Processing exposed films into positive films qualifies for investment allowance, outside the cinematograph films exclusion.

Processing exposed films into positive films for cinema projection can qualify as manufacture or production for investment allowance under section 32A of the Income-tax Act, 1961. The Madras HC treated the assessee's activity of processing and drying exposed films at various stages as production, and held that it did not fall within the Eleventh Schedule exclusion for production of cinematograph films in item 9. On that basis, the assessee satisfied the statutory condition for the allowance and was entitled to investment allowance under section 32A(2)(b)(iii).

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Issues: Whether the assessee, engaged in processing exposed films into positive films used for projection, was entitled to investment allowance under section 32A of the Income-tax Act, 1961, or was hit by the exclusion relating to production of cinematograph films in the Eleventh Schedule.

Analysis: The assessee's activity consisted of processing and drying exposed films at various stages into positive films for cinema projection. On the facts, the business was treated as one falling within the scope of manufacture or production for the purposes of section 32A, and not as the disqualifying production of cinematograph films in item No. 9 of the Eleventh Schedule. The referred question was answered consistently with the view that the assessee satisfied the statutory condition for the allowance.

Conclusion: The assessee was entitled to investment allowance under section 32A(2)(b)(iii) of the Income-tax Act, 1961, and the answer was in favour of the assessee and against the Revenue.

Ratio Decidendi: Processing exposed films into positive films for cinema projection amounts to production for the purpose of investment allowance, unless the activity falls within the specific Eleventh Schedule exclusion.

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