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TMI Blog1989 (5) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of this Air Compressor. 3. The Income-tax Officer did not accept these contentions. He held that the assessee had merely used the Air Compressor for treatment of metal and had not produced or manufactured any of the articles referred to in section 32A. He therefore disallowed the assessee's claim for investment allowance. 4. The assessee appealed against this disallowance to the Commissioner of Income-tax (Appeals) and contended as follows : "Manufacturing activity consists of many stages. Most of the manufacturing concerns get some of the processes done by other units. Although we are basically interior decorators, we have specialised in Industrial painting as will be evident from our letter head. One of the specialised item of painting is by sand blasting and for this purpose air compressor is necessary. The air compressor is not used by us for any other items of work. During the year 1983-84 we have done specialised sand blasting and painting work for the following companies who are manufacturers : (i) L T McNeil Ltd. Mount Poonamalle Road, Madras-89. (ii) Best Crompton Engg. Ltd. BDS Factory, Ambattur. (iii) Garware Paints Ltd., Madras-2. (iv) J S Ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction of any article or thing. The learned departmental representative submitted that what the assessee does is only processing of articles already manufactured by others and that the assessee does not manufacture any particular article or thing, which is saleable or marketable. Shri Ananthachari submitted that the sand blasting done by the assessee may be a part of the process of manufacturing the article or thing, but the said process did not manufacture or produce any article or thing to constitute the assessee as a manufacturer or producer of an article or thing, as required by sec. 32A of the Act. He argued, what the assessee did was only carrying out of job works for charges, which would not amount to manufacture or production of articles or things for sale. In short, the argument of Shri Ananthachari was that the assessee-firm itself should manufacture or produce a marketable article or thing for sale in order to qualify for investment allowance under sec. 32A of the Act. In support of his submissions, Shri Ananthachari relied on the decision in the case of CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134 (Delhi), and in the case of ITO v. Ahura Shipping Engg. Co. (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim for investment allowance. He pointed out that the Special Bench of the Tribunal in the case of ITO v. First Leasing Co. of India Ltd. [1985] 13 ITD 234 (Mad.) analysed the provisions of sec. 32A of the Act and held at page 252 in para 31 that a leasing company would also be entitled to investment allowance in respect of plant and machinery leased out by it. He also relied on the decision of the Madras High Court in CIT v. Perfect Liners [1983] 142 ITR 654 where it has been held that the word 'manufacture' has to be understood in a wide sense and that after the rough casting was polished, the product was a new product which was utilised as a component in internal combustion engines in the said case, and that therefore, the assessee in the said case would be entitled to the grant of higher development rebate. He also relied on the decision in Sri Balaji Metal Finishers v. ITO [1986] 15 ITD 26 (Hyd.) (SB). In this decision it was held that an assessee who was merely undertaking job works of electroplating would be entitled to investment allowance under sec. 32A in respect of the machinery used in electroplating and that the business of electroplating involved manufacture or prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines, machine tools, etc. The Firm Messrs N. Venkataraman have purchased a Sand Blasting Air Compressor, which is used for sand blasting. This is a process in the manufacture of various components and parts for machineries, structurals etc. various manufacturers, mostly, Small Scale Industries which manufacture machine parts, components etc. require the sand blasting Air Compressor to be installed in their premises for the purpose of sand blasting in the process of manufacture of their products. I am fully conversant with the technical aspects involved in the above process. The sand blasting Air Compressor is installed in the factory of the manufacturer and is used for the manufacture of the components." It is clear from this affidavit that sand blasting is a process in the manufacture of various components and parts of machineries, structural etc. and that various Small Scale Industrial manufacturers who manufacture machine part components have utilised the services of the assessee-firm for carrying out the process of sand blasting. It is to carry out this sand blasting process the assessee had purchased an Air Compressor and had utilised the same in this specialised type of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out this process of sand blasting. 15. The only reason for rejecting the assessee's claim for investment allowance on this Air Compressor is that the assessee-firm itself had not manufactured or produced any article or thing, as required by sec. 32A(2)(b)(iii) of the Act. This contention of the revenue cannot be accepted in view of the decision of the Madras High Court in Perfect Lines' case. In this decision, their Lordships have held that the word 'manufacture' in section 33 of the Income-tax Act has to be understood in a wide sense. In the said case, the assessee bought castings, polished them and supplied the same to other manufacturing concerns. Their Lordships held that after the rough casting was polished, the product was a new product, which was utilised as a component in internal combustion engines, and that the Tribunal having found that the component parts were essential parts for internal combustion engines, the grant of higher development rebate was justified. This decision of the Madras High Court was sought to be distinguished by the learned departmental representative by pointing out that in the said case the assessee had itself purchased the rough castings an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icles or things by the customers of the assessee-firm. It cannot be disputed that after the process of sand blasting is carried out by the assessee, the products which it hands over to its customers are different products from what it received before such sand blasting process was performed in respect of those articles or things. In other words, the products obtained after the process of sand blasting had been performed in respect of articles or things handed over to the assessee are commercially more valuable than the products in their earlier state. The decision of the Third Member in Sri Balaji Metal Finishers' case also supports the case of the assessee. That was a case of electroplating job works done by assessee for its customers. The question was whether the assessee was entitled to investment allowance in respect of the machinery used by it in the business of electroplating. The majority held that the assessee in the said case would be entitled to investment allowance in respect of the machinery used for the purpose of carrying on the business of electroplating. In this case the majority have relied on the decision of the Special Bench in the case of Thiagaraja Industries v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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