Commissioner of Income Tax vs Coromandel Engg. Co. Ltd.

V.S. Sirpurkar, J.

We shall deliver the judgment in both the T.C. Nos. 594 of 1987 and 382 of 1988. For the sake of convenience, we shall refer to the question

framed in T.C. No. 594 of 1987 which is more or less identical with the question framed in T.C. No. 382 of 1988 also. The question is as under :

Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the assessee-company is an industrial undertaking and

is entitled to investment allowance u/s 32A of the Income Tax Act, 1961 ?

The question was referred at the instance of the revenue. The Tribunal has found that the assessee is entitled to the investment allowance u/s

32A of the Income Tax Act, 1961 (hereinafter referred to as ''the Act''). For arriving at this finding, the Tribunal has relied on the decision in

Commissioner of Income Tax, Bombay City-II Vs. Pressure Pilling Co. (India) P. Ltd., . In that judgment, the Bombay High Court had held that

an industry which was engaged in the business of construction activities could be given the benefit of investment allowance. In that case, the

assessee was Pressure Piling Co. and was in the business of laying foundations of buildings by a specialised patented method known as ''pressure

piling''. The High Court, after describing the process, came to the conclusion that having regard to the nature of the business of the assessee, the

assessee-company would qualify for the relief u/s 84(1) of the Act to the extent of 6 per cent of the capital employed in its industrial undertaking.

The Income Tax Officer, in that case, had taken a view that the assessee had not satisfied the condition laid down in section 84(2)(iii). That order

was confirmed up to the stage of the Appellate Assistant Commissioner. However, there was a difference of opinion when the matter reached the

Tribunal. But, after a reference was made to a Third Member, it was held that the assessee was entitled to get the benefit u/s 84(1). The High

Court also took the same view and held that the assessee could be given the advantage of section 84(2)(iii).

It is pointed out by the standing counsel for the department that this decision has been upset by the Apex Court in a decision in Commissioner of

Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, , wherein the Apex Court has held that a construction company

which had business activity in the nature described above could not be said to be a manufacturing company. There can be no dispute about the

decision and that would be ordinarily an end of the story insofar as these two references are concerned, but the learned counsel for the assessee

pointed out that there was some distinguishing feature in the present references. The learned counsel points out that in both the matters the claim of

the assessee was that piles were being sunk in the construction activity of the assessee and for that, there were number of components

manufactured by the assessee-company itself. The learned counsel was at pains to point out from paragraph 7 of the Tribunal''s order in T.C. No.

594 of 1987. He drew our attention particularly to the opening lines which are as under :

As regards merits, we find that the assessee is engaged in the business of construction of factory buildings, plant buildings, civil engineering bottling

plant, etc. During the year of account, it had executed jubs relating to piling and heavy equipment foundations, equipment foundation for 210 MW

turbo generator plant, plant buildings for Ariyalur Cement Project, factory buildings for Ashok Leyland, multi-storeyed buildings for Grindlays

Bank, LPG bottling plant for Hindustan Petroleum Corporation Ltd. and factory buildings for Ennore Foundaries Ltd.

The learned counsel then tried to suggest that though the question is decided against the assessee by holding that it cannot be held to be an

industrial undertaking for the purpose of section 32A(2)(b)(iii), there was some material record to suggest that even in the construction activity, the

assessee was using some material which was manufactured by it.

The learned counsel argues that there has to be a thorough enquiry as to whether the material and machinery used by it were manufactured by it

and an advantage to that extent could be granted to him. For this purpose, the learned counsel invites our attention particularly in the judgment in

N.C. Budharaja & Co.''s case (supra) which is to the following effect :

... We need not express any opinion on the question what would be the position if the respondent had claimed the benefit of section 80HH on the

value of the articles manufactured or produced by him which articles have gone into/consumed in the construction of the dam.

From this, learned counsel points out that even in the aforementioned decision, the Apex Court has not concluded the question of benefit of section

80HH in respect of articles manufactured or produced by the assessee, used in the construction activity. The learned counsel also invites our

attention particularly to a portion which is as under :

........ It cannot be said that if a person constructs the entire dam including the foundation, he is not manufacturing or producing an article but

where he merely lays the foundation for such dam, he is manufacturing or producing an article. The piles, which the assessee lays by his particular

method become a fixture in the earth. It ultimately becomes an integral part of the dam, bridge or building, as the case may be. It is not as if the

assessee supplies pre-fabricated piles which are bored into the earth by the contractor or owner, as the case may be....

The learned counsel points out that there is material available to show that the pre-fabricated piles which the assessee used in its construction

activity were manufactured by it alone. The learned counsel further argues that it would be, therefore, obvious that where the piles are

manufactured by the assessee itself and then used for its construction activity, things would be entirely different. Thereafter, the learned counsel

very heavily relies on an unreported decision of the Supreme Court in C.A. No. of 1994, dated 17-11-1994 (between Asia Foundations &

Constructions Ltd. and Commissioner). Here also, the Apex Court after taking into account the law laid down in the aforementioned decision in

N.C. Budharaja & Co.''s case (supra), has observed as follows :

We find that even the Tribunal''s order does not indicate fully and appropriately the facts and circumstances of the case on which the aforesaid

question of law arising for decision in the present case was decided by it. As earlier stated, there is no reference to the facts of the case in the High

Court''s order. There is thus, nothing even in the order of the Tribunal much less in that of the High Court to indicate the facts and circumstances in

which the aforesaid decision of this court was applied for answering the aforesaid question of law. In such a situation, examination of the same on

merits by us in the first instance, without the benefit of an accepted summary on the facts of the case being available on record would not be

appropriate. It does appear to us that the position in the High Court was also similar and, therefore, the more appropriate course to adopt is to

send back the matter to the Tribunal for a fresh decision of the appeal on merits after hearing both sides, in accordance with law in the light of the

decisions of this court on this point. We order accordingly.

The situation must be stated to be similar here also. However, there are some stray observations that the assessee''s case throughout was that it

was using piles which were manufactured by it. It would be, therefore, better that the matter goes back and is decided on merits by the Tribunal

after giving a fresh hearing to the assessee. The assessee may raise all the questions and if necessary, place materials before the Tribunal to suggest

that it was using its own manufactured articles or materials during its construction activity. It would be open to the Tribunal to remand the matter, if

it so feels to enquire all these factual questions. With this, we dispose of the references in the light of our abovesaid discussion. We direct the

Tribunal accordingly.