TaxTMI 
TaxTMI 
TaxTMI 
2007 (10) TMI 287
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.... ("the Tribunal"), under section 256(1) of the Income-tax Act, 1961 ("the Act") : "Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee was entitled to investment allowance under section 32A of the Income-tax Act ?" 3. The assessee, who started a business in the name and style of M/s. Complete Dewatering Systems with effect from July 1, 1977, claimed that he is engaged in two distinct activities, for each of which he claimed investment allowance under section 32A of the Act. The first activity was the running of an industrial undertaking engaged in the business of construction. The assessee claimed to have participated in the business of construction by dewatering the land, i.e., pumping out water from the ground water table so that the work of excavation of the land thereunder could take place in completely dry conditions. According to the assessee, dewatering is integral to the construction activity and for this purposes he used his own equipments on the site. The second activity was the manufacture of the dewatering equipment itself. The assessee claimed that he purchased different component parts and assemble....
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.... the appeal filed by the assessee, the Commissioner of Income-tax (Appeals) (" the CIT(A)" ) held that as regards the activity of manufacture of dewatering equipment, the assessee had indeed assembled accessories worth Rs. 16,394 and was, therefore, entitled to investment allowance on such sum at the rate of 25 per cent. However, as regards the second activity, the Commissioner of Income-tax (Appeals) held that although dewatering may be one of the integrated activities of construction, such activity in itself did not result "into any end product of any article or thing, nor such activity by itself would constitute a business of construction". Thus, while allowing the claim of investment allowance to the extent of Rs. 4,098 on the machinery used in the manufacture of dewatering equipment, the Commissioner of Income-tax (Appeals) negatived the larger claim of investment allowance on the dewatering equipment of a value of Rs. 10.54 lakhs used in the construction by the ECCL of the plant at Tuticorin. 8. The further appeal by the assessee was allowed by the Tribunal by its order dated January 15, 1985. The Tribunal examined the entire process undertaken by the assessee to execute the....
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..... Budharaja and Co. [1993] 204 ITR 412 in the subsequent decision in Builders Associations of India v. Union of India [1994] 209 ITR 877. She accordingly submits that the Tribunal erred in holding that the assessee was entitled to claim investment allowance on the dewatering equipment used in the construction work. 10. Appearing for the assessee, Mr. D. N. Sawhney, learned advocate, after taking us through the exhaustive decision of the Tribunal which is under challenge, made three main submissions. First, he says that the activity of the assessee is covered by the plain language of section 32A(2)(b)(iii) which is " for the purposes" of the business of construction of an article or thing. He lays emphasis on these words and submits that since the Tribunal has found as a fact that the dewatering activity is integral to the activity of construction of the article or thing, and that the assessee has participated in such activity, the claim for investment allowance is admissible. Second, he submits that the decision in N. C. Budharaja and Co. [1993] 204 ITR 412 does not dilute his claim because his claim is also based on the activity of construction of an "article" or "thing". H....
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.... business of generation or distribution of electricity or any other form of power ; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule :" 12. In order to claim investment allowance at the rate of 25 per cent. of the actual cost of the plant or machinery in terms of section 32A(2)(b)(iii), the assessee in the instant case was required to demonstrate the following : "(a) that the assessee owns the machinery or plant in question ; (b) that such plant or machinery is installed after March 31, 1976, in an industrial undertaking other than a small scale industrial under-taking covered by section 32A(2)(b)(ii) ; (c) that such plant or machinery is installed for ' the purposes of business of construction, manufacture or production of any article or thing' ; and (d) that such plant and machinery is wholly used for the purposes of the business carried on by the assessee." 13. The as....
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....struction, manufacture or production of any article or thing" used in section 32A(2)(b)(iii). The court was not prepared to read the words "business of construction" separately but only conjoint with "manufacture or production of any article or thing". In other words, one had to read it as "construction of an article or thing" where the focus was on the end product, namely, the article or thing ; and the word "construction" merely referred to the process of bringing about such article or thing. Consequently, the "business" activity contemplated was the bringing about the article or thing and the words "construction", "manufacture" or "production" only referred to the choice of processes for bringing about the end product of "any article or thing". The words "for the purposes of", therefore, referred to the business just described. 15. It will be noticed that Budharaja is a fairly lengthy decision involving different types of cases, which the court divided into groups. The second group of cases pertained to section 32A and the discussion on this aspect begins at ITR page 429 of 204 ITR where the Supreme Court refers to the decision of the Karnataka High Court in Shankar Constructio....
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.... (iii) because the ships continue to be within the purview of the present sub-clause (iii) as they were within the purview of farmer sub-clause (ii). It is not necessary to repeat the reasoning in N. C. Budharaja and Co.'s case [1993] 204 ITR 412 (SC) over again". Further, it held that the opinions expressed by the Law Ministry or the CBDT did not bind the Supreme Court. It distinguished the decision in Bhageeratha Engineering Ltd. [1993] 199 ITR 12 (SC) on the ground that the Revenue there did not challenge the finding that the assessee had used the machinery in the business of construction. Further, Bhageeratha Engg. dealt with a set of facts which did not involve the interpretation of the words "construction, manufacture or production of any article or thing". No other decision of a larger Bench of the Supreme Court taking a view contrary to N. C. Budharaja and Co. [1993] 204 ITR 412 (SC) has been brought to our notice. It continues to be the binding decision on the point. 18. In our considered view, learned counsel for the Revenue is right in her submission that N. C. Budharaja and Co. [1993] 204 ITR 412 (SC) covers the case on hand in favour of the Revenue and against the ass....