Investment allowance for captive oxygen plant upheld where machinery served as an integral input in steel manufacture.

Investment allowance under section 32A was available for new machinery installed in a captive gas division where the oxygen produced was used as an intermediate input in steel manufacture. The court treated the oxygen plant as part of the integrated steel production process, because the oxygen was substantially consumed in the assessee's own plant and served only as an intermediate article in the chain of production. Its independent saleability did not change its character as machinery used for manufacture or production of articles within the statutory scheme. The allowance was therefore upheld in favour of the assessee.

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Issues: Whether investment allowance under section 32A of the Income-tax Act, 1961 was allowable in respect of new machinery installed in the gas division for producing oxygen used as an intermediate input in the assessee's steel manufacturing process.

Analysis: Section 32A entitled an assessee to investment allowance where the new machinery was installed for the purpose of manufacture or production of articles or things specified in the Ninth Schedule. The oxygen plant was found to be a captive unit forming part of the assessee's steel manufacturing set-up, with the oxygen produced being substantially consumed in the steel plant and functioning only as an intermediate article in the chain of production. The fact that oxygen was independently saleable did not alter its character as an integral component of the manufacturing process for iron and steel.

Conclusion: The investment allowance was correctly allowed and the reference was answered in favour of the assessee.

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