Appeal partially granted, case remanded to assess eligibility for investment allowance

The Tribunal partially allowed the appeal, remanding the case to the assessing officer to determine if the assessee qualifies as an industrial company and is eligible for investment allowance for the assessment year 1978-79. The assessee was denied relief under sections 80J and 80HH as its construction activities were deemed not to constitute manufacturing or producing articles as required by the law.

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Issues Involved:
1. Whether the assessee-company qualifies as an "industrial company" u/s 2(9)(c) of the Finance Act.
2. Eligibility of the assessee for relief u/s 80J of the Income-tax Act, 1961.
3. Eligibility for investment allowance u/s 32A of the Income-tax Act, 1961.

Summary:

1. Industrial Company Status:

The main issue was whether the assessee-company, engaged in civil construction works like tunnels and powerhouses, qualifies as an "industrial company" u/s 2(9)(c) of the Finance Act. The assessee claimed lower tax rates applicable to industrial companies. The Tribunal noted conflicting opinions from various High Courts. The Bombay High Court held that only companies constructing ships qualify, excluding other construction activities. However, the Delhi High Court in National Projects Construction Corpn. Ltd. v. CWT and the Calcutta High Court in National Planning & Construction Ltd. v. CIT supported the view that substantial manufacturing or processing activities within construction companies could qualify them as industrial companies. The Tribunal concluded that if the assessee is mainly engaged in manufacturing or processing goods, it should be treated as an industrial company. The case was remanded to the assessing officer to determine if the assessee's activities predominantly involved manufacturing or processing goods.

2. Relief u/s 80J:

The second issue was the assessee's eligibility for relief u/s 80J. The ITO denied the claim, which the Commissioner (Appeals) allowed, equating it with the industrial company status. The Tribunal disagreed, emphasizing that section 80J requires the undertaking to "manufacture or produce articles." The Tribunal held that the construction of tunnels, dams, or powerhouses does not result in the production of "articles" as intended by section 80J. The Tribunal followed the Gujarat High Court's decision in Cellulose Products of India Ltd. v. CIT, which defined "articles" as end-products, not intermediate products. Consequently, the Tribunal ruled that the assessee's construction activities do not qualify for relief u/s 80J or 80HH.

3. Investment Allowance u/s 32A:

The third issue involved the eligibility for investment allowance u/s 32A. For the assessment year 1977-78, the Tribunal held that the assessee did not meet the requirements as it was not constructing, manufacturing, or producing any articles or things specified in the Ninth Schedule. However, for the assessment year 1978-79, the law had changed, allowing investment allowance for machinery used in construction, manufacture, or production of any articles or things not listed in the Eleventh Schedule. The Tribunal directed the ITO to verify the assessee's eligibility for investment allowance in 1978-79, provided all other conditions of section 32A were met.

Conclusion:

The Tribunal allowed the appeal in part, remanding the case to the assessing officer for further examination of the assessee's activities to determine the industrial company status and eligibility for investment allowance for the assessment year 1978-79. The assessee was denied relief u/s 80J and 80HH as its construction activities did not qualify as manufacturing or producing articles.

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