Cold storage business denied investment allowance under tax law for lack of manufacturing activity

The court held that cold storage business does not qualify for investment allowance under section 32A(2)(b)(ii) of the Income-tax Act, as it does not involve the manufacture or production of any article or thing. The decision was based on the interpretation that cold storage operations do not result in the creation of a new commercial commodity. The court referred to previous decisions but ultimately ruled against the assessee, denying the investment allowance for the cold storage business. The matter was referred to a larger Bench for final disposal, following the Supreme Court's precedent in a similar case.

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Issues Involved:
1. Eligibility of cold storage business for investment allowance under section 32A(2)(b)(ii) of the Income-tax Act, 1961.
2. Interpretation of "manufacture or production of any article or thing" under section 32A(2)(b)(ii).

Issue-Wise Detailed Analysis:

1. Eligibility of Cold Storage Business for Investment Allowance:

The primary issue was whether the cold storage business qualifies for investment allowance under section 32A(2)(b)(ii) of the Income-tax Act, 1961. The assessee, a partnership firm, commenced its cold storage business in the accounting year ending on March 31, 1979, and claimed investment allowance for the machinery and plant used in the cold storage business. The Income-tax Officer disallowed this claim, stating that investment allowance was only admissible for industrial undertakings involved in the manufacture or production of any article or thing, and cold storage did not fall under this category.

2. Interpretation of "Manufacture or Production of Any Article or Thing":

The Tribunal initially upheld the assessee's claim based on previous decisions, including CIT v. Yamuna Cold Storage and ITO v. S. Warriam Singh Cold Storage, where it was held that cold storage machinery is eligible for investment allowance. However, the Revenue argued that the decision needed reconsideration in light of the Supreme Court's ruling in Delhi Cold Storage P. Ltd. v. CIT, which indicated that the business of cold storage does not involve the manufacture or production of any article or thing.

The court examined the relevant sub-clause in section 32A(2)(b)(ii) which states that machinery or plant is eligible for investment allowance if installed in an industrial undertaking for the business of manufacture or production of any article or thing. The court noted that the words "manufacture" and "production" were not defined in the Act and should be understood in their ordinary dictionary meaning. The court referred to various High Court decisions, including those of the Madhya Pradesh, Calcutta, Allahabad, and Patna High Courts, which consistently held that cold storage operations do not result in the manufacture or production of any new and distinct commercial commodity.

The court also considered the Supreme Court's decision in Delhi Cold Storage P. Ltd. v. CIT, which held that cold storage operations do not involve the processing of goods as they do not bring about any change in the goods stored. The court concluded that the operation of a cold storage plant does not result in the manufacture or production of any article or thing, and therefore, the assessee was not eligible for investment allowance under section 32A.

Conclusion:

The court ultimately held that the view taken in S. Warriam Singh Cold Stores and Yamuna Cold Storage needed reconsideration. It referred the question to a larger Bench for final disposal, emphasizing that the Supreme Court's decision in Delhi Cold Storage P. Ltd. v. CIT settled the controversy by ruling that cold storage operations do not involve the manufacture or production of any article or thing. Consequently, the question was answered in the negative, in favor of the Department and against the assessee, denying the investment allowance for the cold storage business.

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