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of <h1>Small-scale industry qualifies for investment allowance under Income-tax Act, 1961</h1> <h3>Commissioner of Income-Tax Versus Daljeet Tyres.</h3> Commissioner of Income-Tax Versus Daljeet Tyres. - [2006] 287 ITR 344, 201 CTR 530, 151 TAXMANN 171 Issues Involved:1. Entitlement to investment allowance under section 32A of the Income-tax Act, 1961.2. Interpretation and application of section 32A(2) regarding the definition of 'manufacture' or 'production' of an article or thing.3. Assessment of whether the printing on tin plates qualifies as manufacturing or production.Detailed Analysis:1. Entitlement to Investment Allowance under Section 32A:The central issue is whether the assessee is entitled to an investment allowance of Rs. 3,79,285 under section 32A of the Income-tax Act, 1961, for new machinery installed for printing on tin plates. The assessee claimed this allowance, but it was initially rejected by the Assessing Officer. The Commissioner of Income-tax (Appeals) overturned this decision, and the Income-tax Appellate Tribunal upheld the Commissioner's findings.2. Interpretation and Application of Section 32A(2):Section 32A(1) specifies that investment allowance is available for machinery or plant used wholly for the business carried on by the assessee. Sub-section (2) further details the types of machinery or plant eligible for this allowance, including:- Machinery used for the business of generation or distribution of electricity or any other form of power.- Machinery used in a small-scale industrial undertaking for the manufacture or production of any article or thing.- Machinery used in any other industrial undertaking for the manufacture or production of any article or thing not listed in the Eleventh Schedule.The assessee's claim was initially rejected by the Assessing Officer on the grounds that the printing on tin plates did not qualify as 'manufacture or production of any article or thing' under section 32A(2).3. Assessment of Printing on Tin Plates as Manufacturing or Production:The Commissioner of Income-tax (Appeals) and the Tribunal both concluded that the process involved in printing on tin plates constituted manufacturing. The Commissioner relied on the detailed explanation provided by the assessee, which described the process of creating designs, making negatives and positives, and using an automatic offset printing machine to print on tin sheets. This process was deemed to transform the raw material (tin plates) into a commercially viable product.The Commissioner and Tribunal also referenced several precedents:- Krishna Associates v. ITO: This case supported the notion that processing materials into a marketable product qualifies as manufacturing.- Amiya Kumar Tarfdar v. ITO: This case involved a colour photo developing machine and concluded that the final printed product was distinct from the raw material, thus qualifying for investment allowance.- Asst. CIT v. Soni Photo Films P. Ltd.: This case involved developing and printing photographs, where the Tribunal held that the process constituted manufacturing.- CIT v. Professional Information Systems and Management: The Gujarat High Court held that data processing through computers amounted to the production of an article or thing, thus qualifying for investment allowance.The Supreme Court in CIT v. Shaan Finance P. Ltd. provided a broader interpretation of section 32A, stating that the machinery must be owned by the assessee, used for the business, and fall under the categories specified in section 32A(2). The court emphasized that the machinery's use in the business of manufacturing or production was sufficient for claiming the allowance.The Allahabad High Court in Singh Engineering Works P. Ltd. v. CIT distinguished between manufacture and production, explaining that production involves processing raw materials into a new product, even if the inherent quality or chemical composition does not change.Conclusion:The High Court concluded that the assessee, being a small-scale industrial undertaking, met all the conditions under section 32A. The machinery used for printing on tin plates was deemed to be involved in the production of a commercially viable product. Therefore, the assessee was entitled to the investment allowance. The appeal by the Revenue was dismissed, affirming the decisions of the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.
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