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TMI Blog1985 (10) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to him, the assessee-firm was not engaged in manufacturing, construction or produce and, consequently, the investment allowance should not have been allowed. The Commissioner after hearing the assessee came to the conclusion that the assessee-firm was not an industrial undertaking. According to him, the investment allowance should not have been allowed. Consequently, he set aside the assessment orders and directed the ITO to make fresh assessments on this point in the light of the finding given by him. 4. Before the Tribunal, on behalf of the assessee, it was contended that finding of the Commissioner is not correct. The assessee is engaged in the construction of thermal power station and other building activities. Thus, the assessee-company having as its main business carried out several construction works and as such can be treated as an industrial undertaking. As a matter of fact, the assessee is engaged in the manufacture or processing of goods. The counsel placed reliance on the decision of the Full Bench of the Tribunal in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi). The learned counsel further contended that when the Commissioner passed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that the assessee-company does not fall within the definition of industrial undertaking as per Section 32A(2)(6)(ii). The ITO did not point out any specific words whether the assessee-company falls within the definition of industrial undertaking as per Section 32A(2)(6)(vi). From the assessment orders, it comes out that the ITO before allowing investment allowance did not give any reasons whatsoever. As a matter of fact, the ITO before granting the investment allowance did not find out facts on this point. Under the circumstances, in our opinion, the learned Commissioner was correct in holding that the assessment orders passed by the ITO were erroneous and prejudicial to the interests of the revenue. The Commissioner without bringing on record detail facts came to the conclusion that the assessee-company was not an industrial company under Section 32A(2)(6)(ii). In the Full Bench decision, it was held that for finding out whether, the company was mainly engaged in the activity of manufacturing or processing of goods, the income-tax authorities have been directed to ascertain relevant facts and come to the conclusion on consideration of all the materials and also having regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO duly examined the claims made by the three assessees in each of the years under consideration and found that the requirement of the provisions of Section 32A had been fully satisfied. It would be useful to reproduce here the findings recorded by the ITO in the assessment orders made in the cases of the three assessees. R.S. AVTAR SINGH CO., DELHI (Assessment Year : 1979-80) ... The assessee's claim of investment allowance under Section 32A on new plant and machinery had been duly supported by copies of vouchers filed. (Assessment Year : 1980-81) ... The claim for investment allowance made is found to be admissible. (Assessment Year : 1981-82) Dealing with the claims for depreciation, extra depreciation and investment allowance, the Income-tax Officer observed as follows : The assessee has produced the original bills for additions made in the machinery, etc., which have been seen to justify its claim. The assessee has also claimed extra depreciation and also investment allowance for which necessary provision of 'Investment Allowance Reserve' has been made as per provisions of the Act and accordingly the same is to be allowed as per rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture or produce any articles or things. Since the Commissioner agreed with the changed view of the ITO, action had been taken by him under Section 263. It is of crucial significance to note that this is the sole objection of the Commissioner to the grant of investment allowance to the assessees. In other words, the only reason for denying the grant of investment allowance to the assessees as given by the Commissioner in his identical orders is that because the assessees are contractors executing contracts for their principals, these cannot be said to be engaged in any industrial undertaking. The Commissioner had found no fault or infirmity whatsoever in the assessment orders as regards the grant of investment allowance as he has nowhere said that the assessee had failed to satisfy anyone of the conditions prescribed under Section 32A. The Commissioner's view was that it was the very nature and character of the assessee's business, that is of a contractor, which excluded the grant of investment allowance to them under Section 32A. The only question, therefore, which arises in these appeals before us is whether the above view of the Commissioner is correct or not. 4. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any having the activity of carrying out of civil construction works like tunnel, power houses, etc., as its main business can be treated as an industrial company if other conditions prescribed in the Finance Act are satisfied. As regards the claim of the Hydle Constructions (P.) Ltd. that it was entitled to benefit under sections 80J and 80HH, the Full Bench negatived the claim of the assessee. As far as the claim for grant of investment allowance is concerned, the Full Bench noted the amendment in Section 32A with effect from the assessment year 1978-79 and then held as follows : For this year (Assessment Year 1978-79) it was provided that an assessee would be entitled to investment allowance if machinery was used in an industrial undertaking for the business of construction, manufacture or production of any articles or things not being an article or thing specified in the Eleventh Schedule. In other words, except for such machinery which are producing articles or things mentioned in the Eleventh Schedule, other machineries which are used for the purposes of business of construction, manufacture or production of any other thing would get investment allowance. Thus it would appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the eligibility of the assessees to the grant of investment allowance and then made the necessary deductions from income as per provisions of law. The relevant extracts from the assessment orders have already been reproduced by me in an earlier portion of this order and these excerpts bear eloquent testimony to the fact that the investment allowance had been granted to the assessees after carefully verifying their claim and after the ITO had found that all the conditions laid down in Section 32A stood satisfied. 5. In the aforesaid circumstances I do not find any reasons as would justify the setting aside of the assessment orders framed by the ITO on the ground that these were erroneous insofar as these were prejudicial to the interests of the revenue. Indeed having found that the only ground on which the Commissioner discerned error or prejudice in the assessment orders was not sustainable in law in the light of the Full Bench decision in the case of Hydle Constructions (P.) Ltd. (supra) and on a proper perusal of the assessment orders as discussed in foregoing part of this order, it would be a contradiction in terms to set aside the orders of the ITO. Instead the correct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the meaning of Section 32A(2)(b)(iii) so as to qualify for the allowance of investment allowance. There was no manufacture or production of any article or thing which according to the Commissioner was essential for any concern to be styled as industrial undertaking. He, therefore, issued notices under Section 263 and after considering the assessee's objections held that the assessees were not an industrial undertaking and were not entitled to the investment allowance. He set aside the assessments made by the ITO and directed the ITO to redo the assessments after giving a reasonable opportunity to the assessee and considering its contentions on the point of allowance of investment allowance. Aggrieved by this order appeals were preferred before the Tribunal. 3. Before the Tribunal strong reliance was placed on behalf of the assessee on the decision of the Full Bench of the Tribunal in the case of Hydle Constructions (P.) Ltd. (supra) where the Full Bench held that contractors engaged in the nature of work as the assessee herein are entitled to the investment allowance. The learned Judicial Member, who wrote the leading order, came to the view that the ITO while passing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never said that the ITO did not carry out any enquiry. The only reason given by him was that the assessees, who are contractors executing contracts for their principals could not be said to be an industrial undertaking. No infirmity whatever was found in the assessment orders passed by the ITO nor was there any finding that the assessees failed to satisfy any one of the requirements prescribed under Section 32A, i.e., to say the learned Accountant Member's thinking that the Commissioner set aside the assessments not on the ground that the ITO did not make any enquiry but on the ground that the assessee, who is a contractor, having regard to the nature of business carried on by him, could not be said to be an industrial undertaking. Then he made reference to the decision of the Full Bench of the Tribunal in Hydle Constructions (P.) Ltd.'s case (supra) and found that the Full Bench decided three issues : one relating to the levy of a lower rate of tax provided for an industrial company as per the Finance Act, 1976 for relief under sections 80J and 80HH and finally for the grant of investment allowance under Section 32A. While considering these three separate claims, the Full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n my mind that as rightly pointed out by the learned Accountant Member that the Full Bench in the case of Hydle Constructions (P.) Ltd. (supra) had categorically held that the contractors undertaking constructional works could be said to be industrial undertakings because they were constructing an article or thing and they would be eligible for investment allowance. Insofar as this finding of the Full Bench is concerned, this was not made to depend upon any enquiry to be carried out by the ITO on facts. It is a question of principle and interpretation of Section 32A. The Full Bench decided in principle that contractors engaged in the construction of tunnels, dams, thermal power stations, etc., are industrial undertakings eligible for the investment allowance. Once this is so the question of these assessees who are engaged in such constructional activity could not be regarded as industrial undertakings does not survive for consideration insofar as the decision on that point is concerned. The Commissioner has not seen the Full Bench order nor it was not brought to his notice nor it was not pressed before by then. He relied upon a decision of the Bombay High Court in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relying upon the definition of industrial company used in Section 2(1)(d) of the Finance Act, 1966 to interpret the industrial undertaking used in Section 32A. Since the learned Judicial Member has followed the same line of thinking as that of the Commissioner, I am unable to walk along with him. It is very pertinent to point out that the learned Judicial Member has categorically held that the Commissioner's finding that the assessee was not an industrial undertaking was not correct and set it aside meaning thereby that the assessee is an industrial undertaking within the meaning of Section 32A. When the assessee is thus held to be an industrial undertaking as per Section 32A (2)( )(m) and when no further enquiry is to be made by the ITO, he having made all the enquiries necessary before granting the investment allowance it not being even the point taken up by the Commissioner for invoking Section 263 there does not remain anything in the way of the assessee getting the claim of investment allowance. With the set aside of the finding of the Commissioner on the issue of industrial undertaking, there does not seem to be any difference of opinion between the learned two Member ..... X X X X Extracts X X X X X X X X Extracts X X X X
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