Madhya Pradesh High Court
Commissioner Of Income-Tax vs Mewara Construction on 6 August, 2001
Equivalent citations: [2002]253ITR58(MP)
Bench: J.G. Chitre, A.M. Sapre
JUDGMENT
1. This is a reference made by the Tribunal at the instance of the Revenue under Section 256(2) of the Income-tax Act, 1961, to answer the following question of law :
"Whether, on the facts and in the circumstances of the case, the assessee is entitled for investment allowance under Section 32A when its activity is construction of road ?"
2. The aforesaid question arises on the following facts as contained in the statement of case sent by the Tribunal.
3. The assessee is a firm engaged in the business of civil contracts. It also claims to undertake the work of construction of roads. For the assessment year 1987-88, the assessee claimed investment allowance of Rs. 1,62,163 in respect of the machinery costing Rs. 6,48,651 under Section 32A of the Act. The Assessing Officer negatived the claim of the assessee and declined to grant the relief so claimed. The assessee then filed appeal to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed the appeal filed by the assessee and held that looking to the business of assessee, they are entitled to claim the investment allowance on the amount invested in machinery. The Revenue, therefore, filed an appeal to the Tribunal against the order of the Commissioner of Income-tax (Appeals). The Tribunal dismissed the appeal and upheld the order of the Commissioner of Income-tax (Appeals). The Revenue then requested the Tribunal to refer the question to this court under Section 256(1) of the Act for answer. Since the Tribunal declined to make the reference sought, the Revenue came to this court under Section 256(2) of the Act. This court in M. C. C. No, 342 of 1992 by its order dated March 26, 1996, allowed the application made by the Revenue and asked the Tribunal to refer the aforesaid question of law said to arise out of the order of the Tribunal. It is then the Tribunal referred the aforesaid ques-tion to this court for answer on the merits.
4. Heard Shri Patankar, learned counsel for the Revenue and Shir G. M. Chafekar, learned senior advocate, assisted by Shri J. K. Jain, for the respondent.
5. Learned counsel for the Revenue urged that the question referred to this court now stands concluded by the decision of the apex court rendered in the case of CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, which was rendered pending this reference. It was his submission that in view of the law laid down by their Lordships in Budharaja's case [1993] 204 ITR 412 (SC), the answer to the question has to be in favour of the Revenue for the reason that the activity undertaken by the assessee in this case does not amount to manufacture like the one involved in N. C Budharaja's case [1993] 204 ITR 412 (SC), and hence the assessee cannot claim the investment allowance under Section 32A of the Act on an investment that they have made on machinery.
6. In reply learned counsel for the assessee made an attempt to distinguish the case of N.C. Budharaja [1993] 204 ITR 412 (SC). According to learned counsel in view of the facts found in this case, the ratio of N. C. Budharaja's case [1993] 204 ITR 412 (SC), has no application to the facts of this case.
7. Learned counsel urged that in the present case the assessee is found to be engaged in the construction of roads which involves manufacturing activities and hence attracts the provisions of Section 32A ibid. Learned counsel also relied on two decisions reported in CIT v. Bakhtawar Singh [1997] 228 ITR 614 (MP) and CIT v. Asian Techs Ltd. [1997] 226 ITR 672 (Ker).
8. Having heard learned counsel for the parties and having perused the entire record of the case, we are of the view that this reference has to be answered in favour of the Revenue rather than of the assessee.
9. In our opinion, the question involved in this reference is squarely covered and answered by the Supreme Court in the case of N. C. Budharaja [1993] 204 ITR 412. One of the questions that fell for consideration before their Lordships was whether the construction of a dam (reservoir) can be characterised as amounting to manufacturing or producing an article or articles, as the case may be. Their Lordships then examined the literal meaning of the words "manufacture" and "article" in the context of Section 80HH and Section 32A ibid and held as under (page 424) :
"Can we say that the word 'articles' in the said clause comprehends and takes within its ambit a dam, a bridge, a building, a road, a canal and so on ? We find it difficult to say so. Would any person who has constructed a dam say that he has manufactured an article or that he has produced an article ? Obviously not. If a dam is an article, so would be a bridge, a road, an underground canal and a multistoried building. To say that all of them fall within the meaning of the word 'articles' is to overstrain the language beyond its normal and ordinary meaning. It is equally difficult to say that the process of constructing a dam is a process of manufacture or a process of production. It is true that a dam is composed of several articles; it is composed of stones, concrete, cement, steel and other manufactured articles like gates, sluices, etc. But to say that the end-product, the dam, is an article is to be unfaithful to the normal connotation of the word. A dam is constructed; it is not manufactured or produced. The expressions 'manufacture' and 'produce' are normally associated with movables -- articles and goods, big and small-- but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building. The decisions of the Bombay High Court in CIT v. N. U. C. Private Ltd. [1980] 126 ITR 377 and in CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696, relied upon by Sri Murthy, are no doubt not decisions rendered under Section 80HH or under Section 84--they arose under the relevant Finance Acts, the question being whether the assessees were industrial companies--but they do contain observations which tend to support the stand of the Revenue."
10. Their Lordships also ruled that if dam is not an article so would be a bridge, road, an underground canal. So one can safely conclude that the ratio of N. C. Budharaja's case [1993] 204 ITR 412 (SC is that construction of road also does not involve any manufacturing articles and hence no benefit can be given to the assessee to claim investment allowance under Section 32A of the Act. We cannot, therefore, agree to the submission of learned counsel for the assessee on this issue. We, therefore, hold that the issue involved in this case squarely falls and is covered by the decision of the Supreme Court rendered in the case of N. C. Budharaja [1993] 204 ITR 412. In our opinion, therefore, the view taken by the Commissioner of Income-tax (Appeals) and lastly by the Income-tax Appellate Tribunal is not correct view and hence has to be answered in favour of the Revenue.
11. In our opinion, the two cases cited by learned counsel for the assessee are not applicable to the facts of the case and they are distinguishable. So far as the case reported in CIT v. Asian Techs Ltd. [1997) 226 ITR 672 (Ker) is concerned it was a case under Section 256(2) of the Income-tax Act. Their Lordships were only concerned with the question whether to call for a question for answer on the merits or not. In the opinion of their Lordships the question of law did arise and, therefore, while allowing the application made by the Revenue under Section 256(2) ibid, the High Court directed the Tribunal to refer the question to the High Court for answer on the merits. This decision cannot be cited for the proposition advanced by learned counsel for the assessee as it did not decide any issue much less the issue on the merits and that too in favour of the assessee. Indeed, in this decision, the only question was whether a question of law arose out of the Tribunal's order or not. This decision, therefore, does not help the assessee at all. Similar is the case relied on by learned counsel for the assessee reported in CIT v. Bakhtawar Singh [1997] 228 ITR 614 (MP). In this case also their Lordships instead of answering the reference on the merits declined to do so and remanded the case to Tribunal to redetermine the issue in the light of the law laid down by the Supreme Court in N.C. Budharaja's case [1993] 204 ITR 412. This decision also, therefore, does not lay down any law so as to take any different view on the issue.
12. Accordingly and in view of the aforesaid discussion, we answer the question referred in the affirmative (sic) and in favour of the Revenue and against the assessee.
13. No costs.