1986 (8) TMI 140 - AT - Income Tax

Summary

Issues:
1. Entitlement to investment allowance for milling paddy for others.
2. Necessity of ownership of goods manufactured for claiming investment allowance under s. 32A.

Analysis:
The case involved a departmental appeal against the order of the CIT(A) related to the assessment year 1979-80. The primary issue was whether a person milling paddy for others and receiving hire charges is entitled to investment allowance. The Assessing Officer (AO) disallowed the investment allowance claimed by a firm engaged in milling paddy, stating that the process did not amount to manufacture or production of a new article. The AO relied on a Supreme Court decision distinguishing between paddy and rice for sales tax purposes. The AO held that a different article must be brought into being for investment allowance under s. 32A. The AO disallowed the investment allowance and added an investment allowance reserve to the firm's assessable income. Additionally, the AO determined the taxable income and disallowed the claim for investment allowance on buildings. The CIT(A) partly allowed the appeal, directing verification of machinery details and granting investment allowance on specific plant and machinery installed in the boiled section.

The key issue addressed by the Appellate Tribunal was whether ownership of the manufactured goods is essential for claiming investment allowance under s. 32A. The Tribunal analyzed the provisions of s. 32A(2)(a) and (b) to determine the eligibility for investment allowance on new machinery or plant. It was held that ownership of the goods manufactured is not a prerequisite for claiming investment allowance. The Tribunal emphasized that the crucial factor is whether manufacturing or processing of goods occurs through the newly set up plant and machinery. Reference was made to a previous Tribunal decision supporting this interpretation. The Tribunal also cited Supreme Court and High Court decisions establishing the distinct nature of paddy and rice, supporting the view that milling paddy into rice constitutes manufacturing. The Tribunal concluded that the firm, by installing machinery and engaging in milling activities, was eligible for investment allowance, dismissing the department's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that the ownership of the goods manufactured is not a determining factor for claiming investment allowance under s. 32A. The Tribunal reiterated that the crucial aspect is the presence of manufacturing or processing activities through the installed machinery. The decision was supported by legal precedents establishing the distinction between paddy and rice and affirming that milling paddy into rice constitutes manufacturing. Therefore, the appeal challenging the allowance of investment allowance was dismissed.