R.L. Sangani, Judicial Member - (1.) THESE three appeals by the assessee relating to the assessment years 1978-79 to 1980-81 are directed against the common order dated 20-7-1983 of the Commissioner passed in exercise of powers under Section 263 of the Income-tax Act, 1961 ('the Act'). The assessee-company was carrying on business of construction of buildings and other civil construction works. In the original assessments, the ITO had allowed investment allowance and had also treated the assessee-company as an 'industrial company' within the meaning of the relevant Finance Act and had applied the rate of tax at 60 per cent, which was prescribed for and applicable to 'industrial company' as against the rate of tax at 65 per cent prescribed for those companies, which were not industrial companies. In his order under Section 263, the Commissioner held that the findings of the ITO that the assessee-company was an industrial company and further that the assessee-company was entitled to investment allowance were erroneous and were also prejudicial to the interests of the revenue. He, accord-ingly, directed the ITO to withdraw the investment allowance which had been allowed in the assessment orders and to recompute the income. He also directed that the rate applicable to non-industrial companies should be applied.
(2.) Shri S.P. Mehta, the learned counsel for the assessee, contended that the direction in the original assessment order to grant investment allowance was not erroneous. Similarly, according to him, the direction to apply the rate of tax applicable to industrial company was also not erroneous. Consequently, the Commissioner had no jurisdiction to revise the assessment order on these two points. In respect of the assessment year 1978-79, two additional submissions were made by Shri S.P. Mehta. The first was that since the assessee had filed appeal before the Commissioner (Appeals) against the assessment order and that appeal had been decided by the Commissioner (Appeals), the Commissioner had no jurisdiction to revise the assessment order, because the assessment order had merged with the order of the Commissioner (Appeals). The second was that since the investment allowance had been allowed by the ITO in pursuance of directions given by the IAC under Section 144B of the Act, that part of the assessment order in which investment allowance had been granted could not have been revised by the Commissioner. As regards the appeal for the assessment year 1979-80, one additional submission was made on behalf of the assessee and that submission was that since the net assessed income was negative, the order of the ITO on the above two points could not be said to be prejudicial to the interests of the revenue, and, as such, powers under Section 263 could not have been exercised. The learned departmental representative, on the other hand, has relied on the reasons given in the order of the Commissioner in support of his submission that the investment allowance had been wrongly allowed in the original assessment order and that the assessee-company had been wrongly treated as an industrial company in the said order and, as such, the Commissioner was justified in revising the said order. As regards, the additional grounds for the assessment year 1978-79 raised by the assessee, the learned departmental representative submitted that since the items relating to investment allowance and treating of the assessee-company as an industrial company were not the subject-matter of appeal before the Commissioner (Appeals), the decision of the ITO on these two points could not be said to have merged with the order of the Commissioner (Appeals) and the said decision of these two points was amenable to revisional powers of the Commissioner. Similarly, according to him, mere fact that investment allowance had been allowed in pursuance of the directions of the IAC would not deprive the Commissioner of his jurisdiction under Section 263. We have considered the rival submissions. The first point to be decided is whether the assessee-company was entitled to investment allowance. It is not disputed that answer to this question rests solely on the interpretation of the expression 'business of construction, manufacture or production of any article or thing' in Section 32A(2)(b)(iii) of the Act. The submission on behalf of the assessee is that the business of the assessee was business of construction and, as such, the said business falls under the expression mentioned in the said Clause. We need not discuss the matter in greater detail because we find that point in controversy has been decided in favour of the assessee by certain decisions of the Tribunal. The first such decision is the decision of the Special Bench in the case of ITO v. Hydle Constructions (P) Ltd. [1983] 6 ITD 575 (Delhi). It has been held therein that a construction company was entitled to inv.estment allowance. The second decision is Progressive Engg. Co. v. ITO [1983] 3 ITD 172 (Hyd.). In that case also it was held that investment allowance was allowable. The latest decision is in Shah Construction Co. Ltd. v. ITO [IT Appeal No. 3665 (Bom.) of 1983, dated 19-7-1985]. In that decision all the cases including several decisions of the Bombay High Court which had been relied on by the learned departmental representative for the submissions before us were duly considered and it was held that construction company was entitled to investment allowance. The reason given was that they are in the definition of industrial company the words are 'construction of ship' while in Sub-clause (iii) of Section 32A(2)(b) the expression is 'construction of an article or thing, not being an article or thing specified in the list in the Eleventh Schedule'. The business of construction of buildings would be business of construction of an article or thing not being an article or thing specified in the list in the Eleventh Schedule of the Act. We respectfully follow these decisions and hold that the directions in the original assessment orders for allowing investment allowance were not erroneous. Consequently, the directions of the Commissioner to withdraw the investment allowance were unsustainable.
(3.) AS regards the question whether the assessee-company would be regarded as an industrial company, we have to see whether the assessee-company comes within the ambit of the definition of industrial company. Industrial company relevant for our purpose has been defined as a company which is mainly engaged in the business of the construction of ships or in the manufacture or processing of goods. It is to be noted in this definition that the words 'construc-tion of an article or thing' are not there. Those words were in Sub-clause (iii) of Section 32A(2)(b) which we have considered above. Consequently, whereas construction of building would come under Section 32A(2)(b) (iii) because it has business of construction of an article or thing, the said business would not come within the definition of the term 'industrial company', because in the definition of industrial company, the words are construction of sh ips and not construction of an article or thing. The question whether the company carrying on the business of construction of buildings came within the definition of 'industrial company' was duly considered by the Bombay High Court in CIT v. N.U.C. (P.) Ltd. [1980] 126 ITR 377 and it was held that such company did not fall within the definition of an 'industrial company' as given in the relevant Finance Act. It is true that some other High Courts had taken slightly different view. However, we are bound by the decision of the Bombay High Court. The assessee had submitted before the Commissioner that the decision of the Bombay High Court was wrong and that there was contrary decision of the Calcutta High Court in National Planning & Construction Ltd. v. CIT [1980] 122 ITR 197. He had also cited the decision of the Delhi High Court before the Commissioner and had made submissions to show that the decision of the Bombay High Court was wrong. The Commissioner stated that the decision of the Bombay High Court was binding on him. In our opinion, the Commissioner was justified in holding that in view of the decision of the Bombay High Court, the assessee-company could not be treated as an industrial company. Before us the decision of the Tribunal in the assessee's own case in certain earlier assessment years was cited in which it was held that the assessee-company was an industrial company. That decision is of November 1974. Subsequently, we have the decision of the Bombay High Court, referred to above and we are bound to follow the same. Before us, the learned counsel for the assessee submitted that the decision of the Bombay High Court should not be followed because the activities of the assessee-company did come within the category of manufacturing or processing of goods. We have considered the nature of activities which the assessee-company carried on. We find that these activities were not materially different from the activities which were carried on by the companies involved in the decisions of the Bombay High Court. We do not think that the decisions of the Bombay High Court on this point are in any way distinguishable. We, accordingly, follow those decisions and hold that the business of the assessee-company was not that of manufacture or processing of goods. Consequently, the assessee-company did not come within the definition of industrial company. The Commissioner was, therefore, justified in holding that the assessee-company was not entitled to be treated as an industrial company for the purpose of concessional rate of tax. In view of the above findings recorded by us, the appeal for the assessment year 1980-81 is liable to be partly allowed. However, as far as the appeal for the assessment year 1979-80 is concerned that appeal is liable to be allowed in spite of the above findings. This is because of the following facts. In that assessment year the net income computed in accordance with the Act before deduction under Chapter VIA of the Act came to Rs. 1,71,68,541. This figure was arrived at after deduction of investment allowance of Rs. 2,28,916. The total amount deductible under Chapter VIA was Rs. 1,94,37,598. Since this amount exceeded the income computed prior to deduction under Chapter VIA, deduction under Chapter VIA was confined to the above figure of Rs. 1,71,68,541 and the net total income assessed came to nil. If the investment allowance is withdrawn, identical amount which could not be deducted under Chapter VIA would be liable to be deducted and as a result the net income would still be nil. Consequently, even if the investment allowance is withdrawn the net income would remain nil. There would thus be no tax effect. Since the net income is nil it is immaterial whether the company is treated as an industrial company or not. Consequently, while we hold that the order of the ITO on these two points was erroneous, the said erroneous order was not prejudicial to the interests of the revenue. Consequently, for the assessment year 1979-80, the learned Commissioner should not have exercised the powers under Section 263.;