1997 (3) TMI 170 - AT - Income Tax

Assessment Year, Assessment Year, Investment Allowance, Investment Allowance, Plant And Machinery, Plant And Machinery, Words And Phrases

Summary

Issues Involved:
1. Whether the central subsidy received by the assessee could be deducted from the actual cost of plant and machinery.
2. Whether the assessee's activity of mining iron ore qualifies for investment allowance under section 32A of the Income-tax Act.

Issue 1: Central Subsidy and Actual Cost of Plant and Machinery

The first issue is whether the central subsidy received by the assessee can be deducted from the actual cost of plant and machinery. Both parties agreed that this issue is covered by the Supreme Court decision in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830. Following this decision, the Tribunal held in favor of the assessee, ruling that the central subsidy cannot be deducted from the cost of assets.

Issue 2: Investment Allowance for Mining Activities

The second issue concerns the assessee's claim for investment allowance in respect of plant and machinery used in mining activities. The assessee argued that their activities, including extracting ore, cutting, screening, etc., qualify as production, thus entitling them to investment allowance under section 32A.

The Assessing Officer rejected the claim, reasoning that the assessee's activities amounted to mere processing, not manufacturing or producing an article or thing. The officer relied on the Supreme Court decision in Chowgule & Co. (P.) Ltd. v. Union of India [1981] 47 STC 124 and the Tribunal's decision in Sesa Goa Ltd. On appeal, the CIT(Appeals) accepted the assessee's claim, leading to the present appeal by the revenue.

The Senior Departmental representative argued that the assessee's activities did not result in a new commercial commodity and thus did not amount to production. He cited various decisions, including CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412, which held that without a new article emerging, the activity cannot be considered production.

In contrast, the assessee's counsel argued that mining activities equate to production, citing the Supreme Court decision in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150. He also pointed to section 35E of the Income-tax Act, which uses the term "extraction or production of any minerals," suggesting that mining is considered production. He further distinguished the case of N.C. Budharaja & Co., noting that various High Courts have allowed investment allowance for mining activities.

After considering the rival submissions and case law, the Tribunal focused on whether the assessee's mining activities constituted production under section 32A. The Tribunal noted that the term "production" should be interpreted contextually and liberally, as per the Supreme Court's guidance in Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. [1987] 1 SCC 424 and Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188.

The Tribunal observed that section 32A, introduced by the Finance Act, 1976, replaced the development rebate under section 33, which included ores and minerals in the Fifth Schedule. The Tribunal reasoned that if the Legislature intended to exclude mining from investment allowance, it would have listed it in the Eleventh Schedule.

The Tribunal also referenced section 35E, which provides deductions for expenses related to the extraction or production of minerals, including iron ore, reinforcing that mining is considered production.

The Tribunal concluded that the term "production" in sections 32A and 35E includes mining activities. It cited the Supreme Court's decision in Chrestian Mica Industries Ltd., which held that mining mica is a production process. The Tribunal distinguished the case of Chowgule & Co. (P.) Ltd., noting that it dealt with blending ore, not the integrated mining activities in question.

The Tribunal also considered the case of N.C. Budharaja & Co., which emphasized that production involves bringing new goods into existence. The Tribunal found that the assessee's activities transformed crude ore into a commercially different product, satisfying this criterion.

In conclusion, the Tribunal held that the assessee's mining activities amounted to production, entitling them to investment allowance under section 32A. The appeal by the revenue was dismissed.