2005 (10) TMI 53 - HC - Income Tax

Investment allowance - plant and machinery - Whether Tribunal was right in holding that the assessee is entitled to grant of investment allowance in respect of plant and machinery installed and put to use in the year under consideration for the manufacture of various products like bread, biscuits and cakes? - question is answered in the affirmative, i.e., in favour of the assessee and against the Revenue

Summary

Issues:
Whether the assessee is entitled to grant of investment allowance in respect of plant and machinery installed for the manufacture of various products like bread, biscuits, and cakes.
Whether the assessee fulfilled the conditions necessary for the grant of investment allowance under section 32A of the Income-tax Act, 1961.
Whether the activity carried out by the assessee results in the raw material retaining its original identity, as per the tests laid down by the apex court in Deputy CST v. Pio Food Packers.

Analysis:
The High Court of Gujarat addressed the issue of entitlement to investment allowance by the assessee for the plant and machinery used in manufacturing bread, biscuits, and cakes. The Tribunal allowed the claim, stating that the assessee was running a semi-automatic plant, employing workers, and satisfying all conditions for investment allowance under section 32A of the Act. The Tribunal also noted the creation of a statutory reserve in the subsequent year, complying with relevant provisions and circulars. The Court upheld the Tribunal's decision, emphasizing that the produced goods were distinct from the raw materials used, meeting the criteria for investment allowance.

The Court further examined whether the assessee fulfilled the necessary conditions for investment allowance under section 32A. It was established that the assessee had filed a return of loss for the relevant year but had created a statutory reserve in the following profitable year. The Tribunal confirmed that the assessee was engaged in the manufacturing business of bread, biscuits, and cakes, not trading, and had satisfied all conditions under section 32A. The Court agreed with the Tribunal's findings, concluding that the assessee met the requirements for investment allowance.

Lastly, the Court delved into whether the activity conducted by the assessee resulted in the raw material retaining its original identity, as per the tests outlined in Deputy CST v. Pio Food Packers. By analyzing the processing of raw materials like flour, ghee, and sugar into bread, biscuits, and cakes, the Court affirmed that the end products were distinct commercially from the inputs used. The Tribunal's findings on the transformation of raw materials into new and distinct articles were deemed accurate. Consequently, the Court ruled in favor of the assessee, affirming their entitlement to investment allowance and disposing of the reference without costs.