Income Tax Appellate Tribunal - Ahmedabad
Rashron Heavy Engg. (P.) Ltd. vs Income-Tax Officer on 14 July, 1992
Equivalent citations: [1992]43ITD355(AHD)
ORDER
R.L. Sangani, Judicial Member
1. This appeal by the assessee relates to the assessment year 1983-84.
2. In the course of assessment proceeding the assessee claimed to be an industrial company and pleaded that concessional rate of tax applicable to industrial company should be applied. The assessee also claimed deduction under Section 80-I of the Income-tax Act, 1961 on the ground that the assessee had carried on activity of manufacture of articles. The ITO rejected both the claims of the assessee.
3. The ITO noted that the assessee-company had been incorporated on 1-8-1980 the first return had been submitted for the period from 1-10-1981 to 30-9-1982 and that the assessee's own project was under construction during the year. The assessee had manufactured 'plate bending machine' by getting various components manufactured from other engineering units and assembling them at the assessee's shop under the supervision of the directors of the company. However, the ITO did not take into account the said activity of the assessee for deciding the question whether the assessee was an industrial company and whether concessional rate of tax was applicable and also to decide whether deduction under Section 80-I was allowable to the assessee.
4. The ITO laid stress on the fact that auditors in their report had stated that the regular business of the assessee had not commenced and that regular manufacturing activity had not started and that as far as the main project was' concerned no depreciation in respect of plant and machinery had been claimed and that the expenses regarding the project had been capitalised. According to the ITO the assessee's industrial undertaking could not be said to have started functioning and as such the above mentioned relief claimed by the assessee could not be granted.
5. The assessee filed appeal before the Dy. CIT (A). The Dy. CIT (A) also relied on the observations of the auditors and the directors in their reports which indicated that as far as main project was concerned no purchase of raw materials had been made and that manufacturing activity pertaining to the main project had not commenced. The Dy. CIT (A) confirmed the order of the ITO. The assessee is now in further appeal before the Tribunal.
6. The learned counsel for the assessee submitted that the assessee had procured orders for fabrication of the manufacture of plate bending machine during the year under consideration and had executed the said contract. The said activity was activity of manufacture of goods and hence the assessee was an industrial company and deduction under Section 80-I was available. It was submitted that the mere fact that main project was still under construction would be irrelevant. The submission on behalf of department, on the other hand, was that when the main project was still under construction in the relevant year the assessee could not be regarded as industrial company and no relief under Section 80-I was available.
7. I have considered the rival submissions and facts on record. In the report of the director it is specifically mentioned as under :
Pending completion of the project, your company had procured order for fabrication/manufacture of one machine which was successfully executed. This being done on hire basis the job resulted in a meagre profit of Rs. 5,900 from it preliminary expenses in part had been written off... your directors are hopeful for commencing commercial production during the current year.
In the profit and loss account the sales have been shown at Rs. 2,29,978 against which raw materials and components consumed are shown at. Rs. 1,94,587. This figure has been arrived at by deducting closing stock of raw materials and components (Rs. 1,61,675) from the purchase price of raw materials and components including job work charges of Rs. 55,000 at Rs. 3,56,262. The details of raw materials purchased had been given before the Assessing Officer and the same has also been filed in the paper book. The memorandum of association of the assessee empower the assessee to carry on the business of manufacturing 'mechanical and industrial plants and machineries, machine tools etc.'. From the facts on record it is obvious that the assessee had manufactured during the year under consideration plate bending machine and had sold the same. It is true that the components were manufactured by other engineering units and that they were assembled at the workshop of the assessee. However, this would not mean that the assessee had not manufactured the said machine. The manufacture of components at other engineering units had taken place under the supervision of the directors of the assessee-company. The necessary raw materials, components tools etc., were purchased by the assessee-eompany itself from various parties as per the list enclosed in the paper book and various components were mostly got manufactured as per designs and drawings submitted by the assessee-eompany under the supervision of the two directors of the assessee-company who were mechanical engineers. The basic technical know-how in this activity had been supplied by the two directors who were mechanical engineers. In these circumstances the activity of the assessee would be regarded as activity of manufacture of the said plate bending machine. On the principle laid down in several decisions including Griffon Laboratories (P.) Ltd. v. CIT [1979] 119 ITR 145 (Cal.). Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 (Cal.), Orient Longman Ltd. v. CIT[1981] 130 ITR 477 (Delhi), CIT v. Neo Pharma (P.) Ltd. [1982] 137 ITR 879 (Bom.), CIT v. Acrow India Ltd. [1991] 188 ITR 485 (Bom.) and CIT v. Anglo French Drug Co. (Eastern) Ltd. [1991] 191 ITR 92 (Bom.). The Circular of CBDT No. 347, dated 7-7-1982 published in 137 ITR 40 (St.) expressly lays down that the Board had accepted the view expressed in certain decisions to the effect that it was not necessary that the assessee itself should carry on the entire activities of manufacture and that it was enough if such activity was carried on with the aid of other units under the supervision of the assessee. Considering the entire circumstances I hold that the fact that the main project was still under construction was irrelevant and that the activity of the assessee of manufacture of plate bending machine would entitle the assessee to claim the status of industrial company and claim benefit of concessional rate of tax. The assessee was also entitled to claim deduction under Section 80-I if other conditions are fulfilled. I, therefore, direct the ITO to treat the assessee as industrial company and to grant relief under Section 80-I of the Act if other conditions are fulfilled.
8. In the result the appeal is allowed.