Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to investment allowance on the activities of the assessee, viz., mining granite from quarries and exporting them after cutting, polishing, etc., which tantamount to manufacture for the purpose of s. 32A of the IT Act, 1961 ?

High Court Of Madras

CIT vs. Tamil Nadu Minerals Ltd.

Section 32A

Asst. Year 1986-87 & 1987-88

N.V. Balasubramanian & M. Thanikachalam, JJ.

Tax Cases Nos. 12 & 13 of 2002

16th June, 2004

Counsel Appeared :

J. Narayanasamy, for the Revenue : M.P. Senthil Kumar for Philip George, for the Assessee

JUDGMENT

N.V. balasubramanian, J. :

The Tribunal has referred the following common question of law to this Court for the asst. yrs. 1986-87 and 1987-88.

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to investment allowance on the activities of the assessee, viz., mining granite from quarries and exporting them after cutting, polishing, etc., which tantamount to manufacture for the purpose of s. 32A of the IT Act, 1961 ?”

The assessments of the assessee for the two years in question were completed by the AO allowing the claim of the assessee with regard to investment allowance under s. 32A of the IT Act, 1961 (hereinafter referred to as “the Act”). The CIT, exercising the power of revision under s. 263 of the IT Act, passed a consolidated order dt. 14th March, 1990, holding that the assessee would not be entitled to investment allowance inasmuch as there was no manufacturing activity and the Dy. CIT was directed to disallow the investment allowance and deduction under s. 80HHC for the asst. yrs. 1986-87 and 1987-88 and revise the assessments in accordance with the provisions of law.

As against the order passed by the CIT under s. 263 of the IT Act, the assessee carried the matter in appeal before the Tribunal and the Tribunal, following its earlier order in the assessee’s own case, came to the conclusion that the activities of quarrying mining of granite would amount to manufacture for the purpose of s. 32A of the IT Act. The Tribunal allowed the appeal preferred by the assessee insofar as the disallowance of investment allowance for the purpose of s. 32A of the Act. As against the said order, the Revenue sought for the reference. Accordingly, the above question of law was framed and the same has been referred to us by the Tribunal.

Learned counsel appearing for the Revenue has brought to (sic-pointed out) the decision of this Court in CIT vs. Bishal Enterprises (2001) 247 ITR 484 (Mad) wherein this Court considered the question of claim of investment allowance and held that preparation of granite blocks does not amount to manufacture or production of articles within the meaning of s. 32A of the Act and the assessee would not be entitled to claim investment allowance under s. 32A of the Act. Learned counsel for the Revenue also brought to the notice of this Court the decision of this Court in CIT vs. Vijay Granites (P) Ltd. (2004) 267 ITR 606 (Mad) wherein this Court has held that cutting and polishing of granite would not amount to production or manufacture of article and the assessee is not entitled to investment allowance in respect of the machinery used. Learned counsel for the Revenue therefore submitted that in view of the decisions of this Court rendered in CIT vs. Bishal Enterprises and CIT vs. Vijay Granites (P) Ltd. stated supra, the assessee is not entitled to claim investment allowance and the view of the Tribunal that the assessee is entitled to claim investment allowance is not sustainable in law.

Learned counsel for the assessee on the other hand submitted that neither the CIT nor the Tribunal has gone into the nature of the activities of the assessee. Learned counsel submitted that the assessee has claimed before the CIT that apart from extracting granite, the assessee has converted granite into a marketable commodity which would amount to manufacture of article and the assessee was entitled to claim investment allowance. Learned counsel further submitted that the said point was not gone into either by the CIT or the Tribunal.

We carefully considered the submissions of learned counsel for the Revenue and the assessee. There can be no dispute that in view of the decisions of this Court in CIT vs. Bishal Enterprises (supra) and CIT vs. Vijay Granites (P) Ltd. (supra) if the assessee has done merely cutting and polishing of granite slabs, it would not amount to manufacture or production of article and the assessee would not be entitled to investment allowance under s. 32A of the IT Act. The case of the assessee was that it has converted the granite into a marketable commodity but the case of the assessee was not gone into and the nature of the activities of the assessee was not ascertained. We find from the order of the CIT that the assessee has raised a specific point that the assessee, after extracting granite, has converted the same into a marketable commodity. The CIT in the revisional order has not gone into the nature of the activities of the assessee. The Tribunal has, merely following the assessee’s own case in respect of the earlier assessment year, allowed the claim of investment allowance. It has not considered the specific point raised by the assessee and has not gone into the nature of the activities of the assessee. In the absence of any factual finding on the question, viz., the activities of the assessee, we are of the view that the question referred to us cannot be answered. But we make it clear that if the assessee’s activity was merely cutting and polishing of granite, it would not amount to manufacture or production of article and the assessee would not be entitled to claim investment allowance under s. 32A of the IT Act in respect of the machinery used. However, if the assessee has done something more, the assessee has to establish the same before the Tribunal. The Tribunal is directed to go into the question and determine the nature of the activities of the assessee and also decide whether the activities of the assessee would fall within the scope of s. 32A of the Act. Needless to mention, it is open to the Revenue to contest that the activities of the assessee do not amount to manufacture or production of article. Since the factual basis for grant of investment allowance is absent, we return the reference without answering the question referred to us subject to the directions earlier given.

[Citation : 274 ITR 482]

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