1996 (9) TMI 203 - AT - Income Tax

Assessing Officer, Assessment Year, Backward Area, Carrying On Business, Industrial Undertaking, Profits And Gains

Summary

Issues Involved:
1. Deduction under Section 80-I of the Income Tax Act.
2. Deduction under Section 80HH of the Income Tax Act.

Detailed Analysis:

1. Deduction under Section 80-I of the Income Tax Act:

The primary issue in this appeal concerns the eligibility of the assessee-company for deductions under Section 80-I. The assessee-company is involved in designing, manufacturing, and fabricating effluent and water treatment plants, which are erected at the customers' sites. The Assessing Officer denied the deduction, arguing that the income from technical and consultancy services exceeded the gross total income and could not be considered income derived from an industrial undertaking. The CIT(A) upheld this decision, citing that the plant, being embedded in the earth, does not qualify as an article or thing as per the Supreme Court's decision in CIT v. N.C. Budharaja & Co.

The Tribunal, however, disagreed with the CIT(A)'s reasoning. It noted that the plant manufactured by the assessee is a movable article, as it can be unscrewed and shifted. The Tribunal referenced various legal definitions and concluded that the plant does not become immovable merely because it is temporarily attached to the earth during erection. The Tribunal also cited the Bombay High Court's decision in CIT v. Penwalt India Ltd., which supported the view that designing and making drawings for manufacturing purposes is part of the manufacturing activity. Consequently, the Tribunal held that the assessee is engaged in manufacturing and fabricating a plant, which qualifies as an article or thing under Section 80-I, and thus, the assessee is entitled to the deduction.

2. Deduction under Section 80HH of the Income Tax Act:

The second issue pertains to the assessee's claim for deduction under Section 80HH, which requires the industrial undertaking to be established in a backward area. The Tribunal noted that there was no evidence on record to prove that the assessee's establishment was in a backward area. The work was primarily done by sub-contractors in Pune, which is not a backward area. The assessee argued that various erection sites were in backward areas, but the Tribunal pointed out that no separate accounts were maintained to determine the profit from these sites. Therefore, the Tribunal upheld the CIT(A)'s decision to deny the deduction under Section 80HH.

Conclusion:

The Tribunal allowed the appeal in part, granting the deduction under Section 80-I but rejecting the claim under Section 80HH due to the lack of evidence that the industrial undertaking was established in a backward area.