COMMISSIONER OF INCOME-TAX VS P.D. AGRAWAL & CO.
1999 P T D 1561
[226 I T R 924]
[Madhya Pradesh High Court (India)]
Before A.R. Tiwari and N.K. Jain, JJ
COMMISSIONER OF INCOME-TAX
Versus
P.D. AGRAWAL & CO.
Miscellaneous Civil Case No. 143 of 1993, decided on 04/04/1996.
----Investment allowance---Special deduction---Construction of buildings, .roads and dams---Does not amount to manufacture of production of articles or things---Not entitled to deduction under Ss.80-HHA & 80-J---Not entitled to investment allowance under S.32-A---Indian Income Tax Act, 1961, Ss.32-A, 80-HHA & 80-J.
The assessee was a registered firm engaged in the construction of dams, buildings, roads, etc. The assessee claimed investment allowance under section 32-A of the Income Tax Act, 1961 and deduction under sections 80-HHA and 80-J of the Act, which were not allowed by the Assessing Officer but were allowed by the Tribunal, On a reference:
Held, that the construction of buildings, roads and dams, etc. does not amount to manufacture or production of articles or things. Therefore, the assessee was not an industrial undertaking engaged in the manufacture or production of articles or things. The assessee was not entitled to deduction under sections 80-HHA and 80-J and investment allowance under section 32-A of the Act.
CIT v. Shankar Construction Co. (1993) 204 ITR 412 (SC) fol.
CIT v. N.C. Budharaja & Co. (1980) 121 ITR 212 (Orissa) ref.
D.D. Vyas for the Commissioner
Nazir Singh for the Assessee.
JUDGMENT
A.R. TIWARI, J.--- At the instance of the Department, the Tribunal has stated the case and referred the under noted questions of law on the application referred as R.As. Nos.54 to 57/Ind. of 1992 arising out of the order, dated January 22, 1992, passed in I.T.As. Nos.846, 847/Ind. of 1985 and I.T.As. Nos.678, 679 and 680/Ind. of 1988 for the assessment years 1980-81, 1981-82, 1983-84 and 1984-85, for our consideration and opinion:
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the assessee is an industrial undertaking engaged in the manufacture or production of articles or things and thereby holding that it is entitled to deduction under sections 80-HHA and 80-J of the Income Tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to investment allowance under section 32-A and whether construction of buildings, dams, roads, etc. amounts to manufacture or production of articles or things as envisaged under section 32-A of the Income Tax Act, 1961?"
Briefly stated, the facts of the case are that the assessee is a registered firm engaged in the business of construction of dams, buildings, roads, etc. The assessee was denied investment allowance under section 32-A as also deductions under sections 80-J and 80-HHA of the Income Tax Act, 1961 (for short "The Act) for (Annexures "A-1 to "A-4). On appeal, the Commissioner of Income-tax (Appeals) allowed deductions under sections 32-A, 80-J and 80-HHA for the assessment years 1980-81 and 1981-82. Aggrieved, the Department came in appeal. The investment allowance and deductions were disallowed for the assessment years 1983-84 and 1984-85 even by the Commissioner of Income-tax (Appeals). The assessee, therefore, came up in appeal for the assessment years 1983-84 and 1984-85. Both the parties thus, filed appeals. The Department filed appeals against the order relating to the assessment years 1980-81 and 1981-82, whereas the assessee filed appeals relating to the assessment years 1983-84 and 1984-85. The Tribunal held that the assessee-firm was an industrial undertaking. The Tribunal, therefore, allowed the deductions, for all the four assessment years and also allowed investment allowance for the assessment years 1983-84 and 1984-85. Aggrieved, the Department filed applications under section 256(1) of the Act. On the applications the Tribunal stated the case and referred the aforesaid questions.
We have heard Shri D.D. Vyas, learned counsel for the applicant, and Shri Nazir Singh, learned counsel for the non-applicant.
Section 80-HHA of the Act permits deduction in respect of profits and gains from newly established small scale industrial undertakings in certain-areas. Section 80-J of the Act permits deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases. Section 32-A of the Act deals with investment allowance. Section 32-A(2)(b)(iii) provides as under:--
(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."
Counsel for the none-applicant very frankly brought to our notice the decision in CIT v. Shankar Construction Co. (1993) 204 ITR 412 (SC) and submitted that the questions are required to be answered in favour of the Department. In the aforesaid decision, it is held as under (page 434):
"So far as the decision of the High Court under appeal is concerned, it appears to have concentrated more upon the meaning of the word 'industrial undertaking' and answered the question in favour of the assessee, holding that the assessee is ,an industrial undertaking within the meaning of the said sub-clause. Unfortunately, it has not adverted to the other requirement of the said sub-clause even though the Tribunal had referred to this aspect and had disagreed with the view taken by the Orissa High Court in N.C. Budharaja & Co.'s case (1980) 121 ITR 212. It must be remembered that the sub-clause is attracted only if all the requirements therein are satisfied besides the other requirements in the other provisions of the section. "
In view of the factual matrix and legal position, we are satisfied that the Tribunal was not justified in law in holding that the assessee was an industrial undertaking engaged in the manufacture or production of articles or things". It is held by the apex Court that the activity of construction of a dam could not be characterised as manufacture or production of an article within the meaning of the Act. The Tribunal, therefore, committed an error in allowing the benefit of deduction under sections 80-HHA and 80-J of the Act and also erred in granting investment allowance under section 32-A of the Act.. It is settled law that construction of buildings, roads and dams, etc. does not amount to manufacture or production of articles or things as envisaged under the Act.
The aforesaid decision, is fairly and frankly submitted by counsel for the non-applicant, concludes the matter against the assessee.
In the result, we answer both the questions in the negative, i.e. in favour of the Department and against the assessee.
This miscellaneous civil case is disposed of in terms indicated above, but without any orders as to costs. Counsel fee for each side is, however, fixed at Rs.750, if certified.
A copy of this order shall be transmitted to the Tribunal for further action as may be necessary under the law.
M.B.A./1981/FC ??????????????????????????????????????????????????????????????????????????????? Order accordingly.