Stone crushing treated as manufacturing, assessee gets 25% investment allowance under sections 32A(1) and 32A(2)(b)(iii)

HC held that the assessee's construction-related activities, involving conversion of boulders into small stones with the aid of machinery, constitute "industrial undertaking" within the meaning of section 32A(2)(b)(iii) of the Act. Applying the rule that ambiguity in a taxing statute must be resolved in favour of the assessee, the court concluded that such operations amount to a manufacturing process and qualify for investment allowance at 25% of the actual cost of plant under section 32A(1). The HC therefore answered the reformulated question in the affirmative, in favour of the assessee, and set aside the Tribunal's contrary order.

---

---

Issues involved: Interpretation of the term "industrial undertaking" under section 32A(2)(b)(iii) of the Income-tax Act for investment allowance.

Summary:
The High Court of Karnataka consolidated and disposed of several Income-tax Reference Cases (I.T.R.C.s) involving the allowance of investment under section 32A of the Income-tax Act. The cases revolved around whether the assessees, engaged in construction work, qualified as "industrial undertakings" for the purpose of claiming investment allowance.

In the initial cases, the assessing authority disallowed the investment allowance claimed by the assessees engaged in construction work. However, the Commissioner of Income-tax (Appeals) allowed the appeal, considering the assessees as "industrial undertakings." The Income-tax Appellate Tribunal, following a Special Bench ruling, denied the allowance, stating that construction companies could not be classified as industrial undertakings under section 32A.

In a separate case, the claim of investment allowance by another construction company was initially disallowed but later allowed on appeal. The Tribunal upheld this decision, leading to a common question across all cases regarding the justification of disallowing investment allowance.

The High Court rephrased the question to focus on whether the assessees were entitled to the allowance under section 32A(2)(b)(iii) of the Act, which pertains to industrial undertakings engaged in construction, manufacture, or production. The court emphasized the need to interpret the term "industrial undertaking" in a manner favorable to the assessee, considering various legal precedents and definitions.

Referring to past judgments and definitions, the court concluded that the activities of the assessees qualified as those of an industrial undertaking, making them eligible for the investment allowance. The court held in favor of the assessees, setting aside the Tribunal's orders in some cases and affirming in others.

In conclusion, the High Court ruled in favor of the assessees, allowing the investment allowance under section 32A(2)(b)(iii) of the Income-tax Act for the construction companies involved in the cases.

---