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TMI Blog2018 (8) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as depreciation. We are of the opinion that though RMC does not have a shelf-life, the final mixture of stone, sand, cement and water in a semi-fluid state; transported to the construction site to be poured into the structure and allowed to set and harden into concrete is a thing or article manufactured. RMC is an article obtained as a result of manufacture. - Claim of additional depreciation allowed. - Decided in favor of assessee. - I.T.A. No. 15 of 2016 - - - Dated:- 19-12-2017 - K.Vinod Chandran And Ashok Menon, JJ. For the Appellant(s) : Advs. Sri. A. Kumar, Sri. P. J. Anilkumar And Smt. G. Mini(1748) For the Respondent(s) : Adv. Sri. P. K. R. Menon, SR. Counsel, Goi(Taxes) And Adv. Sri. Jose Joseph, SC, For Income Tax JUDGMENT Vinod Chandran, J. The appellant, a construction company, is concerned with questions of law arising from the majority view of the Income Tax Appellate Tribunal. The bare facts to be noticed are as follows. The appellant for the assessment year 2006-07 procured three vehicles, specifically for the transport of Ready Mix Concrete (RMC) for use in their construction site, from their own manufacturing unit. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable Tribunal and authorities below erred in holding that there is no manufacture in the production of Ready Mix Concrete when the RMC itself is an excisable commodity/goods on which credit is also available for inputs? 2) Whether on the facts and circumstances of the case, the Honourable Tribunal and authorities below erred in holding that the appellant is not entitled for any additional depreciation under Section 32(1)(iia) for the machinery used for manufacturing Ready Mix Concrete? 3) Whether on the facts and circumstances of the case, the Honourable Tribunal and authorities below erred in holding that the transit mixers, Tata trucks and Ashok Leyland trucks are motor vehicles and the appellant is not entitled for any additional depreciation? 5. The learned Counsel appearing for the appellant submitted that the appellant though principally carrying on the business of construction, has also set up a manufacturing unit of RMC, the produce from which is consumed by the assessee in its construction activities and also sold outside. There cannot be dispute that the RMC is a sophisticated product of technological advancement, distinct from a mere concrete mix made at a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions of the Delhi High Court in CIT v. Minocha Brothers Ltd. [(1986) 160 ITR 134] Bhagat Construction Co.Pvt.Ltd. v. Commissioner of Income Tax, [(1998) 232 ITR 722]. 8. At the outset, we are called upon to answer the question of law arising from the majority decision; whether the making of RMC can be termed to be manufacture and it qualifies as a thing or article. Both the Tribunal Members, who found that the product of RMC does not involve a manufacture, relied on N.C.Budharaja Co. We have carefully gone through the decision and would specifically refer, initially, to the facts in the case from among the batch, which was decided first and the principle followed in the latter ones. Therein the question was the benefit provided under Section 80HH of the Income Tax Act, 1961, which speaks of deduction in respect of profits and gains from newly established industrial undertakings and hotel business in backward areas. The assessee was carrying on the construction of a dam in a backward area. It was claimed that the assessee was carrying on an industrial undertaking and also involved in the manufacture and production of articles. The specific contention raised wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of that assessee, was under Section 84, which allowed a deduction in the profits and gains of business not exceeding 6% per annum on the capital employed, on satisfaction of the conditions in sub-section (2). One of the conditions was, similar to that in Section 80HH, the commencemenmt of manufacture or production of articles. 11. One other group of appeals were concerned with Section 32A, which permitted an investment allowance of 25% of the actual cost of machinery or plant, installed in the previous year. The issue arose on the condition for the purpose of construction, manufacture or production of an article or thing . The assessee was engaged again, in large scale construction work, especially of dams and canals and sought deduction on the plant and machinery erected at the construction site. The claim raised was also on the words additionally employed in Section 32A, distinct from Sections 84 80HH; ie: 'construction' in addition to manufacture and production and 'thing' in addition to article. The Court however on a deeper scrutiny; paricularly of the legislative history, found the additional words to be incapable of bringing within its ambit, const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o/consumed in the construction of the dam. 13. The Hon'ble Supreme Court left open the issue, whether a deduction claimed on the value of the articles manufactured would be allowable as a deduction or not. Section 80HH allowed a deduction to the extent of twenty percent of the profits and gains derived from an industrial undertaking newly established in a backward area. To avail such exemption, there were conditions prescribed which inter alia included that the assessee commenced manufacture or production of articles, after and prior to specified dates. The assessee therein having claimed the deduction on the entire income on the construction of a dam, claiming it to be a manufacture or production, the Hon'ble Supreme Court found that it is not allowable since a dam cannot be termed an article. The mere fact that there was a manufacturing activity carried on, allied to the construction activity, would not enable the assessee to claim deduction under Section 80HH, since the deduction is of a percentage of the entire profits and gains and not limited to that of the manufacturing activity. In the other cases also the deduction was claimed on the ground of the construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce then we would be introducing the word 'principally' to read the provision as an assessee engaged in the business principally of manufacture or production of any article or thing . The dominant test has no application from the plain meaning of the words employed. Whatever be the business of the assessee, if the assessee is involved in a manufacture or production of articles or thing; then a claim under Section 32(1)(iia) would be permissible to the extent allowed as depreciation. 17. Still, the question remains as to whether RMC can be considered to be an 'article' or 'thing' produced or manufactured. The JM, at the first instance, relied on the judgment of the Delhi Bench of the Tribunal, which we are told and as has been recorded by the Third Member, has been remanded by the jurisdictional High Court for fresh consideration on the specific issue of a manufacture or production arising, in the making of RMC. With respect to the said question, apposite would be reference to Larsen Toubro Ltd. as cited by the learned Counsel for the appellant. The issue therein was with respect to an exemption notification, which exempted goods manufactured at the site ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrif Entry 38.24 of the Excise Tariff Rules. 20. In this context, we also have to deal with Bhagat Construction Co. Pvt. Ltd., wherein the assessee had again been engaged in construction activity. The first contention, as available in page No.726, was that the payment rates as per the construction agreement was based on the strength of the concrete produced. The concrete used in the construction activity had to be processed and produced in accordance with certain grades or marks which provides the contents by weight so as to assure the proper strength. The payment would also depend upon the strength of the concrete, which on test, if fails, the assessee would be precluded from receiving the payments. The other contention was with respect to the plant and machinery used in the quarrying activities carried on to extract boulders and stones for the construction activity. The Division Bench, we find, has only considered the issue of quarrying in so far as the finding is thus: In the case at hand the assessee might be extracting minerals such as stones by carrying out mining operations, but the product of such mining operations is not the article or thing in which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the JM at the first instance, but not considered by the AM or the third member; the Vice-President, who negatived the claim on the finding that the making of RMC is not a manufacture or production. We are of the opinion that the said question has to be considered afresh by the Tribunal looking into Section 30(1)(iia) and the second proviso pointed out by the learned Counsel for the appellant. 24. On the above reasoning, we answer the first question extracted herein above in favour of the assessee and against the Revenue finding that RMC is an article obtained as a result of manufacture. The second question is also answered in favour of the assessee and against the Revenue in so far as finding the assessee, though engaged principally in the business of construction, is entitled to additional depreciation under Section 32(1)(iia) for the plant and machinery used in the manufacturing activity being the production of RMC. We leave the question, whether the exemption itself is permissible on the actual cost of vehicles acquired by the assessee in the previous year, to be considered by the Tribunal. Whether the subject vehicles, in the nature of the process involved, qualify to be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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