Karnataka H.C : Whether the assessee is entitled to investment allowance on earth-moving equipment, crane, oil engine and machinery foundations for gang saws under s. 32A of the IT Act

High Court Of Karnataka

DCIT vs. Mysore Minerals Ltd.

Section 32A

Asst. year 1987-88

Ashok Bhan & A.V. Srinivasa Reddy, JJ.

IT Appeal No. 14 of 1999

7th December, 2000

Counsel Appeared

M.V. Seshachala, for the Appellant : A.S. Krishnamurthy, for the Respondent

JUDGMENT

ASHOK BHAN, J. :

Revenue has filed this appeal against the order passed by the Appellate Tribunal, Bangalore (for short, the Tribunal), in ITA No. 2208/Bang/91, dt. 22nd Dec., 1998, for the asst. yr. 1987-88. By the impugned order, the Tribunal has upheld the order passed by the CIT(A) which allowed the claim of the assessee for investment allowance under s. 32A of the IT Act, 1961 (for short, the Act), on earth-moving equipment, crane, oil engine, pumps and machinery for a sum of Rs. 39,03,596.

2. According to the Revenue, the following two substantial questions of law arise from the order of the Tribunal :

“1. Whether the assessee is entitled to investment allowance on earth-moving equipment, crane, oil engine and machinery foundations for gang saws under s. 32A of the IT Act. Whether the Appellate Tribunal was right in granting investment allowance by following the judgment of this Hon’ble Court in CIT vs. Mysore Minerals (1994) 205 ITR 461 (Kar) : TC 28R.259 which had been impliedly overruled by the Hon’ble Supreme Court in CIT vs. N.C. Budharaja & Co. & Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) : TC 28R.233.” Assessee, a Government of Karnataka undertaking, carries on the activity of mining. For the asst. yr. 1987-88 it had claimed investment allowance under s. 32A of the Act on earth-moving equipment, crane, oil engine, pumps and machinery in the sum of Rs. 39,03,596. The AO did not grant the claim of the assessee. Aggrieved against the order of the AO, the assessee preferred an appeal before the CIT(A) which was accepted. It was held that the earth-moving equipment, crane, oil engine, pumps and machinery foundations for gang saws were items of plant used for the purpose of extraction and production of article or thing and therefore the investment allowance under s. 32A was admissible. The AO was directed to allow the investment allowance to the extent claimed by the assessee.

Aggrieved by the order of the CIT(A), Revenue filed the appeal before the Tribunal. Tribunal dismissed the appeal relying upon the decision of this Court in assessee’s own case CIT vs. Mysore Minerals Ltd. (1994) 205 ITR 461 (Kar) : TC 28R.259 wherein this Court had held that extraction of granite from a quarry and cutting them into various sizes and polishing them was one of manufacture or production of an article or thing and, therefore, entitled to investment allowance under s. 32A. Revenue has come up in further appeal under s. 260A of the Act to this Court on the two questions of law set forth in para 2 of this order. As the two questions raised are interlinked and intertwined with each other, we propose to deal with them together.

Counsel appearing for the Revenue has argued that this Court in CIT vs. Mysore Minerals Ltd. (supra) had answered the questions referred to it in favour of the assessee relying upon a judgment of this Court in Shankar Construction Co. vs. CIT (1991) 94 CTR (Kar) 155 : (1991) 189 ITR 463 (Kar) : TC 28R.235 which has been overruled by the Supreme Court in CIT vs. N.C. Budharaja & Co. & Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) : TC 28R.233. As the judgment of this Court in Shankar Construction Co. has been overruled by the Supreme Court, the decision in the CIT vs. Mysore Minerals Ltd. ipso facto would be deemed to have been overruled.

The argument raised though prima facie attractive, cannot be sustained on close scrutiny. In N.C. Budharaja & Co.’s case (supra), the Supreme Court held that the activity of construction of a dam project, building or road does not amount to production of an article or a thing. Supreme Court after tracing the legislative history of the provision for the purpose of understanding the meaning of the word ‘article’ or ‘thing’ occurring in s. 32A(2) pointed out that it referred to the movable objects only. It was difficult to hold that process of construction of a dam is a process of manufacture or production of an article or a thing. A dam is constructed and not manufactured or produced. It was held that the expressions “manufacture” and “produce” are normally associated with movable—articles and goods—big and small—but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building. So far as the judgment of this Court in Shankar Construction Co. (supra) in extending the benefit of s. 32A to the new machinery employed in digging borewells is concerned, the Supreme Court merely held : “Special Leave Petition No. 16839 of 1992 is preferred against the judgment of the Karnataka High Court extending the benefit of s. 32A to the new machinery employed in digging borewells. For the reasons given hereinabove, leave is granted and the appeal is allowed”. Though no specific reasons are given for allowing the appeal, we would take it that the reasons given were similar to the one given with regard to the construction of a dam which was held to be not a process of manufacture or production of an article or a thing.

8. This Court in two other cases of the assessee itself relating to the earlier assessment years has taken the same view. The same are ITRC No. 22/1995, dt. 9th Sept., 1999 [reported as CIT vs. Mysore Minerals Ltd. (2001) 166 CTR (Kar) 142] and ITA No. 91/1999, dt. 15th Nov., 2000 [reported as CIT vs. Mysore Minerals Ltd. (2001) 166 CTR (Kar) 145]. In those two cases, the effect of the judgment of the Supreme Court in N.C. Budharaja & Co’s. case (supra) had not been considered. We deem it appropriate to consider the effect of the judgment of the Supreme Court in this case.

In the present case, the business of the assessee is extracting granite from quarry, convert into slabs, and after cutting and polishing effect their sale. The process of extracting granite and converting them into slabs, cutting and polishing them would be a manufacturing activity. The assessee is producing an article or a thing in the shape of finished slabs/tiles of granite. The condition to be satisfied for allowing deduction by way of investment allowance under s. 32A is that new machinery should have been installed in an industrial undertaking “for the purpose of business of construction, manufacture or production of an article or thing, not being an article or thing specified in the Eleventh Schedule to the Act”. Such condition being satisfied, the assessee would be entitled to the investment allowance under s. 32A. It is not the case of the Revenue that extracting of granite from the quarry converting it into slabs; further cutting and polishing them does not amount to manufacture or production of an article or a thing. The question of law raised is as to whether the assessee is entitled to the investment allowance on the machinery involved in the manufacture or production of an article or a thing. The reading of s. 32A plainly indicates that if an assessee instals new machinery for the purpose of manufacture or production of an article or a thing, then he would be entitled to the investment allowance. In the present case, the assessee is manufacturing or producing an article or thing, and, therefore, the assessee would be entitled to the investment allowance on the new machinery employed in manufacture or production of an article or thing; such as earth-moving equipment, crane, oil engines, pumps and machinery foundations for gang saws under s. 32A of the Act. Law laid down by the Supreme Court in N.C. Budharaja & Co.’s case (supra) would not be applicable to the facts of the present appeal.

For the reasons stated above, we answer question No. 1 in the affirmative i.e., in favour of the assessee and against the Revenue. For the reasons stated in the foregoing paragraphs, question No. 2 is also answered in the affirmative i.e., in favour of the assessee and against the Revenue. It is held that the Supreme Court in N.C. Budharaja & Co. & Anr. case (supra) did not overrule the decision of this Court in CIT vs. Mysore Minerals Ltd. (supra). Appeal dismissed.

[Citation : 250 ITR 730]

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