Calcutta High Court
Commissioner Of Income-Tax vs Babcock And Wilcox Of India Ltd. on 20 August, 1999
Equivalent citations: [2000]241ITR583(CAL)
JUDGMENT Y.R. Meena, J.
1. On these five reference applications, i.e., Income-tax Reference No. 5 of 1987, Income-tax Reference No. 41 of 1990, Income-tax Reference No. 70 of 1987, Income-tax Reference No. 93 of 1987 and Income-tax Reference No. 199 of 1993, the Tribunal has referred the following questions for our opinion :
2. The common question for the assessment years 1978-79 and 1979-80 in Income-tax Reference No. 41 of 1990 and Income-tax Reference No. 5 of 1987 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the claim of the investment allowance of the assessee under Section 32A of the Income-tax Act, 1961, and in that view was correct in modifying the order of the Commissioner of Income-tax passed under Section 263 of the Income-tax Act, 1961, for allowing the claim ?"
3. The common question in the assessment years 1978-79 to 1981-82 and 1983-84 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee fulfilled the conditions laid down in Section 32A of the Income-tax Act, 1961, and in that view upholding the order of the Commissioner of Income-tax (Appeals) allowing the assessee's claim for investment allowance amounting to Rs. 20,39,759 under Section 32A of the said Act, for the assessment year 1981-82 ?"
4. Since a common question of law is involved in all these reference applications, we dispose of these reference applications by this common order. The only difference in the facts in Income-tax Reference No. 41 of 1990, for the assessment year 1978-79 and Income-tax Reference No. 5 of 1987, is that initially, the Income-tax Officer in his regular assessment order allowed investment allowance under Section 32A of the Income-tax Act, 1961, but that assessment order was set aside by the Commissioner of Income-tax under Section 263 of the Act who directed the Income-tax Officer to withdraw that investment allowance. That order was challenged and finally, the Tribunal has taken the view that the assessee is entitled for investment allowance under Section 32A of the Act.
5. The assessee was engaged in the business of erection and commissioning of power and industrial boilers as sub-contractor of a holding company, namely ACC Vickers Babcock Limited. The holding company manufactures all the parts of the boilers and on an order of a person, all the parts were sent to the site and thereafter, the assessee-company operated to erect the boiler. The assessee claimed, on the basis of this erection of the boiler that the assessee is a manufacturer of boilers, therefore entitled for investment allowance, on plant and machinery, which it used, for the purpose of manufacture of articles or things.
6. The case of the assessee is that erection of boilers is amounting to manufacturing of boilers. Therefore, the plant and machinery which the assessee has used for erection of the boiler is entitled for investment allowance on that machinery under Section 32A of the Act. The investment allowance was allowed by the Income-tax Officer. Thereafter, the Commissioner of Income-tax on perusal of the assessment record of the assessee for the assessment years 1978-79 and 1979-80 found that though the assessee is erecting the boiler, but there is no manufacturing activity. He issued show-cause notice why that investment allowance should not be withdrawn. After considering the explanation, the Commissioner of Income-tax was of the view that by erection of the boilers the assessee is not engaged in manufacturing and production of articles or things. He set aside the order of the Income-tax Officer on this point and directed him to make a fresh assessment order withdrawing the investment allowance, allowed to the assessee under Section 32A of the Act.
7. In appeal before the Tribunal, the Tribunal has considered its order in Singh and Jain Engineers (P.) Ltd. in I.T.A. No. 1187 (Cal) of 1982 and also the decision of the Orissa High Court in CIT v. N. C. Budharaja and Co. [1980] 121 1TR 212. Following these decisions, the order of the Commissioner of Income-tax under Section 263 was set aside, holding that the assessee is entitled to investment allowance under Section 32A of the Act. In the other assessment years the Tribunal has followed its view taken in the assessment years 1978-79 and 1979-80 and held that the assessee is entitled for investment allowance under Section 32A of the Act of 1961.
8. In a reference before us, learned counsel for the Revenue, Mr. Agarwal, submits that the Tribunal has followed the decision of the Orissa High Court and now the decision has been reversed by the Supreme Court in CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412. He further submits that the meaning of "erection" should not be stretched to treat it as manufacturing. The definition is not given. The normal meaning should be taken at the word used.
9. On the other hand, learned counsel for the assessee, Dr. Pal, submits that a holding company which manufactures the parts of the boiler simply supplying parts of the boiler at the site and thereafter the sub-contract has been given to the assessee for erection of the boiler in a factory. The assembling of parts is as good as manufacturing. He placed reliance on Name Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise . He further submits that even any machinery or parts thereof, including the boiler if embedded in the earth, that does not lose its movable character. For that, he placed reliance on the decision of the Supreme Court in Sirpur Paper Mills Ltd. v. Collector of Central Excise, . He further submits that after some process or assembling if the end-product is different, that is as good as manufacturing of articles or things.
10. The admitted facts are that the assessee-company is a subsidiary company of ACC Vickers Babcock Limited. If any order is placed by any person to the holding company, ACC Vickers Babcock Limited, the holding company supplies all the parts of boiler to erect the boilers at the site for erection of boiler. The holding company sublet that contract to the assessee to erect the boiler.
11. The question for Our consideration is whether the erection of a boiler by the assessee is a manufacturing activity as referred in Section 32A of "industrial company" within the meaning of Clause (3) of Sub-section (2) of Section 32A and whether the assessee manufactures any article or thing.
12. The main question for our consideration in the reference application is whether the Tribunal is justified in allowing the claim of the assessee for investment allowance under Section 32A, while the job of the assessee is to erect the boiler. The expression "erect" is not defined under the provisions of this Act for the purpose of investment allowance under Section 32A of the Act. In a note submitted by learned counsel, Dr. Pal, it is stated that all the parts of the boiler are manufactured by the holding company but for erection, the assessee requires highly skilled persons, plant and machinery, such as machinery like cranes of various edges, discs of various edges and welding generator and that the boiler also can be shifted by dismantling and that can be erected in some other place. Therefore, it is a movable article. Therefore, merely because it is imbedded in the earth, it does not lose its character of movable article. For that Dr. Pal places reliance on the decision of the Supreme Court in Sirpur Paper Mills Ltd. v. Collector of Central Excise, .
13. In paragraph 4, their Lordships observed that, if the appellant wanted to sell the paper making machine, it can be shifted from one place to another. When it can be shifted, it cannot be treated as immovable property. Dr. Pal submits that when the machine installed and imbedded in the earth it does not lose its character of movable property. So is the case with boilers. When a boiler is fixed and erected in a particular industry it can be shifted to some other place by dismantling" and can be removed and erected in some other places. Therefore, the boiler is an article or thing. It cannot be put at par with dam, canal or roads as referred to in the decision of the Supreme Court in N. C. Budharaja's case [1993] 204 ITR 412.
14. We do not agree with the submission of Dr. Pal that a boiler is a movable article or thing. The admitted facts are that all the parts of the boiler are supplied and transported to the site and at the site the assessee has with the help of those parts to erect the boiler and if the assessee wants to shift that boiler to some other place, the boiler has to be dismantled and only the parts which were supplied by the holding company can be transported and again the boiler can be erected at new place. Therefore, the boiler itself in intact position cannot be shifted. First the boiler has to be dismantled and its parts are to be transported to some other place for erection of a boiler. What are movable things or articles are the parts of the boiler and not the boiler which has been erected. Therefore, the boiler which was erected cannot be said as a movable article or thing.
15. Dr. Pal further submits that the investment allowance is permissible in case the assessee manufactures or produces any articles or things. The word "production" has a wider meaning. In the case of production, manufacturing is not necessary and if he produces articles or things, the assessee is entitled for investment allowance. Therefore, even the assembling of parts in some cases is a manufacturing activity. But in assembling of parts the end-product should be different. He places reliance on Name Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise . In Name Tulaman Manufacturers Pvt. Ltd.'s case , their Lordships have considered the provisions of Section 2(f) of the Central Excises and Salt Act, 1944, and considered whether any process by which an object becomes new commercial goods having a distinctive name, character or use would be manufacture and can it be said that it is a manufacturing activity ? Their Lordships held that since a new product known in the market and falling under the tariff item "weighbridges" came into being and the manufacturer of weighbridges is liable to pay excise duty.
16. Admittedly, there is no definition of "manufacture or production" given under the Act of 1961, for the purpose of Clause (3) of Sub-section (2) of Section 32A.
17. Therefore, we have to go by the normal dictionary meaning or the meaning which is understood in common parlance. In Webster's New Dictionary, the meaning of "erection" has been given as under :
" 'Erect' upright-v.t. set up, build, erectile a.erection, n.erection (L.erectus, upright)."
18. The question for consideration is, when the assessee erects by way of assembling the parts supplied to it by its holding company and gives shape to a boiler, can it be said that it is a manufacturing activity of the assessee ? The erection is as good as installation or setting up or building the boiler at site. It cannot be equated with the manufacture of an article or thing. While allowing the claim of the assessee, the Tribunal has heavily relied on the decision of the Orissa High Court in N. C. Budharaja's case [1980] 121 ITR 212. That decision has been overruled by the apex court in N. C. Budharaja's case [1993] 204 ITR 412. While reversing the view taken by the Orissa High Court, their Lordships observed at page 425 as under : "The High Court was not right in dissociating the said word from its context, viz., the preceding words, which has led them to attach an unnatural meaning to the said word."
19. When the word or phrase is not defined under the Act, a normal mean ing of that word should be taken, which is understood in common parlance.
20. The word "erection" has not been used in Clause (3) of Sub-section (2) of Section 32A. In such a case how erection of boiler can be treated as manufacturing of boiler by way of assembling the parts of the boiler and erecting it in a factory. We cannot equate it with weighbridges which are manufactured after assembling some different parts and can be removed and are known in the market with a distinctive name from the parts assembled. In the case in hand the parts of the boiler were known as parts of boiler and not in the different names in the commercial market. Therefore, no new product has come into existence. Thus, the case relied upon by learned counsel Dr. Pal, has no application on the facts of this case.
21. In the result, we answer the question referred in these reference applications in the negative, i.e., in favour of the Revenue and against the assessee. These reference applications are disposed of accordingly.
22. All parties are to act on a xeroxed signed copy of the operative part of this judgment on the usual undertaking.