2008 (8) TMI 99 - HC - Income Tax

Interpreting 'Production of a Thing' under Income-tax Act: Chilled air /= production; No investment allowance.

MOTORS AND DIESELS P. LTD. Versus COMMISSIONER OF INCOME-TAX

The court analyzed the interpretation of 'production of a thing' under section 32A of the Income-tax Act for cold storage operations. The assessee's claim ... Assessee derived income from cold storage and claimed for investment allowance u/s 32A by stating that the assessee is producing chilled air in the cold storage, which amounted to “production of a thing”– industrial undertaking - as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone a process - no processing/manufacturing - Tribunal have rightly denied claim of investment allowance Issues:1. Interpretation of 'production of a thing' under section 32A of the Income-tax Act for cold storage operations.2. Eligibility of investment allowance under section 32A for producing chilled air in a cold storage facility.Issue 1: Interpretation of 'production of a thing' under section 32A of the Income-tax Act for cold storage operations:The case involved a dispute regarding the interpretation of 'production of a thing' under section 32A of the Income-tax Act for cold storage operations. The assessee claimed investment allowance by asserting that producing chilled air in the cold storage constituted 'production of a thing.' However, lower authorities and the Tribunal rejected this claim, stating that the cold storage did not qualify as an industrial undertaking. The assessee argued that the word 'production' had a broader meaning than 'manufacture' and cited various case laws to support their claim, emphasizing that the chilled air was an intermediate product. The Department, on the other hand, relied on precedents where investment allowance was denied for cold storage facilities as they were not engaged in manufacturing new articles. The court analyzed the arguments and case laws presented by both parties to determine the eligibility of the investment allowance.Issue 2: Eligibility of investment allowance under section 32A for producing chilled air in a cold storage facility:The court considered whether the production of chilled air in a cold storage facility qualified for investment allowance under section 32A of the Income-tax Act. The assessee contended that chilled air, although not independently marketable, should be eligible for the investment allowance. They argued that the preservation of items in the cold storage required chilled air, which should be considered an intermediate product. However, the Department referenced previous judgments where investment allowance was denied for similar cold storage operations, stating that the facility was not involved in manufacturing or processing new articles. The court examined the nature of operations in the cold storage, the definition of 'processing,' and the distinction between manufacturing and preservation activities to determine the eligibility of the investment allowance for producing chilled air. Ultimately, the court ruled in favor of the Revenue, denying the investment allowance claim based on the assessee not being engaged in processing or manufacturing activities within the meaning of the relevant provisions.This detailed analysis of the judgment highlights the key legal arguments, interpretations, and precedents considered by the court in resolving the issues related to the eligibility of investment allowance for producing chilled air in a cold storage facility under section 32A of the Income-tax Act.