Electroplating qualifies as 'manufacture' for investment allowance under Section 32A

The Tribunal, by majority decision, allowed the appeal, holding that the assessee engaged in electroplating is entitled to investment allowance under Section 32A of the Income-tax Act, 1961. The Tribunal determined that electroplating constitutes "manufacture" as it involves multiple stages transforming items into commercially different products with improved qualities. Additionally, ownership of raw materials was deemed irrelevant to eligibility for investment allowance, emphasizing that ownership of machinery used in business operations is the key factor. The Tribunal set aside the Commissioner's order and restored the Investment Tax Officer's decision granting the investment allowance to the assessee.

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Issues Involved:

1. Whether the activity of electroplating constitutes "manufacture" under Section 32A of the Income-tax Act, 1961.
2. Whether the assessee is entitled to investment allowance for job works in electroplating.
3. Whether the ownership of raw materials impacts the eligibility for investment allowance.

Issue-wise Detailed Analysis:

1. Whether the activity of electroplating constitutes "manufacture" under Section 32A of the Income-tax Act, 1961:

The assessee, engaged in electroplating various items, claimed investment allowance under Section 32A. The Commissioner argued that electroplating is akin to galvanizing, which the Calcutta High Court in CIT v. Hindusthan Metal Refining Works (P.) Ltd. [1981] held does not constitute "manufacture." The assessee countered with technical opinions and case law, asserting that electroplating involves complex processes and results in a commercially different product. The Tribunal noted that electroplating involves multiple stages (degreasing, pickeling, polishing, etc.) and transforms items into commercially different products with improved qualities. The Tribunal distinguished electroplating from galvanizing, emphasizing that electroplating adds new qualities to the product, thus constituting "manufacture."

2. Whether the assessee is entitled to investment allowance for job works in electroplating:

The departmental representative argued that job works do not qualify for investment allowance, citing the Tribunal's decision in ITO v. Ahura Shipping & Engg. Co. (P.) Ltd. [1984]. The Tribunal, however, referred to a Special Bench decision in Thiagaraja Industries v. ITO [1983], which held that the ownership of raw materials is not a statutory requirement for claiming investment allowance. The Tribunal emphasized that the machinery must be owned by the assessee and used for its business. Electroplating, involving a transformation of the product, meets these criteria, making the assessee eligible for investment allowance.

3. Whether the ownership of raw materials impacts the eligibility for investment allowance:

The Tribunal clarified that Section 32A does not mandate the ownership of raw materials by the assessee. The focus is on the ownership of machinery and its use in the business. The Tribunal cited the Special Bench decision in Thiagaraja Industries, which supported the view that the statutory requirements are satisfied as long as the machinery is owned by the assessee and used for manufacturing or production. Therefore, the ownership of raw materials is irrelevant to the eligibility for investment allowance.

Separate Judgments Delivered:

The Judicial Member disagreed with the Accountant Member, arguing that electroplating does not result in a commercially different product and that the assessee, engaged in job works, does not qualify for investment allowance. The Judicial Member relied on the Tribunal's decision in Deepak Galvanising & Engg. Industries v. ITO and the Madras High Court decision in CIT v. Buhari Sons (P.) Ltd.

Third Member's Decision:

The Vice President, acting as the Third Member, resolved the difference by agreeing with the Accountant Member. The Third Member emphasized that electroplating involves various processes resulting in a commercially different product, thus constituting "manufacture." The Third Member also supported the view that the ownership of raw materials is not a requirement for investment allowance, aligning with the Special Bench decision in Thiagaraja Industries.

Conclusion:

The Tribunal, by majority decision, allowed the appeal, holding that the assessee engaged in electroplating is entitled to investment allowance under Section 32A. The order of the Commissioner was set aside, and the ITO's order allowing the investment allowance was restored.

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