Tribunal denies investment allowance for milk processing, citing lack of substantial change.

The Tribunal, in the case involving a co-operative society engaged in milk purchase and sale, upheld the Commissioner's order under section 263, denying the investment allowance claimed by the assessee for pasteurizing milk. The Tribunal ruled that although pasteurization was involved, the end-product, milk, did not undergo a substantial change to qualify for investment allowance under section 32A. By referencing the Supreme Court's decision on processing criteria, the Tribunal concluded that the originality of the milk was not significantly altered, leading to the dismissal of the assessee's appeals.

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Issues:
Assessment of investment allowance under section 32A for a co-operative society engaged in the business of purchase and sale of milk.

Analysis:
The judgment by the Appellate Tribunal ITAT MADRAS-C involved appeals by the assessee related to the assessment years 1983-84 to 1985-86 arising from the Commissioner of Income-tax's order under section 263 of the Income-tax Act, 1961. The Commissioner found the assessment orders allowing investment allowance on machineries used for pasteurising milk to be erroneous and prejudicial to the Revenue's interest. The Commissioner directed the Income-tax Officer to modify the assessments by withdrawing the investment allowance. The assessee contended that it was engaged in manufacturing processes, including pasteurizing milk, making it eligible for investment allowance under section 32A. The Departmental Representative argued that the end-product of pasteurization, i.e., milk, did not qualify as manufacturing or production under section 32A. The Tribunal examined the activities of the assessee-society, which primarily involved purchasing and selling milk, pasteurizing it to store for a few days, and allowing investment allowance on machineries related to this process. The Tribunal considered the definition of "manufacture or production" under section 32A and held that the end-product of pasteurization, milk, did not undergo a substantial change to qualify for investment allowance. The Tribunal dismissed the assessee's appeals, upholding the Commissioner's order under section 263.

The Tribunal referred to the Supreme Court's decision in the case of Delhi Cold Storage (P.) Ltd., where the Court discussed the concept of "processing" in the context of qualifying for investment allowance. The Court emphasized that processing should result in a change in the commodity and held that merely preserving goods, such as in a cold storage, did not constitute processing for investment allowance purposes. Applying this principle to the present case, the Tribunal found that pasteurization of milk by the assessee did not result in a significant alteration of the end-product, which remained milk. Despite the processing involved in pasteurization, the Tribunal concluded that the originality of the milk was not substantially changed, leading to the decision that the assessee was not entitled to investment allowance under section 32A. The Tribunal upheld the Commissioner's order under section 263 and dismissed the assessee's appeals.

In conclusion, the Tribunal's judgment centered on the interpretation of "manufacture or production" under section 32A in the context of pasteurizing milk for a co-operative society primarily engaged in the business of purchasing and selling milk. The Tribunal analyzed the activities of the assessee-society, the nature of pasteurization, and the end-product to determine eligibility for investment allowance. By applying the principles established in relevant case law, particularly the concept of "processing" as discussed by the Supreme Court, the Tribunal concluded that the pasteurization process did not result in a substantial change to the milk, thereby denying the assessee's claim for investment allowance under section 32A.

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