9911796707
TMI Blog2009 (4) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacturing of large number of items such as ballast, concrete sleepers, specialised mechanical track laying/relaying equipments, railway panels, steel roof panels, columns, gentry, girders, wind girdles, frames, dressings, erection towers, tackles etc.. track laying equipment, cantilever assemblies, termination assemblies, droppers, multi-track portal structures, structure and earth steel bonds, earth mats, jumpers of different sizes, drop arms, super masts for feeders, multiple cross channels of different sizes, double track cantilevers, aluminium bus bars, reel wagons, flat top coaches for pentagraph checking, special beat attachment for pedestal insulators, signals and signal operating systems, relay tracks, relays, signalling truck circuiting power packs, ground gears etc., all of which are used in the fabrication and installation of railway tracks. 3. It is not in doubt or disputed by the Revenue as well as status of the assessee company is that of an 'industrial undertaking' The question was as to whether execution of the project railway track would amount to production of goods/articles. It is because of the reason that ss. 80HH and 80-I allow benefit of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit under the aforesaid provisions. The CIT, however, directed the AO to withdraw the relief granted. The assessee appealed against the order of the CIT to the Income-tax Appellate Tribunal (Tribunal), Delhi. This appeal was allowed by the Tribunal vide its order dt. 20th Aug., 1991 and the order of the CIT was quashed. The Department moved reference application, which was also rejected. Another miscellaneous application moved by the Revenue was also rejected by the Tribunal. 5. In these appeals, we are concerned with the asst. yrs. 1984-85, 1985-86. 1986-87, 1987-88 and 1991-92. For the asst. yr. 1984-85, the assessing authority again allowed the claim of the assessee. However, the CIT, exercising its revisional powers under s. 263 of the Act, disallowed the claim vide his orders dt. 7th Feb., 1989. Appeal filed thereagainst by the assessee stands allowed by the Tribunal vide its order dt. 28th April, 2006, which is the subject-matter of IT Appeal No. 222 of 2007. Same is the position in other appeals. 6. To complete the narration of facts, we may point out that for the year 1988-89, the AO himself disallowed the claim. However, CIT(A), relying upon the orders of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. 1991-92 AO-Disatlowed the claim of the assessee by following the Supreme Court judgment in N.C. Budharaja. CIT(A) also rejects the claim of the assessee. 7. What follows from the above is that deductions under ss. 80HH and 80-I were allowed in favour of the assessee in the first year. In the second year also it was ultimately allowed. From third year, disputes started. However, for the asst. yrs. 1989-90 and 1990-91, the deduction again stands allowed in favour of the assessee. We have mentioned this faet for the reason that, predicated on these facts, argument is raised by the assessee that once the benefit of deduction is allowed in the first year, it has to be necessarily given to the assessee for the subsequent years as well until the expiry of the statutory stipulated period of benefits, namely, for 10 years. 8. Before dealing with this argument, we may reproduce the following substantial questions of law which were framed in these appeals on 30th March, 2009:- "(1) Whether Tribunal was correct in law in holding that the CIT had no power to direct the withdrawal of claims under ss. 80HH and 80-I of the Act in the order passed under s. 263 of the Act, as it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, submitted that, on this ground alone, the present appeals filed by the Revenue deserve to be dismissed and the appellate orders of the Tribunal are required to be upheld. 13. Learned counsel relied upon the following judgments to support this submission:- (i) Saurashtra Cement and Chemical Industries Ltd. vs. CIT (1979) 11 CTR (Guj) 139 : (1980) 123 ITR 669 (Guj), and (ii) CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom). 14. In Saurashtra Cement (supra), the principle was stated by the Gujarat High Court in the following words:- "The questions which have been referred to us at the instance of the CIT are as under:- (1) Whether, on the facts, the Tribunal was right in law in holding that there was no case for the Revenue to withdraw the assessee's claim under s. 80J for the year under reference, when such claim had been accepted in the earlier assessment year, which assessment had not been disturbed? ........The next question to which the Tribunal addressed itself, and in our opinion rightly, was whether the ITO was justified in refusing to continue the relief of tax holiday granted to the assessee-company for the asst. yr. 1968-69, in the assessment year under ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from the apex Court, the law should be so understood from the inception and not from the date of the judgment. All the decisions contrary to such interpretation become erroneous. She has also referred to the judgment of the Supreme Court in CIT vs. Model Mills Nagpur Ltd. (1967) 64 ITR 67 (SC), wherein the Court held that in such circumstances power of rectification under s. 154 or reopening under s. 148, if within time, are justified on the basis of the Supreme Court judgment. 17. As far as allowing deductions in the asst. yrs. 1982-83 and 1983-84 are concerned, her submission was that those are the orders passed before the judgment of the Supreme Court. In the pending proceedings, whether at the assessment stage or the appellate stage, the Courts are bound to give effect to the judgment of the Supreme Court and, therefore, in these appeals the judgment of the Supreme Court in N.C. Budharaja (supra) is squarely applicable as this judgment makes the years in question distinct from the earlier years. 18. She further submitted that the Tribunal in 1983-84 has relied upon the judgment of the Orissa High Court in CIT vs. N.C. Budharaja and Co. (1980) 121 ITR 212 (Ori) and that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of Mr. Ganesh was that even on the applicability of the principles laid down in N.C. Budharaja (supra), the assessee would be entitled to deductions under the aforesaid provisions. That is, however, a matter which has to be examined while considering the question of law No. 3. 23. Question No. 3:- The moot question is, therefore, as to whether the activity of laying down the railway track amounts to manufacturing of goods/articles. It was the submission of Ms. Bansal that laying down of railway track did not constitute an article or a thing being of immovable character. Submission was that though such activity had involved minor activity of manufacture of articles, but the end product, after the execution of the project, was a railway track or a bridge, which cannot be equated with manufacture or production of an article or thing. Heavily relying upon the judgment in N.C. Budhiraja (supra) for this purpose, she argued that the term 'construction' has not been defined in the Act and the same should be understood as per the normal connotation of the word. The expressions 'manufacture' and 'produce' are normally associated with movables-articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teel, bricks, stone jelly etc. It was not the assessee's contention or claim in that case that all these manufacturing products were manufactured or produced by the assessee. The assessee's only claim was that the assessee had constructed the dam and that constituted manufacture of goods, which was rejected by the Supreme Court on the short ground that a dam is immovable property which cannot be considered to be either goods or articles. The Supreme Court in its judgment specifically stated that the assessee was not claiming any deduction provided by s. 80HH of the Act on the value of the materials which went into the construction of the dam or the same had been manufactured by the assessee or that the assessee was entitled to the benefit of ss. 80HH and 80-I of the Act on the basis of that manufacturing activity carried out by the assessee. In sharp contrast, in the present case, there is an extremely significant extent and volume of manufacturing activity carried on by the assessee; all numerous items, parts, components, etc. all of which go into the working and operational railway tracks. In the present case, the assessee is making its claim for the benefit under ss. 80H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "deductions to be made in computing total income". Sub-s. (1) of s. 80HH provides that "where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof. Sub-s. (2) says that s. 80HH applies to any industrial undertaking which fulfils all the four conditions prescribed therein. 29. Thereafter, sub-s. (2) of s. 80HH was set out by the apex Court, which lays down the conditions for the applicability of this provision in respect of industrial undertakings. The Supreme Court proceeded on the basis that the assessee was an industrial undertaking and delineated following question which arose for consideration:- "In short, the limited question is whether the construction of a dam to store water (reservoir) can be characterized as amounting to manufacturing or producing an article or articles, as the case may be." The Court, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) while interpreting the words 'manufacture' or 'production', the Court drew distinction between manufacture/produce on the one hand and 'construction' on the other hand; (ii) things like dam or, for that matter, bridge, roads, canals, buildings, are constructed and not manufactured; (iii) the expression 'manufacture' or 'produce' are normally associated with movables, i.e., articles and goods, but not with construction activity; (iv) the construction activity may be composed of articles, but that by itself will not become production of articles. For this purpose, it is the 'end product' which is the test and not various components/articles which go into the construction of the said end product. 31. Applying the aforesaid test, when we examine the case of the assessee in the context of end product, it is difficult to come to the conclusion that the activity of laying railway line can amount to 'manufacture' or 'produce'. It would definitely be a construction activity. 32. We may, however, note the argument of learned counsel appearing for the assessee, who sought to draw a fine distinction by making a submission t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
