1989-VIL-95-ITAT-

Equivalent Citation: ITD 031, 338,

Income Tax Appellate Tribunal MADRAS

Date: 20.09.1989

INCOME-TAX OFFICER.

Vs

R. SIVARAMAN.

BENCH

Member(s)  : T. V. RAJAGOPALA RAO.

JUDGMENT

Per Shri T. V. Rajagopala Rao, Judicial Member -- This is a departmental appeal relating to the assessment year 1983-84. The only point involved in this appeal is whether the centering sheets, machinery and tools employed by the assessee, who carries on business in construction work and who undertakes work contracts at different places, is entitled to investment allowance. For the accounting year in question centering sheets valuing Rs. 45,943 was introduced into the business of the assessee. The assessee was claiming Rs. 20,441 towards investment allowance on centering sheets, machinery and tools employed by him in his business. The Income-tax Officer refused to allow anything towards investment allowance firstly on the ground that the assessee does not maintain any industrial undertaking. Secondly that the centering sheets cannot be called either plant or machinery and they are not entitled to investment allowance. Thirdly the Income-tax Officer states in his assessment order that section 32A(2) does not refer to construction work and on all the above grounds he dismissed the claim of investment allowance to the assessee and added Rs. 20,441 to the returned income. Incidentally it may be mentioned that the Income-tax Officer did not allow depreciation on the written down value of centering sheets, maintaining that they cannot be considered as plant or machinery, furniture or fittings. They have to be treated only as capital assets. No depreciation is provided for in the depreciation schedule in the Income-tax Rules for centering sheets and hence he disallowed the depreciation of Rs. 10,233.

2. Aggrieved against the refusal to grant investment allowance as well as depreciation the assessee went in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, following the order of the C-Bench of this Tribunal in ITO v. V. Ganesan [IT Appeal No. 392 (Mad.) of 1985 dated 11-12-1985] allowed the appeal and granted investment allowance. In the order of the Tribunal referred to in the impugned order of the Appellate Assistant Commissioner the Tribunal took the view that construction amounts to an industrial undertaking. The Appellate Assistant Commissioner, however, confirmed the Income-tax Officer's refusal to grant depreciation.

3. Aggrieved against the grant of investment allowance by the Appellate Assistant Commissioner, the department now came up in appeal against the impugned order of the Appellate Assistant Commissioner dated 28-1-1987. It is sought to be contended by the Revenue that the assessee does not manufacture or produce any article or thing as contemplated under section 32A(1) of the Income-tax Act, 1961 and hence he is not entitled to investment allowance. Reliance was placed upon the Delhi High Court decision in CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134, wherein it was held as follows as per the head-note : "The assessee, a private company, engaged in the business of construction of buildings, claimed that it should be charged at the concessional rate of tax of 55 per cent instead of 65 per cent on the ground that it was an industrial company as defined in section 2(6)(c) of the Finance (No.2) Act, 1971 and the Finance Act, 1972. Held that the assessee was not an 'industrial company' and was not entitled to be taxed at the concessional rate. The real activity of the assessee was to construct buildings which was not in the nature of processing or manufacturing of goods". The Revenue also sought to rely upon the 'A' Bench decision of the Tribunal in the case of Chidambaram Constructions Co. [IT Appeal No. 1851 (Mad.) of 1985 dated 17-6-1986]. So also it had sought to rely upon a Special Bench decision of the Delhi Tribunal in the case of ITO v. Hydle Constructions (P.) Ltd. [1983] 6 ITD 575. The Revenue also relies upon some other decisions of this Tribunal, for which reference is not properly given in the grounds of appeal. However, at the time of argument the learned departmental representative Shri Jha advanced his arguments by making use of only the three decisions which are already cited above. However, the learned departmental representative did not furnish the copy of the Madras Bench-A's decision in Chidambaram Construction Co.'s case sought to be relied upon by him. The learned counsel for the assessee on the other hand heavily relied upon the C-Bench decision of this Tribunal in V. Ganesan's case for which a copy is furnished to me. The learned counsel for the assessee also argued that the Delhi High Court decision in Minocha Bros. (P.) Ltd.'s case is clearly distinguishable since in that decision the assessment years involved were 1971-72 and 1972-73. The point involved in the reference before the Delhi High Court in that case was whether the assessee was an 'industrial company' within the meaning of section 2(6)(c) of the Finance (No.2) Act, 1971 and the Finance Act, 1972. However, in the case before us firstly we need not consider whether the assessee is an industrial company or not within the meaning of the Finance Act of the relevant year. Even assuming that such a consideration is necessary, the definition of the words 'industrial undertaking' underwent a change under the Finance Act, 1983 which came into force from 1-4-1983 and it is clearly applicable to the facts of this case, The words 'industrial company' was defined in the Explanation given under Paragraph E of Part II of the First Schedule under the Finance Act, 1983. The Explanation as well as the note thereunder are as follows : "Explanation : For the purposes of this Paragraph, 'Industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining. Note : For the purposes of this Explanation -- (i) a company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of the aforesaid activities included in its total income or the previous year (as computed before making any deduction under Chapter VI-A of the Income-tax Act) is not less than fifty-one per cent of such total income ; (ii) 'project' means a project for the construction of a building, road, dam, bridge or other structure or assembly or installation of any machinery or plant." The question whether a company carrying on business of civil construction work like construction of dams, bridges, etc. could or could not be considered as an industrial undertaking within the meaning of the Finance Act was already considered by the Special Bench of the Delhi Tribunal in Hydle Constructions (P.) Ltd.'s case on which reliance is placed by the Revenue itself. At page 594 the learned Special Bench held as follows : "It is true that by the amendment made in 1983, the definition of industrial company has been changed to include 'execution of project' as one of the activities and project includes construction works as well as assembly or installation of any machinery or plant. Thus, this activity as such has come to be included in the definition only after this amendment. In other words, a company engaged in construction of buildings, road, dam, bridge or other structures would get the benefit under the Finance Act, 1983, even if they do not involve the company in manufacturing or processing of goods to a substantial extent. However, our conclusion remains that a construction company like the assessee can get benefit of a lower rate of taxation if on facts it can be established that it is mainly engaged in the manufacture or processing of goods, even if such activity is a feeding activity for the construction work." Therefore whatever may be the position prior to 1983 after the Finance Act, 1983 a company engaged or a person engaged in the construction of building, road, dam or other structure would become an industrial undertaking within the meaning of Finance Act, 1983. This position would be fortified by the Special Bench decision on which reliance is sought to be placed by the Revenue itself, the ratio of which is extracted above. The learned counsel contended that either the case of the assessee falls under section 32A(2) or 32A(2A) the assessee should be granted investment allowance. Under section 32A(2) the assessee should fulfil the requirements of sub-section (b)(iii) which is as follows : "(b) any new machinery of plant installed after the 31st day of March, 1976, (iii) in any other industrial undertaking for the purpose 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."

Sub-section (2A) of section 32A is as follows : "The deduction under sub-section (1) shall not be denied in respect of any machinery or plant installed and used mainly 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, by reason only that such machinery or plant is also used for the purposes of business of construction, manufacture or production of any article or thing specified in the said list." The difference and distinction between the requirement under sub-section (2) and the requirement under sub-section (2A) may carefully be kept in mind. Whereas we see in sub-section (2) the word 'industrial undertaking', that word is not to be found in the wording of sub-section (2A). Under sub-section (2A) it is enough if a person carries on business of construction etc. Whereas it would appear that in order to fulfil the conditions of sub-section (2) the person carrying on business of construction should also be an industrial undertaking. Further for purpose of sub-section (2) no article or thing coming under the Eleventh Schedule should either be manufactured or produced by the industrial undertaking, whereas under sub-section (2A) even if during the course of the business of construction, if articles or things are either manufactured or produced some of which come under the Eleventh Schedule and some not, the assessee will be entitled to investment allowance.

4. After considering the above arguments advanced on both sides I am of the view that the authorities relied upon by the Revenue are clearly distinguishable. The Delhi High Court decision in Minocha Bros. (P.) Ltd.'s case was considering the definition of 'industrial undertaking' under the Finance Acts of 1971-72 and 1972-73 and certainly did not consider the position of an industrial undertaking after 1-4-1983. Even in Hydle Constructions (P.) Ltd.'s case the Special Bench clearly held at page 594, as was already extracted in the above paragraph, that after Finance Act, 1983 a company engaged in the construction of a building, road or other structures would get the benefit of the lower rate of tax under the Finance Act, even if it does not involve the company in manufacture or processing of goods to any substantial extent. The assessee is admittedly carrying on business in construction. Therefore, according to the Special Bench decision in Hydle Constructions (P.) Ltd.'s case as per the law after 1-4-1983 even though the assessee may not be able to show that it was manufacturing or processing any article or thing to any substantial extent, by virtue of the fact that it was engaged in the construction of a building it should be considered as an 'industrial company' within the meaning of Finance Act, 1983. Even assuming that the word 'industrial undertaking' which we come across in section 32A(2), is to be understood in the same manner in which an industrial company under the Finance Act, 1983 should be understood, the assessee fulfils the requirements of such 'industrial company' and the finding of the Income-tax Officer that the assessee is not an 'industrial undertaking' cannot be upheld. According to me during the course of business the assessee manufactures things like concrete mixture and assembles doors, windows and concrete slabs, etc. and constructs houses. Therefore the end-product of all the activities of the assessee is either the construction of house or a dam or a bridge or like construction. I hold that the assessee would be manufacturing goods or articles like the cement concrete slabs which do not come under the Eleventh Schedule. Therefore in my view the assessee is entitled to investment allowance both under the provisions of section 32A(2) and section 32A(2A) of the Income-tax Act, the provisions of which are already extracted above. Further in my opinion the C-Bench order in the case of V. Ganesan applies to this case and for this reason also the assessee is entitled to investment allowance. The learned departmental representative contended that when centering sheets were not considered either as plant or as machinery, furniture or fittings and when depreciation was refused on the value of such machinery for the relevant accounting year and when that finding was confirmed by the Appellate Assistant Commissioner and the said decision became Final, the Tribunal should not take into consideration the value of the centering sheets of Rs. 45,943 while granting the investment allowance. When centering sheets are not part of plant and machinery for purpose of depreciation, they should remain so even with regard to investment allowance and that therefore he urged that in any event investment allowance on the value of the centering sheets, viz., Rs. 45,943 should be denied to the assessee. This argument appears to be attractive at its first flush. On a careful consideration it cannot be accepted. Whether a particular article, thing, machine was rightly considered as plant and machinery for purpose of grant of depreciation need not bind me while granting investment allowance. The fact that the assessee did not appeal against grant of depreciation, in my opinion, does not debar the assessee to correctly put forth the nature of the plant and machinery which he employed in his business, and if he succeeds to establish that under correct appreciation, the articles or things which he employed are part of plant and machinery for purposes of investment allowance, then investment allowance should be granted whether or not depreciation was granted on those articles or things. In my opinion for purposes of granting investment allowance a separate finding whether a particular thing or an article employed in a business is part of plant and machinery is essential to be held. The Income-tax Officer and later the Appellate Assistant Commissioner denied depreciation on the ground that the centering sheets are part of capital assets. Whether they are capital assets or not is besides the point. Whether they should be considered as part of plant and machinery is the question. Even capital goods also can form part of plant and machinery. I hold that centering sheets also form part of plant and machinery and I also hold rejecting the argument of the learned departmental representative that the assessee is entitled to investment allowance of Rs. 20,441 which is originally denied by the Income-tax Officer. Since the Appellate Assistant Commissioner already allowed it I hold that no interference is called for with his order. Hence the departmental appeal is dismissed.

 

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