under s. 32A of the IT Act.

Detailed Analysis:

The appeal before the Appellate Tribunal ITAT Chandigarh involved a dispute regarding the eligibility of the assessee for investment allowance under s. 32A of the IT Act for the assessment year 1981-82. The primary issue was whether the ropeway used for the carriage of timber by the assessee could be considered a manufacturing activity, thus entitling the assessee to the investment allowance. The Income Tax Officer (ITO) contended that the assessee was not engaged in manufacturing or production activities, as their business solely involved the transportation of timber through a ropeway. Consequently, the ITO disallowed the claim for investment allowance. However, the CIT(A) ruled in favor of the assessee, citing a previous order for the assessment year 1980-81. The CIT(A) held that the assessee was entitled to investment allowance under s. 32A and directed the ITO to allow the investment allowance amounting to Rs. 1,34,480. This decision by the CIT(A) was challenged by the Revenue before the Tribunal.

In a related appeal for the assessment year 1980-81, the Tribunal had previously held that the assessee was not engaged in the manufacturing or production of goods but solely in the business of transporting goods through a rope transport system. The Tribunal reversed the CIT(A)'s order and restored that of the ITO. The Revenue, relying on this precedent, argued that the order of the CIT(A) for the current assessment year should also be reversed. The assessee's counsel, on the other hand, sought a review of the Tribunal's decision, emphasizing that the ropeway construction involved manufacturing activity, referencing various legal precedents and judgments to support this argument.

After considering the submissions from both sides, the Tribunal concluded that the primary business of the assessee was the transportation of timber, and the ropeway was merely an asset required for this activity. The Tribunal analyzed the provisions of s. 32A of the IT Act, which allow for investment allowance on machinery or plant used for the business of manufacturing or production of goods. The Tribunal emphasized that the business of the assessee was not the manufacturing or production of ropeways but the transportation of timber using the ropeways. The Tribunal also rejected the argument that assembling components for the ropeway constituted manufacturing activity, citing legal precedents that defined industrial activity as continuous engagement in manufacturing as a principal business.

Furthermore, the Tribunal highlighted that the term "industrial undertaking" implied the existence of a factory, which was not applicable in the case of the assessee. The Tribunal also noted that the dismantling of the ropeway after the contract with M/s Babu Ram & Sons was over indicated that it was not a continuous manufacturing process. Additionally, the Tribunal interpreted the term "road transport" broadly to encompass various modes of transportation, including ropeways. Consequently, the Tribunal reversed the order of the CIT(A) and reinstated that of the ITO, thereby allowing the Revenue's appeal.

In conclusion, the Tribunal allowed the appeal by the Revenue, holding that the assessee was not entitled to investment allowance under s. 32A of the IT Act for the assessment year 1981-82.