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TMI Blog2002 (5) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... wing investment allowance of Rs.26,957 in respect of electric installation in the head office? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the assessee's claim for deduction of the amount due on account of leave with wages?" I.T.R. No. 112 of 1987: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding the refinery units at Ludhiana and Madras as industrial undertakings for the purposes of investment allowance and deduction under section 80J with respect thereto?" All the three references pertain to the assessment year 1979-80. The assessee-company derives income from manufacture and sale of hosiery goods, refined edible oil, vanaspati ghee, etc. It filed its return of income on June 6, 1979, declaring a total income of Rs.1,96,23,560. The assessment under section 143(3) of the Act was completed by the Assessing Officer on September 29, 1982, at a total income of Rs.3,04,71,180 by making certain additions/disallowances. The assessee filed an appeal before the Commissioner of Income-tax (Appeals) who partially allowed the same vide his order dated November 6, 1984. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Barisal, learned counsel for the assessee, could not controvert the factual position as pointed out by Shri Sawhney. He, however, submitted that the Tribunal has also justified the claim by recording a finding that the electrical machinery had become a part and parcel of the plant in which it had been installed. No fault can be found with this finding. He, therefore, contended that even if the observation of the Tribunal about the claim being allowed for the preceding year was ignored, the claim was still admissible. He cited the following decisions in support of his claim: (i) Tribeni Tissues Ltd. v. CIT [1991] 190 ITR 487 (Cal). (ii) CIT v. Mahalinga Setty and Co. [1992] 195 ITR 526 (Karn). (iii) CIT v. Anglo India Jute Mills Co. Ltd. [1993] 202 ITR 104 (Cal). (iv) CIT v. Tribeni Tissues Ltd. [1994] 206 ITR 92 (Cal) and (v) CIT v. Tamil Nadu Magnesite Ltd. [1999] 151 CTR 152 (Mad). After hearing counsel for the parties and going through the orders, we find that the matter has not been decided in the right perspective. The rates of depreciation are prescribed in Appendix I of the Income-tax Rules, 1962. In para. III, the rates of depreciation in respect of various cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electric machinery made in the draft assessment order presumably because similar disallowance had been accepted by the assessee in earlier years. In such circumstances, could the assessee raise this issue in appeal at all, is another point which needs consideration. Mr. Bansal, learned counsel for the assessee, contends that the assessee could indeed raise this issue in appeal and its claim could not be rejected merely on the ground that it had failed to object to the disallowance in the objections filed against the draft assessment order. For this purpose, he relied on the following authorities: (1) CIT v. K.N. Thankappan Pillai [1991] 191 ITR 300 (Ker). (2) Nagpur Zilla Krushi Audyogik Sahakari Sangh Ltd. v. Second ITO [1994] 207 ITR 213 (Bom). (3) CIT v. Satya Narain [1998] 229 ITR 477 (P H); and (4) Indian Aluminium Co. Ltd. v. CIT [1986] 162 ITR 788 (Cal). However, since we have restored this matter to the Tribunal for fresh adjudication, we direct the Tribunal to deal with this aspect as well while deciding the matter afresh. The question is, accordingly, answered in the above terms. Question No. 2: In question No. 2, the Revenue has challenged the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even otherwise the Tribunal could not have allowed the claim without examining the details of the additions to ensure that these did not fall under any of the exceptions mentioned in section 32A of the Act itself. Mr. Sanjay Bansal fairly concedes that the disallowance had not been challenged in the objections filed against the draft assessment order and that the Tribunal did not have the details of the additions of electrical installation from which it could be held that the same were not hit by the exceptions provided under section 32A of the Act. He, however, contends that the disallowance had been made only on the ground that the electrical machinery was not involved in the manufacturing process. This, according to him, being a purely legal issue requiring no inquiry into the facts could have been disposed of at the appeal stage itself. On the merits, he supported the findings of the Tribunal. He also relied on the decisions of the Calcutta High Court in Tribeni Tissues Ltd. v. CIT [1991] 190 ITR 487 and CIT v. Tribeni Tissues Ltd. [1994] 206 ITR 92 and justified the claim of investment allowance on electrical installations. We have heard the rival contentions and go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exceptions mentioned therein. A machinery or equipment can be used directly for a manufacturing process, yet for running such a machine, certain accessories may be required. Thus, it would be the entire machinery including the accessories and other equipment which can be said to have been installed for the purpose of business of manufacture of an article or thing. This view finds support from the decision of the Calcutta High Court in CIT v. Tribeni Tissues Ltd. [1994] 206 ITR 92, wherein it was held that all machinery and equipment that is necessary to make the assessee's manufacturing unit in the state of operational integration pertain to its manufacturing process, because there could not be any manufacture unless this operational integration was achieved after installation of the plant and the plant goes operational. It was further held that any machinery or plant having a link, however minor, in the total process of the operational integration should be taken as machinery or plant pertaining to the manufacturing process. It was, therefore, held that the assessee in that case was entitled to investment allowance on motors, electrical installations, underground cables, overhea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answered against the Revenue. I.T.R. No. 112 of 1987: The assessee's claim for investment allowance and deduction under section 80J of the Act in respect of refinery units at Ludhiana and Madras had been disallowed by the Assessing Officer on the ground that the assessee was not manufacturing any article or thing. The assessee in these two units converts crude oil into refined oil. The crude oil is degumed, neutralised, bleached and deodorised through mechanical process and the end-product is marketed as refined oil for the purpose of cooking. The Assessing Officer was of the view that the conversion of crude oil into refined oil involves certain processes which could not be interpreted to mean, a manufacturing process resulting into production of a new commodity. According to him, it was palm oil earlier in its crude form and remained palm oil even after being refined. No new goods were manufactured or produced. The Assessing Officer relied on the decision of the Calcutta High Court in CIT v. Hindusthan Metal Refining Works (P.) Ltd. [1981] 128 ITR 472 and that of the Supreme Court in Chowgule and Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124; AIR 1981 SC 1014. In appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore they can be called 'goods'. Since in the case before the Supreme Court, alleged refined oil was gone through the process of neutralisation and bleaching only but had not been deodorised therefore, it was held that the said oil was not refined oil which could be taken to the market and, therefore, such oil was not goods which could be liable to excise duty. In the instant case, the assessee in both the units is manufacturing refined oil which is degumed, neutralised, bleached and deodorised and the same is marketed as refined oil and was used as cooking oil. This commodity is entirely different from raw oil and vegetable ghee. We cannot ignore the illustration given by learned counsel for the assessee in the course of arguments that crude petroleum oil was quite different from petrol, diesel, kerosene, etc. Each one was a different commodity from the other. Therefore, following the Supreme Court decision and confirming the reasoning given by the Commissioner of Income-tax (Appeals) in his order, we confirm his finding given on this issue regarding both investment allowance and section 80J relief. To summarise, we hold that the assessee in manufacturing marketable commodity whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was described as under: "'The manufacture of vegetable product consists in hydrogenating oils using a catalyst. The catalyst is a sensitive material and is liable to be poisoned and made ineffective if certain impurities like mucilaginous matter, free oxidised fatty acid and moisture are present. In order therefore, to successfully manufacture vegetable product the hydrogenation has to be done on a refined vegetable non-essential oil. The refined vegetable non-essential oil is the penultimate raw material for the manufacture of vegetable product'." The stand of the Revenue was that in this process, the petitioners "bring into existence at one stage, after carrying out some processes with the aid of power, what is known to the market as 'refined oil'." It is, therefore, clear that the Revenue claimed that the refined oil was a distinct product known to the market and is "manufactured" out of crude oil. Thus, it was liable to excise duty. This contention was negatived by the Supreme Court. The Supreme Court referred to the processes involved in the manufacture of refined oil from groundnut as well as from cotton seed and held that the product known as refined oil in the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Union of India [1981] 47 STC 124 does not advance the case of the Revenue. In fact, the same test was applied by their Lordships to determine whether any manufacturing had been done or not. The issue in that case was--Whether blending of iron ore while loading it in the ship by means of mechanical ore handling plant constituted manufacture or processing of ore or not? Their Lordships referred to the following observations of the apex court in an earlier case in Deputy CST v. Pio Food Packers [1980] 46 STC 63, 65; AIR 1980 SC 1227, 1228: "Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the changes, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place." Thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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