2004 (11) TMI 73 - HC - Income Tax

Dam construction not eligible for investment allowance. Disallowance rule inapplicable due to effective date.

The High Court ruled that the construction of a dam does not qualify as the manufacture or production of an article, leading to the denial of investment ... Machinery employed - investment allowance within the meaning of section 32A(2)(b) – Disallowance of payment of interest to depositors in excess of 15 per cent, per year under the Companies Deposit Rules – Held that assessee is not entitled to investment allowance under section 32A – Held that the provision of rule 3(c) of the Companies (Acceptance of Deposits) Amendment Rules, 1981, was enforced on April 1, 1981. The amendment is in the Companies Deposit Rules and not under the Income-tax Act. It will come into operation only on April 1, 1981, and as the accounting period of the applicant ended on September 30, 1980, the same would not be applicable. In this view of the matter the Tribunal was justified in allowing the amount of interest claimed by the applicant. – Appeal partly allowed Issues:1. Investment allowance under section 32A2. Machinery employed by the assessee for investment allowance under section 32A(2)(b)3. Disallowance under rule 3(c) of the Companies (Acceptance of Deposits) Amendment Rules, 19814. Carry forward of unabsorbed deficiency under section 80J5. Relief under section 80J of the Income-tax Act, 1961Investment Allowance under Section 32A:The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) directing the Income-tax Officer to allow investment allowance under section 32A. However, the High Court, considering the decision of the apex court in a relevant case, ruled that the activity of construction of a dam does not qualify as the manufacture or production of an article, thus the firm is not entitled to investment allowance under section 32A. Consequently, the first two questions were answered in favor of the Revenue and against the assessee.Machinery Employed for Investment Allowance:The Tribunal had to determine whether the machinery employed by the assessee entitled them to investment allowance under section 32A(2)(b) of the Income-tax Act, 1961. However, this issue was not addressed in the judgment provided.Disallowance under Rule 3(c) of the Companies Deposit Rules:Regarding the disallowance under rule 3(c) of the Companies (Acceptance of Deposits) Amendment Rules, 1981, the High Court found that the rule came into effect on April 1, 1981, after the accounting period of the applicant ended on September 30, 1980. As a result, the Tribunal was correct in allowing the amount of interest claimed by the applicant. Thus, Question No. 3 was answered in favor of the assessee and against the Revenue.Carry Forward of Unabsorbed Deficiency under Section 80J:The Tribunal had to decide whether the assessee-company was entitled to carry forward the amounts of unabsorbed deficiency under section 80J from earlier years. However, this issue was not addressed in the judgment provided.Relief under Section 80J of the Income-tax Act, 1961:The Tribunal had to determine whether the assessee-company was entitled to relief under section 80J of the Income-tax Act, 1961. However, this issue was not addressed in the judgment provided.