Gujarat High Court
Mihir Textile Ltd. vs Commissioner Of Income-Tax on 29 August, 2000
Equivalent citations: [2001]252ITR686(GUJ)
Bench: D.M. Dharmadhikari, A.R. Dave
JUDGMENT
1. This reference is at the instance of the assessee under Section 256(1) of the Income-tax Act, 1961. The following questions of law have been referred to this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that payment for bank guarantee commission was an expenditure of capital nature ? (for the assessment years 1976-77 to 1978-79).
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that expenditure due to exchange rate difference was an expenditure of capital nature ? (for the assessment years 1976-77 and 1977-78).
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that export insurance and freight, export packing charges and export stitching charges were not eligible for weighted deduction under Section 35B of the Act ? (for the assessment year 1978-79).
4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessee for investment allowance under Section 32A with reference to electrical installation, electrification in workshop and extension of cable trench ? (for the assessment year 1978-79).
5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that expenditure in connection with issue of bonus shares was expenditure of capital nature and not deductible in the computation of total income ? (for the assessment year 1978-79)."
2. Learned counsel appearing for the assessee and the Revenue do not dispute that questions Nos. 1, 2, 3 and 5 are covered by decisions of the Supreme Court and the High Court.
3. Question No. 1 is answered in favour of the assessee to be concluded by the decision of the Supreme Court in CIT v. Sivakami Mills Ltd. [1997] 227 ITR 465.
4. Question No. 2 is concluded against the assessee by the decision in New India Industries Ltd. v. CIT [1993] 203 ITR 933 (Guj) and Mihir Textiles Ltd. v. CIT [1997] 225 ITR 327 (Guj).
5. Question No. 3 for weighted deduction under Section 35B of the Income-tax Act for export insurance, freight is concluded against the assessee by the decision in CIT v. Official Liquidator, Ahmedabad Manufacturing and Calico Printing Co. Ltd. [2000] 244 ITR 156 (Guj), and so far as export stitching charges are concerned, it is concluded against the assessee by the decision in Wintex Mills Ltd. v. CIT [1994] 205 ITR 476 (Guj).
6. Question No. 5 is also concluded against the assessee by the decision of the Supreme Court in Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798. The only question that survives for being answered by us is question No. 4 which is as under :
"4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessees for investment allowance under Section 32A with reference to electrical installation, electrification in workshop and extension of cable trench ? (for the assessment year 1978-79)."
7. At the outset, learned counsel did not press his claim for investment allowance under Section 32A for cable trench as the amount involved is very small. On behalf of the assessee, however, the claim for investment allowance under Section 32A with reference to electrical installation and electrification in workshop has been pressed.
8. As is pointed out by learned counsel for the assessee in the assessment order, the assessee had claimed a sum of Rs. 15,492 as investment allowance for electrical installation in loom shed and Rs. 30,843 for electrifiation in mechanical workshop. The said claim for investment allowance has been disallowed. The Commissioner (Appeals) maintained the disallowance by observing :
"22.2 Regarding items Nos. 5, 6 and 7, these are electrical installations and unless it is established that they are part and parcel of the plant and machinery then only investment allowance is admissible. The description given does not indicate that these can be treated as part and parcel of the machinery and plant. These are electrical installations supplying power to the 'plant and machinery'. The Income-tax Officer is right, therefore, in rejecting the claim of the assessee's investment allowance on these items."
9. The Appellate Tribunal maintained the disallowance by observing in its order thus :
"31, After hearing both the parties, we are of the opinion, that the assessee's claim was rightly rejected in so far as electrification work is concerned. So far as the cost of trolley is concerned the assessee's claim must succeed as it would be a part of the plant used in the process of manufacture of textiles. The claim in this regard is therefore allowed. The assessee has claimed investment allowance in respect of the following items.
Rs.
1. Duplicating machine 11,655
2. Electric calculating machine for the factory 5.625
3. Typewriter in the factory 3,903
4. Internal telephone installed in the factory 1,618
5. E1ectric installation in loom shed 15,492
6. Electrification in mechanical workshop 30,843
7. Extension of cable trench 2,416 The authorities below rejected the claim of the assessee on the ground that the investment allowance was admissible on such items of machinery which are purchased by the assessee and used in the production or manufacture of articles or things. Since the aforesaid items did not fulfil the above test the claim of the assessee was not tenable. In our opinion, the assessee's claim has been rightly rejected except in regard to item No. 4 relating to internal telephone. So far as this item is concerned in view of the decision reported in (CIT v. Mohan Meakin Breaweries Ltd. [1980] 122 ITR 203 (HP)), the assessee's claim in regard to the said item must succeed."
10. Learned counsel for the assessee placed reliance on the Division Bench decision of the Calcutta High Court in CIT v. Tribeni Tissues Ltd. [1994] 206 ITR 92 and the Division Bench decision of the Bombay High Court in Zenith Steel Pipes Ltd, (No. 1) v. CIT [1990] 186 ITR 500. The taxing authorities have disallowed the claim for investment allowance under Section 32A by holding that electrification and electrical installation were not investment for the plant.
11. For the purpose of availing of investment allowance under Section 32A of the Act, the equipment or installations even though not directly used in the manufacturing process should be necessary for it. The Division Bench decision of the Calcutta High Court in the case of Tribeni Tissues Ltd. [19941 206 ITR 92, rejecting similar contention of the Revenue, held as under, with which we find ourselves in respectful agreement (headnote):
". . . that the Assessing Officer had made a demarcation as between machines and equipment used directly in the manufacturing processes and machines and equipment used in the accessory part of the manufacturing process. Such division of the manufacturing process did not stand to reason or practicality. One may or may not conceive of certain parts or stages of the process as principal process and the rest as accessory processes but that makes no difference to the fact that all processes taken together constitute an indivisible integral process. As a matter of fact, all machinery and equipment that is necessary to make the assessee's manufacturing unit in a state of operational integration pertain to its manufacturing process, because there could not be any manufacture unless this operational integration was achieved after installation of the plant and the plant goes operational. Therefore, any machinery or plant having a link, however minor, in the total process of the operational integration should be taken as machinery or plant pertaining to the manufacturing process. Therefore, the assessee was entitled to investment allowance under Section 32A on motors, electrical installations, underground cables, overhead cables and air-conditioning machines."
12. From the judgment of the Tribunal, we find that item No. 14, i.e., claim for investment allowance for telephone installation in the sum of Rs. 1,680 was allowed on the decision in Sivakami Mills Ltd. v. CIT[1979] 120 ITR 211. Having thus allowed telephone installation charges as investment allowances, it is rather surprising that the Tribunal did not accept the claim of the assessee for investment allowance so far as the electrical installations and electrification in mechanical workshop. It is not difficult to see that these electrical installations and electrification in mechanical workshop were necessary for the manufacturing processes in the plant. The decision of the Division Bench of the Bombay High Court in the case of Zenith Steel Pipes Ltd. (No. 1) [1990] 186 ITR 500 also fully supports the contention advanced on behalf of the assessee.
13. For the reasons discussed above, in our opinion, question No. 4 on the claim of the assessee for investment allowance under Section 32A of the Act with respect to electrical installation and electrification in mechanical workshop has to be allowed. Question No. 4 is answered in favour of the assessee. The reference application is accordingly disposed of with no orders as to costs.