KHALSA BROTHERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) These two references relate to the assessment year 1981-82 for which the relevant accounting year ended on March 31, 1981. The assessee, a registered firm, purchased machinery worth Rs. 16,23,348 for use and claimed investment allowance of Rs. 4,05,812 under Section 32A of the Income-tax Act, 1961. The assessee-firm was engaged in removing overburdens and raising of coal in Rajpura Colliery under the Eastern Coalfields Ltd. It was claimed that the work undertaken by the assessee-firm was a process which was normally carried on by a coal miner engaged in open cast mining and further claimed to be treated as an industrial undertaking eligible for investment allowance under Section 32A of the Act. The assessee also filed a letter of intent dated December 27, 1980, and a certificate dated February 22, 1984, from the agent of Rajpura Colliery. The Income-tax Officer found that the letter of intent indicated that the assessee would be paid at certain rate as hiring charges of heavy earth moving machinery. It was pointed out that from the tax deduction certificate issued by the collieries it was noticed that the payments were made against the contract for hiring the aforesaid machinery. The Income-tax Officer further stated that the certificate of the agent of the colliery was of a general nature stating that the assessee was engaged in extracting coal from collieries including removal of overburdens. The Income-tax Officer further pointed out that the certificate did not mention that the assessee was given a contract for mining work and on the other hand, the letter of intent and tax deduction certificate showed that the contract was for the hire of machinery on fixed rates depending on the nature of work and the quantum of work done by such machines. The assessee, however, claimed that it carried on the business of mining contract which the Income-tax Officer, however, did not accept and expressed a view that even if the firm was engaged in mining coal under the contract the mere act of being engaged in removing the overburdens and extracting coal for others would not make the assessee an industrial undertaking. Therefore, its claim to investment allowance was rejected.

(2.) In appeal before the Commissioner of Income-tax (Appeals), the assessee contended that the assessee was engaged in the job of cutting, drilling and blasting stones and transportation of those articles within the specified distance as evident from the letter of intent and the certificate from the agent of Rajpura Colliery.

(3.) The Commissioner of Income-tax (Appeals) observed that the letter of intent described the contract as one for hiring heavy machinery. But the nomenclature was neither accurate nor decisive. He pointed out that the rate of payment was fixed with reference to the work done, i.e., the cutting, removing of earth, stories, coal, etc. He further noted that the assessee did not lease or let out the machines on hire and if it was engaged therein it was doubtful that the claim for investment allowance could be denied to the assesses as the machinery continued to be with the assessee. The Commissioner of Income-tax (Appeals) referred to the decisions reported in Ajodhya Prasad Tara Chand Khekra v. CIT [1967] 66 ITR 576 (All) and CIT v. Castlerock Fisheries and further noted that the assessee was engaged in the job of removing the overburden, cutting and transportation of earth, stones and coal with the help of the machines used by it and with its own employees for which the colliery made payments with reference to the actual amount of work done and not with reference to the period for which the machines were used. The Commissioner of Income-tax (Appeals) came to the view that the work of the assessee constituted a process of production of coal at Rajpura Colliery and the process undertaken by the assessee was one of the normal processes. The coal mines employed the open cast mining method. Therefore, this case would come within the scope of Sections 32A and 32A(2)(b)(iii). Reference was also made to the decision of the Bombay High Court in CIT v. Pressure Piling Co. (India) P. Ltd. [1980] 126 ITR 333. Therefore, the Commissioner of Income-tax (Appeals) directed the Income-tax Officer to allow investment allowance on the said machines.