Beneficial tax incentive claims must be tested on substance, not hyper-technical objections to fixed capital investment eligibility.

Under a beneficial fiscal incentive scheme, genuine fixed capital investment could not be denied on hyper-technical objections where evidence supported the claim. Plant and machinery investment paid through the parent company and by demand draft was treated as eligible to the extent certified, while transport-related claims required fresh examination. Expenditure on site development, land development and internal roads was also held not to fail merely because non-agricultural permission was pending, and those claims had to be reconsidered on the real substance of the investment. Technical consultancy fees, however, were not within the scheme's eligible capital investment and were correctly excluded.

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Issues: (i) Whether the disallowance of investment in plant and machinery and transport-related expenditure, including amounts paid through the parent company and by demand draft, was justified under the incentive scheme; (ii) whether expenditure on site development, land development and internal roads could be denied on the ground that non-agricultural permission had not been obtained or was pending; (iii) whether technical consultancy fees were eligible for inclusion in the final capital investment.

Issue (i): Whether the disallowance of investment in plant and machinery and transport-related expenditure, including amounts paid through the parent company and by demand draft, was justified under the incentive scheme.

Analysis: The scheme was intended to promote industrial development in Kutch by granting sales tax incentives on eligible fixed capital investment. The Court found that the investment itself was not in dispute and that the exclusion of sums merely because initial payments were made by the parent company for its unit, or because payments were routed through demand drafts and banker's cheques, was overly technical. The Court also held that the transportation claim required deeper scrutiny instead of summary rejection, though the surrounding circumstances called for careful verification.

Conclusion: The disallowance was not justified to the extent of the sums certified by the State Bank of India and the related plant and machinery investment was directed to be treated as eligible, while transportation claims were ordered to be examined afresh.

Issue (ii): Whether expenditure on site development, land development and internal roads could be denied on the ground that non-agricultural permission had not been obtained or was pending.

Analysis: The Scheme did not make prior non-agricultural permission a condition precedent for considering eligible investment in land-related development. Permission under section 65B of the Bombay Land Revenue Code, 1879 had been applied for in time and, in substantial part, obtained before the relevant cut-off date. The Court held that pendency of formal permission could not, in the facts of the case, defeat the benefit of the incentive scheme where the industrial use was bona fide and the claim required scrutiny on the real substance rather than nomenclature.

Conclusion: The denial of eligibility for land development and site development expenditure was set aside and the respondents were directed to reconsider these claims on a fresh and neutral examination.

Issue (iii): Whether technical consultancy fees were eligible for inclusion in the final capital investment.

Analysis: The consultancy charges were incurred for obtaining specialised technical advice, but the Court found that such expenditure did not fit within the scheme for capital investment incentives. The fee was not shown to fall within the categories of eligible fixed capital investment contemplated by the Scheme.

Conclusion: The disallowance of technical consultancy fees was upheld.

Final Conclusion: The challenge succeeded in part, the adverse final eligibility determination was interfered with to the extent indicated, and the eligible investment was required to be reassessed in accordance with the Scheme after excluding only the consultancy expense.

Ratio Decidendi: Under a beneficial fiscal incentive scheme, claims to eligible capital investment cannot be rejected on a hyper-technical basis where the investment is genuine and supported by material evidence, and eligibility must be assessed by reference to the scheme's substantive rather than procedural formalities.

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