Vildirect: IncomeTax-caselaws-1989-VIL-90-ITAT-DEL

1989-VIL-90-ITAT-DEL

Equivalent Citation: ITD 032, 694,

Income Tax Appellate Tribunal DELHI

Date: 08.12.1989

INSPECTING ASSISTANT COMMISSIONER.

RS. AVTAR SINGH AND COMPANY.

BENCH

Member(s) : A. KALYANASUNDHARAM., M. C. AGARWAL.

JUDGMENT

Per Agarwal, JM--These are two appeals by the Revenue arising out of the assessments of the two assessees for assessment year 1978-79. Since the points raised are identical and both the assessees are represented by the same counsel, the appeals were heard together and are hereby disposed of by this common order.

2. Assessments of the two assessees were completed in the normal course under section 143(3). However, the ITO re-opened the assessments under section 147(b) on the ground that investment allowance under section 32A was erroneously allowed to the assessees, that are partnership firms carrying on the business as building contractors. The assessees filed returns in pursuance of notice under section 148 and objected to the reopening of the assessments as well as the proposed withdrawal of investment allowance. However, the ITO framed the assessments enhancing the income of M/s. R.S. Avtar Singh & Co. (Delhi) by Rs. 38,120 and that of M/s. R.S. Avtar Singh & Co. by Rs. 47,131. These amounts represent investment allowance, that was allowed in the original assessments.

3. The assessees appealed to the CIT (Appeals), who vide identical orders dated 20-10-1986 upheld the reopening of the assessments but held that under the provisions of section 32A(2)(b)(iii) of the Income-tax Act, 1961 the assessee was an industrial undertaking being engaged in the business of construction and was entitled to investment allowance. The Revenue is now in appeals before us.

4. On behalf of the Revenue the only contention raised is that the assessees being firms, which were engaged in the business of construction of buildings, were not industrial undertakings within the meaning of section 32A. Under section 32A(2)(b) an assessee is entitled to investment allowance in respect of the following types of plant and machinery installed after the 31st day of March, 1976 :--

"(i) for the purposes of business of generation or distribution of electricity or any other form of power ; or

(ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or

(iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule."

5. The assessees do not claim to come under sub-clause (i) of the aforesaid sub-clause (b). The ITO has held that assessee is a small-scale industrial undertaking because the entire value of plant & machinery installed by it does not exceed Rs. 10 lakhs, as prescribed in paragraph 2 of the Explanation to sub-section (2) of section 32A. The assessee does not dispute that finding and, therefore, as a small-scale industrial undertaking the assessee has to be engaged in the business of manufacture or production of any article or thing. The learned CIT(A), on the other hand, has pressed into service sub-clause (iii), which apart from the words "manufacture" or "production" uses the word "construction" as well. The assessee's investment in plant & machinery being below Rs. 10,00,000 it can claim investment allowance only if it fulfils the conditions laid down in sub-clause (ii). However even if sub-clause (iii) is relied upon, the effect in the assessee's case would not be any different. The learned counsel for the assessee relied upon a Full Bench order of this Tribunal in ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575 (Delhi), in which the definition of an industrial company within the meaning of section 2(9)(c) of the Finance Act, 1976 came up for consideration. An industrial company was under the aforesaid Act defined to include one engaged in the business of manufacture or processing of goods or in mining. It was held that Hydle Constructions Pvt. Ltd., that was engaged in the construction of tunnels, dams, power houses etc., can be treated as an industrial company if on facts it is found that the company is engaged in manufacture or processing of goods. The question whether in the construction of tunnels, power houses etc. the company was engaged in the manufacture or process of goods was left undecided and was restored to the ITO for examination and determination. Therefore, the judgment in Hydle Constructions case does not really help the assessee and it cannot hold the field in the face of a judgment of the jurisdictional High Court of Delhi in CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134. In that case also the same definition of an industrial company came up for consideration with reference to a building contractor and the Hon'ble High Court held that a company engaged in the construction of buildings was not an industrial company although in the process of construction of the buildings it manufactured doors etc. The Hon'ble High Court held that the real activity of the assessee was to construct buildings which was not in the nature of processing or manufacturing of any goods. The Hon'ble High Court observed as below :--

"it so happens that the assessee uses bricks manufactured by others in making buildings. It also makes R.C.C. slabs etc. in the process of making those buildings. Can it reasonably be said that the assessee is a manufacturer or processor of goods ? In the sense that the assessee makes a building, it can loosely be said that the assessee is a manufacturer. But it is not manufacturer of goods. It is a manufacturer of buildings and buildings are not goods. Similarly, when it is asked whether the assessee is a processor of goods, it cannot be said that the assessee is a processor of goods, but it is using goods in the manufacturing or construction of buildings. The real activity of the assessee is to construct buildings which is not processing or manufacturing of goods."

"However, in as much as the assessee is a manufacturer of buildings or constructor of buildings, an intermediary stage should not be taken to convert the assessee into a manufacturer of goods. A transitory or evanescent product like an R.C.C. block or a door is only a step towards making the whole building. It would not be reasonable, to say that the assessee is a manufacturer or processor of goods as understood in common parlance, in the context of the definition of 'industrial company' given in the Finance Acts of 1969 and 1970."

6. The learned counsel for the assessee stressed that the requirements of an "industrial company" under the Finance Act and of an "industrial undertaking" under section 32A are different. It is true that slightly different words have been used in section 32A which uses the words "manufacture or production of any article or thing" in sub-clause (ii) and the words "construction, manufacture or production of any article or thing" in sub-clause (iii). The Hon'ble Delhi High Court, has held that buildings are not goods. In place of goods section 32A uses the words "article or thing" which, in our view, have the same meaning as goods and, therefore, in terms of the Delhi High Court judgment, buildings cannot be treated as articles or things. It was also contended that in sub-clause (iii) of section 32A(2)(b) the words "business of construction" have been used to mean business of construction of buildings. This interpretation or construction of the provision of law is not sound. The words used are, "business of construction, manufacture or production of any article or thing". Therefore, construction is not used for specifying any specific business. The word "construction" is used along with "manufacture" or "production" to specify the various ways in which an article or thing may be brought into existence. An article or thing may be brought into existence by either of the three modes, singly or jointly, and the use of a single word may be inappropriate to define the mode of the bringing into existence of a particular article or thing. Therefore, to widen the scope or the manner of bringing about an article or thing, the word 'construction' has been added and by no stretch of imagination it can be said that it refers to the business of construction of buildings. We are, therefore, of the opinion that the ITO was right in holding that the assessees were not entitled to investment allowance under section 32A and the CIT(A)'s orders on the point are erroneous. We, therefore, set aside the CIT(A) findings on this point and restore that of the ITO.

7. However, the learned counsel for the assessee supported the order passed by the CIT(A) on the alternative ground that the reopening of the assessment under section 147(b) was not legal. He took recourse to Rule 27 of the Appellate Tribunal Rules, 1963, which provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. The assessee had challenged the ITO's action under section 147(b) before the CIT(A) and the CIT(A) decided this ground, which was the very first one raised by it, against the assessee. Therefore, the assessee is entitled to urge that the issue relating to the reopening of assessments under section 147(b) has been wrongly decided by the CIT(A) and if it is decided in its favour then the CIT(A) order directing the ITO to allow investment allowance would stand or in the alternative the re-assessments have to be cancelled, the ultimate result being the same.

8. According to the ITO the assessments were re-opened under section 147(b) as the ITAT Pune Bench in I.T.A. Nos. 408 & 409 (PN)/78-79 in the case of M/s. Dip Kiran Builders v. ITO vide order dated4-2-1980had held that an assessee engaged in the business of construction of buildings was not entitled to investment allowance. According to him, this was an information that came into possession after the assessments had already been completed and the reopening of the assessments was permissible. The learned CIT(A) has upheld the reopening on the basis of the aforesaid judgment of the Pune Bench.

9. The learned counsel for the assessees has placed in the paper book at page 11 a copy of what he described as the reasons recorded by the assessing officer for reopening of the assessments and contended that the reasons do not refer to the judgment of the Pune Bench at all. The so-called reasons are not certified copies by the assessing officer and cannot be taken as authentic. In the assessment orders the ITO has specifically mentioned that action under section 147(b) was taken on the basis of the said judgment of the Pune Bench of the Tribunal. Therefore, it has to be taken that that was the reason for re-opening of the assessments. As held by the Allahabad High Court in Jawahar Lal Mani Ram v. CIT [1963] 48 ITR 837 and by the Gujarat High Court in K. Mansukhram & Sons v. CIT [19821 133 ITR 65, information about the legal position can be derived by subsequent decision of the Tribunal or the AAC even in the case of another assessee justifying action under section 147(b). We have to see whether Pune Bench order was a proper piece of legal information justifying action under section 147(b) in the present case. As stated by the learned ITO the said judgment of the Tribunal is dated4-2-1980, while the first assessment order in the present case was passed by the ITO on20-1-1981. In other words the Pune Bench order was not a subsequent one and had been passed about 11 months earlier and should have been known to the ITO who framed the assessment on20-1-1981. Then the said judgment was not the only piece of legal information on the point. In CIT v. Pressure Piling Co. (India) (P.) Ltd. [1980] 126 ITR 333 the Hon'ble Bombay High Court had held that an assessee, who was carrying on the business of "pressure piling" foundations for buildings by specialised patented method brought into existence an independent article i.e., pile and was, thus, engaged in manufacture or production of articles. This is exactly what section 32A also requires for the grant of investment allowance. If pressure pile foundations are articles then a building as a whole has also to be treated as an article or a thing and the process by which the building is brought into existence would be called manufacture or production of articles. This authority was cited before the ITO and he has held that it is distinguishable. The distinction lies only in the fact that while in that case the assessee was laying only foundations of buildings, in the case before us the assessee is raising buildings in their entirety. This distinction, if at all material, is favourable to the assessee and would strengthen its case rather than weaken it. Thus, it is a case in which the issue, whether in the business of construction of buildings the assessee can be said to construct, manufacture or produce articles or things is a debatable one. On the one hand is the Pune Bench judgment of the Tribunal and on the other is a judgment of the Bombay High Court. Therefore, when two views are possible and are available in legal pronouncements and the ITO who made the first assessment probably followed one, action under section 147(b) cannot be taken to review the finding recorded earlier by the ITO by having recourse to the other legal opinion. We are, therefore, of the view that in this case what the ITO has tried to do in the garb of action under section 147(b) is to review and reverse the order passed by his predecessor, which cannot be permitted and the information contained in the Tribunal's order--Hydle Constructions (P.) Ltd.'s case could not be availed for reopening of the assessment in preference to the contrary view of the Bombay High Court. We, therefore, reverse the finding recorded by the CIT(A) on the assessee's plea about the validity of action under section 147(b) and we hold that on the facts of the present case the action taken under section 147(b) was not authorised in law and investment allowance granted earlier could not have been withdrawn. Therefore, while dismissing the revenue's appeals, we order that the orders as passed by the CIT(A) will stand modified to the effect that the re-assessment orders dated 8-11-1983 passed by the ITO for assessment year 1978-79 in respect of the two assessees, stand cancelled.

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