K. Shivashankar Bhat, J. - (1.) UNDER the provisions of the Income-tax Act, 1961 ("the Act" for short, the following three questions are referred : "1. Whether, on the facts and in the circumstance of the case, the Appellate Tribunal was right in law in holding that the prohibition contained section 32A(2)(b) (ii) and (iii) does not apply in this case ? 2. Whether, on the facts and in the circumstance of the case, the Appellate Tribunal was right in law in holding that the assessee is a small scale industrial undertaking and hence entitled to investment allowance ignoring the fact that its income is only from services rendered ? and 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that, for the purposes of entitlement of investment allowance, there is no condition that the assessee should itself be a mining concern ?"
(2.) THE assessee takes out ore and carries on the business of analysing the same to tender technical information to the clients. This activity of the assessee was held as not a mining activity and the assessee not a small scale industry by the Commissioner of Income-tax (Appeals). THE said authority held that the assessee was rendering service but not producing any article or thing. Consequently, the claim of the assessee under section 32A was disallowed. In the appeal filed by the assessee, the Appellate Tribunal held that even though the business of the assessee was to advise mine owners about the suitability of undertaking mining operations in the particular areas for the said purpose, it is to extract iron ore and have it analysed to find out the content of iron and manganese in the ore. THE Appellate Tribunal further found that the iron ore is not referred to in the Eleventh Schedule to the Act and, therefore, section 32A(2)(b) (ii) and (iii) does not apply to the case. THE assessee was found to be a small scale industry having regard to the investments made by the assessee and the extraction of the ore by the assessee; the iron ore is produced by the activity of the assessee, i.e., by its extraction; this is necessary for the purpose of the business of the assessee. Hence, the Revenue has sought these references. In I. T. R. C. No. 138 of 1985 and connected matters (Shankar Construction Co. ), decided on November 8, 1990 it was held that the word "industry" has to be broadly understood and the activities of the assessee therein, viz., construction activities, was held to be part of an activity of an industrial undertaking. One of the sub-sections of section 32A states that an industrial undertaking shall be deemed to be a small scale industrial undertaking if the aggregate value of the machinery and plant of the assessee does not exceed the prescribed limit therein. There is no dispute that the assessee herein falls within the limit prescribed by the sub-section. The other question is whether the activity of the assessee will make it an industrial undertaking for the purpose of section 32A(2)(b)(ii). Having regard to the decision of this court referred to above in II. T. R. C. No. 138 of 1985 (Shankar Construction Co. v. CIT [1991] 189 ITR 463), etc., we hold that the activity of the assessee will be an activity entitling it to the status of an industry. Even assuming that the main activity of the assessee is rendering of service, even then the assessee will be entitled to the benefit of this status by adopting the approach applied by this court is the earlier decision referred to above. Learned counsel for the Revenue, however, contended that the business of prospecting and drilling for the purpose of rendering consultancy service does not involve any activity of manufacture or production. If section 32A had confined its operation to the cases of production of any article only, provably learned counsel for the Revenue could have a better case to put forth. Section 32A(2)(b)(iii) covers production of any article or thing other than those specified in the Eleventh Schedule. Either the assessee produces iron ore by its activity of extracting the ore from the earth or produces a thing out of it; the word "thing" has been interpreted very widely and the wider concept has been accepted by this court already in the case of a construction company, the business of which was to construct a canal. Learned counsel for the Revenue referred to two decisions, one in S. B. Cold storage v. CIT and the other in Mittal Ice and Cold Storage v. CIT . In both these decisions, it was held that the plant and machinery in question should have been used by the assessee in a small scale industrial undertaking for the purpose of business of manufacture or production of any article or thing and the resultant product should be a distinct commercial commodity. It was held in both these cases that a cold storage plant was not machinery or plant installed for the manufacture or production of any article. Both these decisions are the result of their peculiar facts. It cannot be denied that the assessee used the machinery in question for extracting the iron ore. This extraction is absolutely necessary for the purposes of the assessee's business. In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, the Supreme Court pointed out that the expression "for the purpose of the business" has a wider scope and that its range is wide and that it may take in not only the day-to-day running of the business but also the rationalisation of the assessee's administration and modernisation of the industry, etc. So long as the machinery is used for the purposes of the business, section 32A will be attracted subject to the other conditions stated in the said provisions. In the instant case, it is not the case of the Revenue that the machinery is not used wholly for the purpose of the assessee's business. In fact, the income derived by the assessee could not have been earned without using these machineries to unearth ore and the machineries are not used elsewhere at all.
(3.) IN these circumstances, we agree with the ultimate conclusion arrived at by the Appellate Tribunal. The first question is, accordingly, answered in the affirmative and against the Revenue. The second question is also answered in the affirmative and against the Revenue and, consequently, the third question is also answered in the affirmative and against the Revenue.;