Civil construction is not manufacture or processing, so investment allowance under section 32A was unavailable.

Activity limited to civil construction work does not amount to manufacture or processing for the purpose of investment allowance under section 32A(2) of the Income-tax Act, 1961. Applying the Supreme Court principle that a contractor engaged only in construction is not carrying on manufacture or processing, the Madras High Court held that an assessee executing civil contract works was not entitled to the allowance for the assessment year 1978-79. The referred question was answered in favour of the Department.

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Issues: Whether an assessee engaged in execution of civil contract works is entitled to investment allowance under section 32A(2) of the Income-tax Act, 1961 for the assessment year 1978-79.

Analysis: The assessee was engaged in construction work and claimed investment allowance. The controlling principle applied was that activity amounting only to construction does not constitute manufacture or processing for the purpose of section 32A. In view of the Supreme Court ruling that a person engaged in construction work is not carrying on manufacture or processing, the allowance could not be sustained.

Conclusion: The assessee was not entitled to investment allowance under section 32A(2) of the Income-tax Act, 1961, and the answer to the referred question was in favour of the Department.

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