1990 (9) TMI 140 - AT - Income Tax

Assessee Appeals Partially Allowed: Investment Allowance & Relief Disputed. Extra Shift & Research Expenditure Upheld.

The Tribunal partially allowed the appeals by rejecting the claim that the assessee qualifies as a manufacturing and industrial concern entitled to ... Carrying On Business, Investment Allowance, New Industrial Undertaking, Profits And Gains Issues Involved:1. Acceptance of the claim that the assessee is a manufacturing and industrial concern entitled to investment allowance and relief under section 80J.2. Allowing of extra shift allowance on the air-conditioning machinery.3. Treating of expenditure as capital expenditure for scientific research and allowing the entire expenditure under section 35.4. Claim of deduction under section 80JJ of the Act.Issue-wise Detailed Analysis:1. Acceptance of the claim that the assessee is a manufacturing and industrial concern entitled to investment allowance and relief under section 80J:The revenue objected to the assessee's claim that it is a manufacturing and industrial concern entitled to investment allowance and relief under section 80J, arguing that the business of egg hatchery does not constitute manufacturing. The revenue contended that hatching of eggs, though done with machines, is a natural phenomenon and the machines merely provide temperature and humidity control, not producing any article or thing. The assessee's counsel argued that the case is identical to a previously decided case by the Tribunal, Madras Bench 'B', which was upheld by the Andhra Pradesh High Court. However, the Tribunal noted that the hatchery machines simply preserve the life of the embryo, similar to cold storage preserving items from decay, and thus, no manufacturing operation occurs. The Tribunal concluded that the machines are life-preserving equipment and not manufacturing apparatuses, thereby rejecting the claim for investment allowance and relief under section 80J.2. Allowing of extra shift allowance on the air-conditioning machinery:The assessee claimed extra shift allowance on its air-conditioning machinery, arguing that it operates continuously throughout the day in the hatchery. The revenue denied the claim, stating that air-conditioning machinery is not eligible for extra shift allowance as per the I.T. Rules 1962. However, the Tribunal found that the hatchery's operations rely on controlled temperature, and thus, the air-conditioning machinery is integral to the business. The Tribunal upheld the CIT(A)'s decision to allow the extra shift allowance, considering the unique operational requirements of the hatchery.3. Treating of expenditure as capital expenditure for scientific research and allowing the entire expenditure under section 35:For the assessment year 1977-78, the assessee claimed a deduction for the entire expenditure on building, plant, and machinery as scientific research expenditure. The Assessing Officer, relying on the certificate from the Department of Science and Technology, allowed only 50% of the expenditure. The CIT(A) directed a reconsideration of the issue. For the assessment year 1982-83, the claim under section 35(2B) was not allowed due to the absence of a certificate from the prescribed authority. The Tribunal noted that the Act mandates the deduction to be based on the certificate from the prescribed authority, which is binding on the Assessing Officer. Therefore, the Tribunal upheld the Assessing Officer's decision for both years, emphasizing that the assessee should seek reconsideration from the prescribed authority if dissatisfied.4. Claim of deduction under section 80JJ of the Act:For the assessment year 1982-83, the revenue's objection regarding section 80JJ relief was deemed infructuous due to the resultant figure being negative. For the assessment year 1977-78, the revenue objected to the relief being worked out on the gross total income instead of the net income basis. The assessee's counsel argued that section 80AB should have prospective effect, citing rulings from the Madras and Andhra Pradesh High Courts. However, the Tribunal referred to a special bench decision in Century Iron & Steel Ltd. v. ITO, which held that the gross total income for Chapter VI-A deductions should be computed before any such deductions. The Tribunal, following the special bench decision and Supreme Court rulings, set aside the CIT(A)'s direction and restored the Assessing Officer's order on this point.Conclusion:The appeals were allowed in part, with the Tribunal rejecting the claim that the assessee is a manufacturing and industrial concern entitled to investment allowance and relief under section 80J, upholding the extra shift allowance on air-conditioning machinery, affirming the treatment of expenditure for scientific research based on the prescribed authority's certificate, and restoring the Assessing Officer's view on the computation of relief under section 80JJ.