Calcutta High Court
Khalsa Brothers vs Commissioner Of Income-Tax on 9 July, 1993
Equivalent citations: [1996]217ITR185(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. These two references relate to the assessment year 1981-82 for which the relevant accounting year ended on March 31, 1981. The assessee, a registered firm, purchased machinery worth Rs. 16,23,348 for use and claimed investment allowance of Rs. 4,05,812 under Section 32A of the Income-tax Act, 1961. The assessee-firm was engaged in removing overburdens and raising of coal in Rajpura Colliery under the Eastern Coalfields Ltd. It was claimed that the work undertaken by the assessee-firm was a process which was normally carried on by a coal miner engaged in open cast mining and further claimed to be treated as an industrial undertaking eligible for investment allowance under Section 32A of the Act. The assessee also filed a letter of intent dated December 27, 1980, and a certificate dated February 22, 1984, from the agent of Rajpura Colliery. The Income-tax Officer found that the letter of intent indicated that the assessee would be paid at certain rate as hiring charges of heavy earth moving machinery. It was pointed out that from the tax deduction certificate issued by the collieries it was noticed that the payments were made against the contract for hiring the aforesaid machinery. The Income-tax Officer further stated that the certificate of the agent of the colliery was of a general nature stating that the assessee was engaged in extracting coal from collieries including removal of overburdens. The Income-tax Officer further pointed out that the certificate did not mention that the assessee was given a contract for mining work and on the other hand, the letter of intent and tax deduction certificate showed that the contract was for the hire of machinery on fixed rates depending on the nature of work and the quantum of work done by such machines. The assessee, however, claimed that it carried on the business of mining contract which the Income-tax Officer, however, did not accept and expressed a view that even if the firm was engaged in mining coal under the contract the mere act of being engaged in removing the overburdens and extracting coal for others would not make the assessee an industrial undertaking. Therefore, its claim to investment allowance was rejected.
2. In appeal before the Commissioner of Income-tax (Appeals), the assessee contended that the assessee was engaged in the job of cutting, drilling and blasting stones and transportation of those articles within the specified distance as evident from the letter of intent and the certificate from the agent of Rajpura Colliery.
3. The Commissioner of Income-tax (Appeals) observed that the letter of intent described the contract as one for hiring heavy machinery. But the nomenclature was neither accurate nor decisive. He pointed out that the rate of payment was fixed with reference to the work done, i.e., the cutting, removing of earth, stories, coal, etc. He further noted that the assessee did not lease or let out the machines on hire and if it was engaged therein it was doubtful that the claim for investment allowance could be denied to the assesses as the machinery continued to be with the assessee. The Commissioner of Income-tax (Appeals) referred to the decisions reported in Ajodhya Prasad Tara Chand Khekra v. CIT [1967] 66 ITR 576 (All) and CIT v. Castlerock Fisheries and further noted that the assessee was engaged in the job of removing the overburden, cutting and transportation of earth, stones and coal with the help of the machines used by it and with its own employees for which the colliery made payments with reference to the actual amount of work done and not with reference to the period for which the machines were used. The Commissioner of Income-tax (Appeals) came to the view that the work of the assessee constituted a process of production of coal at Rajpura Colliery and the process undertaken by the assessee was one of the normal processes. The coal mines employed the open cast mining method. Therefore, this case would come within the scope of Sections 32A and 32A(2)(b)(iii). Reference was also made to the decision of the Bombay High Court in CIT v. Pressure Piling Co. (India) P. Ltd. [1980] 126 ITR 333. Therefore, the Commissioner of Income-tax (Appeals) directed the Income-tax Officer to allow investment allowance on the said machines.
5. Being aggrieved by the said order in first appeal, the Revenue came up in second appeal before the Tribunal. Upon hearing the parties and examining the material placed before it, the Tribunal expressed the view that by cutting earth, stones, etc., for transportation to a distance of 1 km. no article or thing was produced. It further held that earth cutting, blasting of stones or coal and transportation of the same for short distances involved in an open cast mine cannot be said to be an activity of the nature of an industrial activity for the purpose of Section 32A of the Act. It further held that the letter of intent indicated that the assessee was engaged for the purpose of mining coal or extracting coal on behalf of the colliery concerned. Having regard to the entirety of the facts and circumstances of the case and the materials available on record and also having regard to the finding recorded by the authorities below, the Tribunal held that the assessee's activities cannot be considered as involving industrial activity so that the allowance available under Section 32A could arise. Thus, the order of the Commissioner of Income-tax (Appeals) on the point was reversed and that of the Income-tax Officer restored. From this set of facts, the Tribunal has referred the following two questions for our opinion, one under Section 256(1) and the other under Section 256(2) of the Income-tax Act, 1961 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the activities of the assessee cannot be treated as industrial activities and in that view of the matter, in further holding that allowance allowable under Section 32A of the Income-tax Act, 1961, cannot be extended to the assessee ?
2, Whether, on the facts and in the circumstances of the case and in view of the evidence on record, the decision of the Tribunal that the assessee was not engaged in the business of production of coal was perverse ?"
6. In this case, the assessee purchased machinery and used it itself in its work and did not give it on hire. The money received was not the hiring charge but for the work done utilising the machinery with its own staff. Item No. 3 of the letter of intent shows that the approved rate was for cutting, drilling, blasting and loading of coal and transporting and unloading within a distance of 1 km. The agreement by and between the assessee and the Eastern Coal Fields Ltd. provided that the assessee would undertake work which consisted of the following three phases :
"(a) remove the crust of the earth being the overburden and to dump the same under the direction at a certain distance ;
(b) blast the stone and remove the same and dump the same again at a certain distance as per direction. Completion of these two phases form the construction of coal mine ;
(c) thereafter finally blasting the coal belt and store the coal lifting the same to a place as per direction."
7. As would be evident from the narration of facts, the assessee was engaged for the purpose of mining of coal and/or extraction of coal on behalf of the collieries concerned. The fact remains that the assessee, in this case, was engaged in producing coal.
8. For the foregoing reasons and in view of the reasons contained in the judgment of the day delivered in Income-tax Reference No. 34 of 1987 (CIT v. Mercantile Construction Co.), we answer the first question in the negative and the second question in the affirmative and both in favour of the assessee and against the Revenue.
9. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
I agree.