2001 (7) TMI 311 - AT - Income Tax

Summary

Issues:
- Claim for investment allowance under section 32A of the IT Act for retreading old tyres.

Analysis:
1. The Revenue appealed against the direction of the CIT(A) to allow the assessee's claim for investment allowance under section 32A of the IT Act. The AO initially denied the claim, stating that investment allowance is admissible only for machinery used in the production or manufacture of articles not specified in the Eleventh Schedule. The AO relied on a previous Tribunal decision that held tyre retreading does not amount to manufacturing.

2. The CIT(A) ruled in favor of the assessee, stating that the firm was engaged in manufacturing articles by retreading tyres. He directed the AO to grant investment allowance under section 32A, citing a decision by the Special Bench of the Tribunal in a similar case.

3. The Departmental Representative referred to a judgment by the Madras High Court, which held that the business of tyre retreading does not constitute the production of a new article. The representative argued that the AO was correct in rejecting the claim under section 32A.

4. The assessee's counsel argued that retreading old tyres results in the creation of a new article, justifying the investment allowance claim under section 32A. The counsel cited various precedents, including a decision by the Delhi High Court, to support the argument that the retreading process amounts to an industrial or manufacturing activity.

5. The Tribunal examined the case in light of the Madras High Court judgment, which emphasized that production must result in a new article to qualify for relief under the IT Act. The Tribunal concluded that tyre retreading does not lead to the creation of a new article, aligning with the Madras High Court's interpretation. Consequently, the Tribunal reversed the CIT(A)'s decision and ruled in favor of the Revenue, denying the investment allowance claim under section 32A.

6. The Tribunal highlighted that judgments by High Courts take precedence over Tribunal decisions. Considering the Madras High Court's ruling and its alignment with the Supreme Court's decision, the Tribunal upheld the Revenue's position, emphasizing the lack of new article creation through tyre retreading.

7. Ultimately, the Tribunal allowed the Revenue's appeal, denying the investment allowance claim for retreading old tyres under section 32A of the IT Act.