Interpretation of "for the purposes of business of manufacture" under Income-tax Act

The Appellate Tribunal ITAT Jaipur ruled on the interpretation of the expression "for the purposes of business of manufacture" in section 32(1)(vi) of the Income-tax Act, 1961 for the assessment year 1977-78. The tribunal held that the assessee was entitled to initial depreciation as the installation of machinery for manufacturing purposes sufficed, even though actual manufacturing was limited. The tribunal emphasized that the primary activity should determine the nature of the business, allowing the appeal and granting the assessee initial depreciation for engaging in manufacturing during the relevant year, albeit briefly and on a small scale.

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Issues: Interpretation of expression "for the purposes of business of manufacture" in section 32(1)(vi) of the Income-tax Act, 1961 for the assessment year 1977-78.

In this judgment by the Appellate Tribunal ITAT Jaipur, the dispute centered around the interpretation of the expression "for the purposes of business of manufacture" in clause (vi) of section 32(1) of the Income-tax Act, 1961. The assessee had started its business on April 1, 1976, and the issue was whether the assessee was entitled to initial depreciation under section 32(1)(vi) for the assessment year 1977-78. The Income Tax Officer (ITO) contended that there was no business of manufacture during the relevant previous year, as the manufacturing work was done on a trial basis. The assessee had shifted to anodising work during the year under appeal. The Appellate Authority Commissioner (AAC) agreed with the ITO, stating that the manufacturing work was given up during the previous year, and hence, initial depreciation was not allowed.

The counsel for the assessee argued that all conditions of section 32(1)(vi) were met, and the assessee should be entitled to initial depreciation. The main contention was whether the assessee needed to continue the business of manufacture for the entire year to claim initial depreciation. The tribunal held that section 32(1)(vi) only required the installation of machinery for the purpose of business of manufacture, without mandating continuous manufacturing throughout the year. The tribunal noted that the machinery could be used for various purposes, including manufacturing certain items, and the assessee had indeed carried out manufacturing for a period, as confirmed by a partner's statement. It was observed that discontinuation of manufacturing due to unmarketable products did not negate the initial intention to manufacture, thus entitling the assessee to initial depreciation.

The tribunal emphasized that the nature of the business should be determined by the primary activity and not by subsequent changes. It was held that the assessee had legitimately installed machinery for the purpose of manufacturing, even though the actual manufacturing was limited. Therefore, the tribunal allowed the appeal, concluding that the assessee was entitled to initial depreciation as it had engaged in the business of manufacture during the relevant year, albeit on a small scale and for a brief period.

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