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TMI Blog1987 (9) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings the assessee claimed investment allowance on the generator newly purchased by it in the relevant accounting year which coasted it a sum of Rs. 38,033. The ITO, however, negatived the claim of the assessee stating that the assessee is only engaged in assembling of radios and transistors for Murphy India Ltd., and the components which go into the making of radios and transistors are supplied by the said company either directly or through their suppliers. The assessee only assembles all the components into radios and transistors, tests them and ensures the quality and dispatches them as per the instructions of Murphy India Ltd. In the work done by the assessee it was paid labour charges at Rs. 6 or Rs. 7 per set. The activity of assembling and testing all these sets is done by the assessee by employing its won labour and also entrusting some of its work to sub-contractors. The assessee itself is a sub-contractor to M/s. Murphy India Ltd. The assessee's activity of assembling and testing of radios and transistors cannot be said to be activity of manufacturing. At best, it can be called as job work. On the above reasoning the ITO disallowed the claim as job work. On the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abinet, handle, speaker, farrile rod, etc., to the assessee. Whatever parts the assessees are, required to buy are debited to M/s. Murphy India Ltd.'s account and if any excess material is found with the assessees they shall return them to M/s Murphy India Ltd. The assessee employed in the accounting year relevant to the asst. year 1982-83 sixty person for assembling purposes, besides using the following machinery : 1. Drilling machine 2. Transformer 3. Surface grinders 4. Jigs and fixtures. Ultimately is was submitted that the assessee will assemble all the loose parts in the cabinet. The learned counsel for the assessee sought to impress upon us that the loose parts supplied to them would be converted into radios/transistors by use of machinery, assembly lines, labour, power and all other related equipments and service facilities and also the technology available with them. The finished produce is meant to perform the specific function, with the components by themselves could not perform. What is produced by the assessee is thus a new article, different from the various assembling parts and the articles thus produced by them is saleable in the market. The learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee submitted that originally the word 'manufacture' was not at all defined anywhere in the Income-tax Act. But now by means of Finance Act, 1987 in Explanation (3) of section 10A (7) the word 'manufacture' is defined as follows : "Manufacture includes any (a) process, or (b) assembling, or (c) recording of programmes on any disc tape perforated media or other information storage devices..........." The learned counsel brought to our notice that this definition of the word 'manufacture' was given a retrospective effect from 1-4-1981 and therefore, he argued that the said definition equally applies to the case on hand which relates to asst. year 1982-83. 7. The learned Departmental Representatives strongly opposed the arguments advanced on behalf of the assessee and he has stated that the assessee filed a letter dt. 8-8-1983 when it was specifically called upon to explain the manufacturing activities stated to have been carried on by it. A copy of the said letter is furnished to us. In the said letter the assessee specifically admitted that they were paid only labour charges. All the activities said to have been carried on by the assessee were listed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction. Manufacture or production of any article or thing not being an article or thing specified in the list in the Eleventh Schedule." In the Eleventh Schedule item No. (8) was omitted by Finance Act, 1981 with effect from 1-4-1982. Before this omission it used to be Broadcast television receiver sets, radios (including transistor sets), radiograms and tape recorders (including cassette recorders and tape decks)". Item No. 8 was omitted from the Eleventh Schedule from 1-4-1982. We are now concerned with asst. year 1982-83 for which the law applicable from 1-4-1982 should be applied. Therefore, for our purposes we should take the Eleventh schedule as if it does not consist of item No. 8. Therefore, assemblage of radios and transistor sets is not a prohibited article which would disentitles investment allowance to an industrial under taking. It is significant that clause (3) of section 32A (2) speaks of construction part from manufacture or production. In our under standing construction includes assemblage. Therefore, the assessee who carries on the business of assembling radio sets/transistors should be treated as industrial undertaking especially after 1-4-1982. 9. From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are not small-scale industrial undertakings. Such industrial undertakings are entitled for investment allowance, if they are engaged in the activities of construction, manufacture or production of any article or thing, provided, such article or thins is not specified in the list in the Eleventh schedule. 10. To our minds it appears that the assessee fulfils all the requirements set out in section 32A(2)(b)(ii) and (iii) of the IT Act, which are already extracted in the above paras and on both counts the assessee should be held to be entitled to investment allowance. Now let us see how it fulfils all the conditions set out for a small scale industrial undertaking. We have already held that the assessee is a small-scale industrial undertaking and in such a case it is essential for the assessee only to prove that its activity is either that of a manufacturing or producing any article or thing. The objection raised by the revenue was that assembling several components and making it into a radio set or a transistor set does not amount to a manufacturing activity. The assessee had already cited and relied on the Bombay High court decision-Tata Locomotive and Engg. Co. Ltd. In tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into the finished production of the automobile, amounts to the manufacture or production of the automobile." 11. In the case before us the assessee set out the manufacturing process carried on by it as follows, in the grounds of appeal : "The raw materials or the components such as transistors, capacitors, diodes, etc., are either purchased as per specifications or supplied by the third parties which are converted by use of machinery, assembly lines, labour, power and all other related equipments and service facilities and the technology available with the appellant, to finished products i.e., radios\transistors or wireless receiving sets. The finished product thus produced is an apparatus plant to perform specific function which the components by themselves could not perform." It also states that the components which are converted and the process carried on by the assessee brings forth or brings into being an apparatus which bears no resemblance to its components and it performs specific functions which the components by themselves cannot. Thus, the assessee is said to be engaged in the manufacture or production of wireless receiving sets, radios or transistor sets. Simply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment allowance." Here also we hold that assuming without admitting the loses parts supplied by Murphy India Ltd. or purchased at the instance of that company, may be described as finished products by themselves. However, the assemblage of all the loose parts brings out a new article or a thing which is quite different from these component parts. Further, the radio/ transistor or a wireless receiving set which is the ultimate product manufactured by the assessee would be quite different and the effect of the end-product, viz., radio or wireless set cannot be expected from the loose parts. Therefore, we have no hesitation to quote that the assessee can be said to be carrying or the activity of manufacture or producing of an article or things. Further, from the conclusive definition given to the word 'manufacture' in Explanation [3] to section 10A [7] clearly contemplated the activity of assembling also as a part of manufacturing activity. If this definition is incorporated and the same meaning is ascribed to the word manufacture used in section 32A of the IT Act then there is no difficulty in finding that assembling in any form can be called as activity of manufacture. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable from 1-4-1982 onwards is relevant. Therefore, the definition of the word 'manufacture' u/s. 10A can as well be given to the word 'manufacture' used u/s. 32A of the Income-tax Act. 13. For all the above reasoning we hold that the assessee is engaged in the manufacture or production of an article or a thing and it being a small scale industrial undertaking is entitled to investment allowance u\s. 32A of the IT Act. Even assuming that it is an industrial undertaking and not a small-scale industrial undertaking inasmuch as it is engaged in assemble age of loose part and bringing forth a new product altogether which bears no similarity to any of the loose parts which went into production, the assessee is entitled for investment allowance. Therefore, we allow the appeal and direct the ITO to giant investment allowance under law to the assessee-company. The assessee is found to have claimed investment allowance only on generator which coasted it Rs. 38,033. 14. In view of our finding that the assessee is a small-scale industrial undertaking and is entitled to investment allowance, we have to hold that the assessee is an industrial company within the meaning of the relevant Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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