Cigarette filters are not tobacco products under the Eleventh Schedule, so investment allowance remains available.

Cigarette filters were held not to fall within entry 2 of the Eleventh Schedule to the Income-tax Act because the exclusion is limited to tobacco and tobacco preparations in their own forms. Goods used with tobacco or in cigarettes do not become tobacco products merely by such association, and filters containing no tobacco are not tobacco preparations. As a result, the machinery used to manufacture such filters qualified for investment allowance under section 32A.

---

---

Issues: Whether cigarette filters manufactured by the assessee fell within entry 2 of the Eleventh Schedule to the Income-tax Act, 1961 so as to deny investment allowance under section 32A.

Analysis: Section 32A grants investment allowance to machinery installed in an industrial undertaking where the manufactured goods are not covered by the Eleventh Schedule. Entry 2 of that Schedule excludes tobacco and tobacco preparations, but the exclusion is confined to tobacco in its various forms and mixtures. Goods merely used along with tobacco or in association with cigarettes do not become tobacco products merely by such use. Cigarette filters contain no tobacco and are not a variety of tobacco or a tobacco preparation, even though they are used in filter cigarettes.

Conclusion: The cigarette filters were not covered by entry 2 of the Eleventh Schedule, and the assessee was entitled to investment allowance.

---