1988 (5) TMI 74 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of investment allowance under Section 32A of the Income-tax Act, 1961, on the cost of parent birds.
2. Allowability of deduction under Section 35C for the assessment year 1981-82.

Detailed Analysis:

1. Allowability of Investment Allowance under Section 32A on Parent Birds

Background and Arguments:
The assessee, engaged in the hatchery business, claimed investment allowance on parent birds, asserting that they constituted 'plant'. The Income-tax Officer (ITO) disallowed the claim, citing that the entire cost of the birds was treated as revenue expenditure and thus not eligible for investment allowance under Section 32A. The ITO relied on the proviso to Section 32A(1)(d) and previous Tribunal decisions, arguing that the birds' cost and upkeep were revenue expenses and not capitalized.

Tribunal's Observations:
The Tribunal examined whether the parent birds could be considered 'plant' and eligible for investment allowance. It referred to various judicial interpretations of 'plant', including the decisions in Yarmouth v. France and Elecon Engg. Co. Ltd., which emphasized a broad interpretation of 'plant' as any apparatus used in business operations. The Tribunal noted that the parent birds were not for resale but used solely for laying eggs, which were then hatched into chicks for sale. This usage aligned with the concept of 'plant' as an instrument of production.

Method of Accounting:
The Tribunal scrutinized the assessee's method of accounting, which did not write off the entire cost of the parent birds in any single year but only a part representing expired productivity. This method did not violate the proviso to Section 32A(1)(d), which disallows investment allowance only if the whole cost is deducted in one year.

Conclusion:
The Tribunal concluded that the parent birds constituted 'plant' and were eligible for investment allowance. However, it directed the ITO to verify the figures of birds alive at the end of each year and ensure the requisite reserve was created in the books of account. The allowance was to be restricted to birds purchased at least 20 weeks before the end of the year, considering their non-productive period.

2. Allowability of Deduction under Section 35C for Assessment Year 1981-82

Background and Arguments:
The assessee claimed deduction under Section 35C for expenses on doctors, technicians, and laboratory tests provided to poultry farmers. The ITO disallowed the claim, arguing that the assessee did not manufacture an article or thing from agricultural products and that the services were not rendered to cultivators or producers.

Tribunal's Observations:
The Tribunal noted that the assessee purchased eggs from poultry farms, which were used as raw materials for hatching chicks. The services provided to poultry farmers aimed to ensure a supply of quality eggs, which benefited the assessee's business. The Tribunal referenced the decision in Ramnugger Cane & Sugar Co. Ltd., which allowed deductions for services rendered to third parties supplying raw materials.

Conclusion:
The Tribunal directed the ITO to verify the quantum of eligible expenditure and allow the weighted deduction under Section 35C, as the services were rendered to ensure quality raw materials for the assessee's hatchery business.

Final Judgments:
- The appeals for the assessment years 1978-79 and 1979-80 were dismissed.
- The appeal for the assessment year 1981-82 was allowed, subject to verification and compliance with the Tribunal's directions.