1989 (9) TMI 185 - AT - Income Tax

Construction business qualifies for investment allowance as industrial undertaking; centering sheets classified as plant/machinery.

The Tribunal dismissed the departmental appeal and upheld the Appellate Assistant Commissioner's decision to grant the investment allowance to the ... Investment Allowance Issues Involved:1. Entitlement to Investment Allowance for Centering Sheets, Machinery, and Tools.2. Classification of Centering Sheets as Plant or Machinery for Depreciation Purposes.Issue-wise Detailed Analysis:1. Entitlement to Investment Allowance for Centering Sheets, Machinery, and Tools:The primary issue in this appeal was whether the centering sheets, machinery, and tools employed by the assessee in the construction business qualify for investment allowance under section 32A of the Income-tax Act, 1961. The Income-tax Officer (ITO) denied the investment allowance on three grounds: the assessee did not maintain an industrial undertaking, the centering sheets could not be classified as plant or machinery, and section 32A(2) did not refer to construction work. Consequently, the ITO added Rs. 20,441 to the returned income and also disallowed depreciation on the written down value of centering sheets, treating them as capital assets.The Appellate Assistant Commissioner (AAC) overturned the ITO's decision, granting the investment allowance by relying on the Tribunal's order in ITO v. V. Ganesan, which considered construction as an industrial undertaking. However, the AAC upheld the ITO's refusal to grant depreciation.The Revenue appealed against the AAC's decision, arguing that the assessee did not manufacture or produce any article or thing as contemplated under section 32A(1) of the Income-tax Act, 1961. They cited the Delhi High Court's decision in CIT v. Minocha Bros. (P.) Ltd., which held that a construction company was not an industrial company and thus not entitled to concessional tax rates. The Revenue also referenced other Tribunal decisions, including Chidambaram Constructions Co. and ITO v. Hydle Constructions (P.) Ltd.The Tribunal examined the arguments and noted that the definition of 'industrial company' under the Finance Act, 1983, included companies engaged in the execution of projects, including construction. The Tribunal referenced the Special Bench decision in Hydle Constructions (P.) Ltd., which stated that post-1983, companies engaged in construction work could be considered industrial undertakings.The Tribunal concluded that the assessee, engaged in construction, met the criteria of an industrial undertaking under the Finance Act, 1983. The Tribunal also noted that the assessee's activities included manufacturing goods like concrete slabs, which did not fall under the Eleventh Schedule, thus qualifying for investment allowance under sections 32A(2) and 32A(2A).2. Classification of Centering Sheets as Plant or Machinery for Depreciation Purposes:The ITO had refused depreciation on centering sheets, arguing they were not plant or machinery but capital assets. The AAC confirmed this decision, and the issue of depreciation became final as the assessee did not appeal against it.However, the Tribunal held that the classification for depreciation purposes should not bind the decision for investment allowance. The Tribunal emphasized that even capital goods could form part of plant and machinery. It concluded that centering sheets should be considered part of plant and machinery for investment allowance purposes, rejecting the Revenue's argument that the denial of depreciation should preclude investment allowance.Conclusion:The Tribunal dismissed the departmental appeal, upholding the AAC's decision to grant the investment allowance of Rs. 20,441 to the assessee. The Tribunal determined that the assessee's construction business qualified as an industrial undertaking under the Finance Act, 1983, and that centering sheets should be considered part of plant and machinery for investment allowance purposes.