COMMISSIONER OF INCOME TAX Vs. LAXMI ART STUDIO

JUDGEMENT

(1.) HEARD learned counsel for the Revenue. No one appeared for the respondent -assessee in spite of service.

(2.) THE facts giving rise to this reference are that the respondent -assessee is a registered firm. It had purchased and installed a new colour lab processing unit in December, 1984, at a cost of Rs. 7,37,088.24. The assessee created a reserve as required under section 32A and claimed investment allowance for the assessment year 1985 -86 at Rs. 62,723.23 which claim was accepted by the assessing officer under section 143(1) and the same was reopened under section 143(2)(b). The Income Tax Officer withdrew the investment allowance earlier granted vide order dated 29 -3 -1988, and against which an appeal was taken before the Deputy Commissioner (Appeals). During this period regular assessment for the assessment year 1986 -87 was completed under section 143(3) by order dated 31 -3 -1987, in which the assessee's claim was accepted for the grant of investment allowance in respect of the aforesaid plant and machinery amounting to Rs. 1,21,549. However, the Commissioner being of the view that such grant of investment allowance was erroneous and was prejudicial to the interests of the Revenue, set aside that order in exercise of his powers under section 263 of the Income Tax Act and directed the assessing officer to disallow the aforesaid deduction about the investment allowance under section 32A. The order of the Commissioner (Appeals) was made on 14 -3 -1989. The reason which prevailed with the Commissioner for holding the assessment order to be erroneous and prejudicial to the interest of the Revenue was stated to be that the activity of the respondent firm cannot be termed as an activity of manufacture or production of any article or thing within the meaning of section 32A(2)(b)(ii). It was held that :

(3.) WE are unable to sustain the aforesaid plea. The marketability of the production/end -products or whether it is sold as generic goods as is the requirement of tax on sale or purchase of the goods is not the requirement of section 32A. What is required under section 32A is that the installed plant and machinery must be for the business of the assessee which should be for manufacture or production of goods not included in the list of articles or things in the Eleventh Schedule appended to the Act. It is not further condition of applicability of section 32A that such article or thing so manufactured or produced must be an article or thing which could be sold and bought in the open market as a general commodity of general merchandise. Whether the transaction of processing of negatives or for bringing out positive photo prints for the purpose of specified customers result into manufacture or production of any article or thing is for transferring it to a specified customer who owns negative or could be sold on counter to anyone who wants to buy may be relevant in the context of considering sale of goods for the purposes of levy under the Sales Tax Act, but is hardly relevant consideration for deciding the controversy in the context of the Income Tax Act. Under the Sale of Goods Act the basic requirement is existence of goods of which there can be a sale within the meaning of the Sale of Goods Act, the sale being the taxable event. It is in that background, where transfer of property in goods is merely incidental to rendering of service, and not the principal nature of the activity, that such activity is not considered as a sale. Therefore the marketability of the goods as a commodity in the market becomes a necessary ingredient of the taxing event under the Sales Tax Act. Moreover execution of works contract and the taxability of the transaction in respect of transfer of property in goods involved in the execution of a works contract whether as goods as such or in any other form has received special treatment by deeming provision under the scheme of the Constitution as well as various sales tax laws. Therefore, whether the activity of processing of negative delivered by a customer, or in respect of persons carrying on activity of photographer to take snaps and deliver the end result to the customers by getting it processed through the mechanical method, which results in a photo print is a transaction of sale or is a transaction of rendering service only is hardly relevant for the present controversy. What is relevant is whether end -product of such activity is manufacture or production of an article or thing. It may be noticed that subject of charge under the sales tax laws is 'sale of goods'. The requirement of section 32A is only manufacture of or production of an article or thing. It may be noticed that the goods is a generic expression of wider import and ordinarily refers to plurality of subject of sale, whereas the expression used in section 32A is in the singular and of much narrower import.