Income Tax Appellate Tribunal - Pune
Second Income-Tax Officer vs G.N. Agrawal (Huf) on 12 November, 1992
Equivalent citations: [1993]44ITD332(PUNE)
ORDER
T.V.K. Natarajachandran, Accountant Member
1. This is an appeal by the revenue which is directed against the order of the CIT(A), Belgaum dated 9-6-1987 wherein he allowed investment allowance on the barge engines and screening plant which has been disallowed by the Assessing Officer. Revenue has taken grounds to urge that the CIT(A) erred in his decision, that he ought to have considered the fact that the engines have been fitted to an old barge, which is not entitled to investment allowance and he ought to have considered that the assessee is not entitled to investment allowance on mining machinery as it is not engaged in any manufacturing activity. Reliance was placed on the judgment of the Supreme Court in the case of Idandas v. Anant Ramchandra Phadke AIR 1982 SC 127.
2. The assessee is a H.U.F. While computing the total income for the assessment year 1982-83 for which the accounting year ended on 31-3-1982, the Assessing Officer disallowed investment allowance of Rs. 1,54,665 claimed in respect of two Cummins Engines fitted to barge at the cost of Rs. 3,56,289 and the screening plant at the cost of Rs. 2,62,370 on the ground that the conditions laid down under Section 32A(2)(a) or 2(b)(u) and (UQ are not fulfilled.
3. On appeal, the CIT(A) held that the new engines fitted on the barge are entitled to investment allowance as barge is a ship and is used in the business of shipping. Alternatively, he held that investment allowance is admissible on the new engines because they could be categorised as machinery. Coming to the screening plant, he held that it was machinery used in mining. Therefore, he directed allowance of investment allowance on these two items. Hence the appeal by the revenue.
4. At the time of hearing, the learned departmental representative reiterated the grounds. In the grounds it has been stated that investment allowance was not admissible in respect of these two items as the conditions of Section 32A were not fulfilled. The two new engines were fitted into an old barge and therefore, they were not entitled to investment allowance. It was also stated that investment allowance is not admissible on mining machinery as it is not engaged in any manufacturing activity. For this proposition, reliance was placed on the decision of the Supreme Court in the case of Idandas (supra).
5. The learned counsel for the assessee has been duly heard and he has supported the decision of the CIT(A) on this point.
6. After due consideration, we are of the opinion that so far as investment allowance on the new engines fitted to the barge is concerned, they form part of the barge and per se,they could not be considered as machinery in contradistinction to new ship or new aircraft contemplated in Clause (2)(a) of Section 32A. We have arrived at this conclusion on the basis of the functional test laid down in Clause (b) of Sub-section (2) of Section 32A for the new machinery. Firstly, new machinery are such that they are to be in a position capable of being installed which pre-supposes that they should be independent machinery or plant and not part of any plant or machinery. From the point of view of ship the criterion laid down is it should be a new ship or new aircraft acquired after 31-3-1976 by an assessee engaged in the business of operation of ships or aircrafts and this requirement is not satisfied in respect of the new engines fitted on an old barge. Further Sub-clause (ii) requires that the new machinery or plant should be used in a small scale industrial undertaking for the purpose of business of manufacture or production of any article or thing. Sub-clause (iii) requires that they should be used in any other industrial undertaking for the purpose of business of construction, manufacture or production of any article or thing not being article or thing specified in the list in the Eleventh Schedui.e., There is no question of these two engines being capable of performing these operations contained in Sub-clause (iii) because they were fitted in an old barge which is itself not eligible to investment allowance. Therefore, the logic of the CIT(A) to treat them as machinery per se fails. If the two engines are treated as part and parcel of the ship the old barge does not satisfy the requirement of Sub-clause (a) of Sub-section (2) of Section 32A and therefore, it is not entitled to investment allowance. Thus from both points of view the assessee's claim for investment allowance which has been accepted by the CIT(A) is not tenable in law. The ratio of the Supreme Court in the case of Idandas (supra) lays down the test for process of manufacturing which was necessary to decide the issue as to the nature of the lease so as to ascertain whether the lessor should give one month's notice or six months' notice as the case may be for termination of the lease. It is only with reference to the contextual and textual issue the tests for manufacturing process were laid down. As we have already held earlier, these tests are not capable of being satisfied by the two engines.
7. Coming to the investment allowance on screening plant, we agree with the conclusion of the CIT(A) because the screening plant plays a vital role in mechanically separating the iron ore from other impurities, rock etc. so as to obtain sellable iron ore. In the case of Aditya Minerals (P.) Ltd. v. ITO [1988] 26 ITD 221, the Tribunal, A Bench, Hyderabad considered the question of investment allowance on machineries used in mining operations for production of manganese ore. After drilling about three to five feet, the rocks found were blasted and the rocks and material containing manganese ore were brought to the surface which were crushed by machines to sizes. These crushed materials were screened mechanically by machines which helped in separating various sizes of manganese ore as well as other country rocks and impurities found. Thereafter, the manganese ore were sorted out into different grades and the ore was finally washed to remove any invisible impurities from the ore. In these circumstances, the Tribunal held that investment allowance was admissible on machinery used in mining operations for producing manganese ore. It is relevant to point out that the Tribunal had duly taken note of the Judgment of the Supreme Court in the case of Idandas (supra) relied upon by the revenue in the grounds of appeal. The Tribunal also considered the judgment of the Supreme Court in the case of Chrestien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 and the Madras High Court in the case of CIT v. M.R. Gopal [1965] 58 ITR 598 wherein the process employed in converting boulders into small stones with the aid of machinery was held to be manufacturing process. What is applicable to the production of Mica and production of manganese ore is also applicable to the production of iron ore. Following respectfully the decision of the Tribunal in the case of Aditya Minerals (P.) Ltd. (supra), we uphold the decision of the CIT(A) on this issue and reject the ground taken by the revenue.
8. In the result, the appeal is partly allowed.