2018 (6) TMI 1470 - HC - Income Tax

High Court: Blending Tea/Coffee = Manufacturing. Invest Allowance for Weighing Machines. Tribunal's Decision Criticized.

The High Court held that blending of tea and coffee amounts to manufacture or production, reaffirming the Tribunal's earlier decision. It also ruled that ... Grant of investment allowance on weighing machines, computers and electrical appliances, etc. - Whether blending of tea or coffee does not amount to manufacture or production of an article or thing? - provisions of section 32A applicability - Held that:- Tribunal had no jurisdiction to reopen the closed issue that blending of tea was equivalent to manufacture or production of an article, which was finally decided by it in the affirmative in favour of the assessee by its order dated 30th November, 1992 in the previous two assessment years 1981-82 and 1982-83 The wording of Section 32(A) (2) (b) (iii) is also very important. It refers to any new machinery or plant installed “for the purpose of” manufacture or production of any article or thing. The phrase “for the purpose of” has to be given some meaning. It does not always refer to an article or thing used directly in manufacture, as is the mistaken view. It refers to the use of the plant or machinery for the purpose of manufacture or production. Now “for the purpose of” has to be given a wide and liberal interpretation so as to include every article used in connection with manufacture or production not being stock-in-trade, whether employed directly or indirectly. On the mistaken notion that in order to qualify as plant a machinery had to be directly used in the manufacture of an article or thing, the tribunal has upheld the order of the authorities below refusing grant of investment allowance on weighing machines, computers and electrical appliances, etc. In any opinion they are eligible for this allowance. - decided in favour of assessee Issues Involved:1. Whether blending of tea or coffee amounts to manufacture or production of an article or thing.2. Whether investment allowance should be granted on weighing machines, computers, and electrical appliances under Section 32A of the Income Tax Act, 1961.3. Whether the Tribunal exceeded its jurisdiction in raising new issues not raised in the memorandum or grounds of appeal.Issue-wise Detailed Analysis:1. Blending of Tea or Coffee as Manufacture or Production:The Tribunal had previously decided in favor of the assessee that blending of tea or coffee amounted to manufacture or production in the assessment years 1981-82 and 1982-83. Despite this, the Tribunal reopened the issue for the assessment year 1983-84, influenced by the Calcutta High Court's decision in Apeejay Pvt. Ltd. Vs. CIT, which held that blending did not constitute manufacture or production. However, the Tribunal disregarded the Supreme Court's ruling in Chowgule & Co. Pvt. Ltd. Vs. Union of India, which supported the assessee’s position. The High Court held that the Tribunal had no jurisdiction to reopen this settled issue and should have adhered to its earlier decision and the Supreme Court's ruling. Thus, blending of tea and coffee was deemed to amount to manufacture and production.2. Investment Allowance on Weighing Machines, Computers, and Electrical Appliances:The Tribunal upheld the lower authorities' decision to deny investment allowance on the grounds that these items were not directly engaged in production. The High Court disagreed, citing several precedents, including Tribeni Tissues Ltd. Vs. CIT and Associated Bearing Co. Ltd Vs. CIT, which interpreted 'plant' broadly to include items indirectly used in production. The Court emphasized that the phrase 'for the purpose of' in Section 32A(2)(b)(iii) should be interpreted liberally to cover machinery used in connection with manufacture or production, even if not directly involved. Therefore, weighing machines, computers, and electrical appliances were deemed eligible for investment allowance.3. Tribunal's Jurisdiction:The Tribunal was criticized for exceeding its jurisdiction by raising and deciding on the issue of whether blending of tea/coffee amounted to manufacture or production, which was not part of the original grounds of appeal. The High Court held that the Tribunal's jurisdiction was confined to the subject matter of the appeal and that it had no authority to introduce new issues. Consequently, the Tribunal's decision to raise and adjudicate this new issue was deemed inappropriate.Conclusion:The High Court concluded that the Tribunal had erred in reopening the settled issue of blending being equivalent to manufacture or production and in denying investment allowance on weighing machines, computers, and electrical appliances. The Tribunal was directed to dispose of the appeal in accordance with the High Court's observations, affirming that blending of tea and coffee amounts to manufacture or production and that the items in question are eligible for investment allowance. The questions were answered in favor of the assessee and against the Revenue.