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The Commissioner of Income-tax v. M/s.The Coromandel Engineering Co. Ltd. - T.C.No.594 of 1987 and T.C. No.382 of 1988  RD-TN 351 (11 June 2002)
IN THE HIGH COURT OF JUDICATURE AT MADRAS
THE HONOURABLE MR.JUSTICE V.S.SIRPURKAR
THE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIAN
T.C.No.594 of 1987 and T.C. No.382 of 1988
The Commissioner of Income-tax,
... Applicant in both T.Cs. vs.
M/s.The Coromandel Engineering Co. Ltd.,
... Respondent in both T.Cs. References arising out of the orders of the Income-tax Appellate Tribunal, B-Bench, Madras in I.T.A.Nos.2630/Mds/84 and 1697/Mds/85, at the instance of the Revenue.
For applicant :: Mr.T.Ravikumar, Jr.Standing
Counsel for IT. In both T.Cs.: For Respondent :: Mr.Senthilkumar
(ORDER of the Court was made by V.S.SIRPURKAR,J.)
We shall deliver the judgment in both the T.C.Nos.594 of 1987 and 3 82 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 under section 32-A of the Income-tax Act, 1961?"
2. The question was referred at the instance of the Revenue. The Appellate Tribunal has found that the assessee is entitled to the investment allowance under section 32-A of the Income-tax Act. For arriving at this finding, the Appellate Tribunal has relied on the decision reported in C.I.T. v. PRESSURE PILING CO. (126 ITR 333). 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 one Pressure Piling Company 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 could qualify for the relief under section 84(1) of the Income-tax Act to the extent of 6 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). These orders were confirmed up to the stage of Appellate Assistant Commissioner. However, there was a difference of opinion when the matter reached the Appellate Tribunal. But, after a reference was made to a third Member, it was held that the assessee was entitled to get the benefit under section 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).
3. It is pointed out by the Standing Counsel for the department that this decision has been upset by the Apex Court in a decision reported in 204 ITR 412 (C.I.T. v. N.C.BUDHARAJA AND CO.) 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 in so far 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. 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. 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 works, bottling plant, etc. During the year of account it had executed jobs 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."
4. 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. 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, learned counsel invites our attention particularly to page 425 in the judgment in Budharaja and Co. case which is to the following effect:
" We need not express any opinion n 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 88HH in respect of articles manufactured or produced by the assessee, used in the construction activity. Learned counsel also invites our attention particularly to a portion at page 429 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."
5. 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. Learned counsel further argues that it would be therefore obvious that where the piles were manufactured by the assessee itself and then used for its construction activity, things would be entirely different. Thereafter, learned counsel very heavily relies on an unreported decision of the Supreme Court in C.A.No. of 1994 dated 17.11.1994 (between M/s.Asia Foundations & Constructions Limited and Commissioner of Income-tax, Bombay). Here also, the Apex Court after taking into account the law laid down in the aforementioned decision in N.C.Budharaja's case, 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."
6. 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.
Website: Yes (V.S.S.,J.) (N.V.B.,J.) na. 11.6.2002 To
1.The Asst. Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, III Floor, Besant Nagar, Chennai (5 copies).
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