1989 (5) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to investment allowance under section 32A of the Income-tax Act, 1961 for machinery used in sand blasting.

Comprehensive, Issue-wise Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A for Sand Blasting Machinery

Background and Assessee's Claim:
The assessee, a partnership firm engaged in interior decorating and industrial painting, claimed an investment allowance of Rs. 52,027 for an Air Compressor used in sand blasting during the assessment year 1983-84. The firm argued that sand blasting is a scientific method of surface treatment essential in the manufacturing process, thereby qualifying for the investment allowance under section 32A.

Income-tax Officer's Rejection:
The Income-tax Officer (ITO) rejected the claim, stating that the assessee merely used the Air Compressor for treating metal and did not produce or manufacture any articles as specified in section 32A. The ITO concluded that the assessee did not meet the criteria for investment allowance.

Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) (CIT(A)) overturned the ITO's decision, holding that sand blasting is an integral part of the manufacturing process. The CIT(A) found that the machinery was used for industrial painting and surface treatment, thus qualifying for the investment allowance. The CIT(A) directed the ITO to allow the assessee's claim.

Department's Appeal:
The Revenue appealed against the CIT(A)'s decision, arguing that the assessee must be an industrial undertaking and the machinery must be used for the construction, manufacture, or production of any article or thing. The Revenue contended that the assessee only processed articles manufactured by others and did not produce any marketable article or thing, thus not qualifying for the investment allowance.

Assessee's Defense:
The assessee's counsel presented evidence, including affidavits, certificates from customers, and literature on sand blasting, to demonstrate that sand blasting is a manufacturing process. The counsel argued that the assessee's activities met the criteria for investment allowance as the process added significant value to the products.

Tribunal's Analysis:
The Tribunal examined the materials and submissions from both parties. It found that sand blasting is indeed a part of the manufacturing process, as supported by affidavits, certificates, and technical literature. The Tribunal noted that the products after sand blasting were commercially more valuable, thus constituting a manufacturing activity.

Legal Precedents:
The Tribunal referred to several legal precedents:
- Madras High Court in CIT v. Perfect Liners: The court held that the term 'manufacture' should be understood broadly, and processes like polishing castings qualify for development rebate.
- Special Bench in ITO v. First Leasing Co. of India Ltd.: The Tribunal held that leasing companies could claim investment allowance if the machinery was used for specified purposes.
- Sri Balaji Metal Finishers v. ITO: The Tribunal held that job works like electroplating qualify for investment allowance if the machinery is used in the manufacturing process.

Conclusion:
The Tribunal concluded that the assessee's sand blasting activities qualified as manufacturing under section 32A. The machinery was used in the manufacturing process, and the assessee met the criteria for investment allowance. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

Final Judgment:
The assessee-firm is entitled to investment allowance under section 32A for the Air Compressor used in sand blasting. The appeal by the Revenue is dismissed, confirming the order of the CIT(A).