COMMISSIONER OF INCOME TAX Vs. BHAGEERATHA ENGINEERING LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, the Income-tax Appellate Tribunal (for short, "the Tribunal") has referred the following question of law for the decision of this court in the above two cases :

(2.) THE respondent is a company engaged in the business of undertaking building contracts. We are concerned with the assessment years 1980-81 and 1981-82, the previous years ending on March 31, 1980, and March 31, 1981, respectively. In the previous years relating to the assessment years 1980-81 and 1981-82, the assessee had acquired plant and machinery and claimed investment allowance of Rs. 29,67,024 and Rs. 11,44,835, respectively, under section 32A of the Income-tax Act. THE Income-tax Officer denied the relief. THE grounds for denial of the relief were two-fold : (1) the machinery had not been installed in an "industrial undertaking" for the purpose of business of construction, manufacture or production of any article or thing since the business of the assessee was undertaking building contracts only which could not be considered as an "Industrial undertaking", and (2) the assessee was only carrying on contracts for others. In the appeal, the Commissioner of Income-tax (Appeals), held thus :

(3.) PROCEEDING further, counsel for the Revenue placed reliance on the Finance Ministers Second Budget Speech for 1977-78 printed at, [1977] 107 ITR 66 and Notes on Clauses to the Finance (No. 2) Bill, 1977, printed at, [1977] 107 ITR 152 and contended that the then existing provision was to enlarge the scope of the law to priority industries and all industries will not been entitled to the benefit of the provision. It was argued that, on the terms of section 32A(2)(b)(iii) of the Act, the assessee should prove that the new machinery or plant is installed in an "industrial undertaking" and that it should be so done for the purpose of business of construction, manufacture or production of an article or thing. In this case, the assessee is engaged in the business of building contracts. It is engaged in the construction of tunnels and other civil works. It does not own any of the things which it constructs as it simply lends its services in the construction of the things. The end products of the services lent by the company do not belong to the company. It cannot be said that the assessee is an industrial undertaking, much less that the plant or machinery is installed for the purpose of business of manufacture or production of any article or thing. According to counsel for the Revenue, though the language of section 32A(2)(b)(iii) of the Act is wide enough to state that the new machinery or plant is to be installed for the purpose of business of construction, manufacture or production of any article, it should really be confined to an occupation or activity, vocation, business or trade an industrial undertaking. Since the respondent is engaged only in the business of construction, there is no business of manufacture or production of any article or thing and so the provisions of section 32A(2)(b)(iii) of the Act are not attracted. On the other hand, counsel for the respondent-assessee submitted that the respondent-construction company is engaged in the construction of dams, tunnels, etc. It is an integrated business, involving complicated activities and, in the course of its carrying of its construction work, the assessee is manufacturing and processing various materials to be used in its construction activities. It has been so found by the Tribunal. The word "industrial undertaking" is not defined in the Income-tax Act. The word should receive the meaning given to it in common parlance. The reference to the Speech of the Finance Minister reported in, [1976] 102 ITR 95 and, [1977] 107 ITR 66 or the Notes on Clauses of the Finance (No. 2) Bill at, [1977] 107 ITR 152 are not relevant and there is no basis to contend that section 32A of the Income-tax Act was enacted only to give benefit to low priority industries and there is no intention to include all industries. It was submitted that there is no indication to show that section 32A of the Act is confined to priority industry alone. Counsel argued that the word "industrial undertaking" should be construed in a liberal manner and it would only mean that the enterprise or venture should partake of the character of a business and it should take within its fold any project or business a person may undertake. Placing reliance on the Notes on Clauses of the Finance (No. 2) Bill, 1977 relating to section 32A of the Income-tax Act, printed at, [1977] 107 ITR 53, counsel contended that the object was to enlarge the scope of the existing provision and as rightly pointed out by the Commissioner of Income-tax (Appeals), investment allowance is to be granted in respect of machinery and plant installed for the purpose of business of construction, manufacture and production of any article and thing, not specified in the list in the Eleventh Schedule. Counsel for the assessee stressed that the Tribunal, after adverting to the nature of various activities carried on by the assessee, has entered a finding of fact to the effect that the assessee is an industrial undertaking. It was also found that since the machinery was used in an industrial undertaking for the business of construction, manufacture or production of articles or things, the assessee is entitled to investment allowance under section 32A of the Act. According to counsel the finding of fact entered by the Tribunal on the basis of materials before it, that the assessee is an "industrial undertaking", has not been challenged by framing an appropriate question. So long as the said finding of fact is not challenged, the machinery or plant used admittedly is an "industrial undertaking" for the purpose of construction, manufacture or production of articles or things is entitled to investment allowance filed under section 256(1) of the Act, the Revenue had challenged the finding entered by the Tribunal that the assessee is engaged mainly in the manufacture or processing of goods and as such an industrial company, and the said finding was challenged specifically by framing questions Nos. 1 and 2, appearing at pages 35 and 38 of the paper book. The Tribunal declined to refer those two questions. The only question referred is to the following effect :