1982 (3) TMI 185 - AT - Income Tax

Summary

Issues:
1. Whether the assessee can be said to carry on business?
2. Whether there is a manufacture or production of any article or thing?

Analysis:

Issue 1: Whether the assessee can be said to carry on business?

The appeal by the revenue was against the order of the AAC holding that the assessee was entitled to investment allowance under section 32A(2) of the Income-tax Act, 1961. The ITO contended that the X-ray machine purchased by the assessee did not fulfill the conditions for investment allowance as per section 32A(2). The AAC extensively analyzed the case, referring to legal precedents such as the decision of the Madras High Court and the Supreme Court. The AAC held that the assessee's activity of converting raw films into finished goods constituted an activity of manufacture or production, thus making the assessee eligible for investment allowance.

The revenue argued that the assessee, being a specialist in radiology, was engaged in a profession and not a business of manufacturing articles or things. However, the Tribunal disagreed with the revenue's narrow interpretation of the provisions of section 32A(2). The Tribunal noted that the assessee's claim fell under section 32A(2)(b) which allowed for investment allowance for machinery or plant installed for the business of manufacture or production of any article or thing. The Tribunal held that even though the assessee was a professional, the commercial nature of the activities involving the X-ray machine made the assessee eligible for the investment allowance.

Issue 2: Whether there is a manufacture or production of any article or thing?

The Tribunal further delved into whether the assessee was engaged in the manufacture or production of any article or thing. It was argued that any fabrication or concoction would fall under "manufacture," and the act of producing or bringing out a product constituted production. The Tribunal referred to legal precedents, including the decision of the Kerala High Court, to distinguish between "manufacture" and "processing." The Tribunal concluded that when the X-ray film was exposed and processed, resulting in a new photograph, it amounted to the production of a new article or thing. The Tribunal found that the raw film underwent a transformation, resulting in a new and different article, thus meeting the criteria for manufacture or production. Consequently, the Tribunal upheld the decision of the AAC and dismissed the appeal filed by the revenue.