S. Rajaratnam, Accountant Member - (1.) THIS is an appeal filed by Sri Balaji Metal Finishers, Secunderabad against the order of Commissioner Hyderabad, for the assessment year 1979-80.
(2.) The assessee is a company incorporated for job works for electroplating. The assessee claimed investment allowance and was allowed the same at 25 per cent on an outlay of Rs. 1,43,593 working out to Rs. 35,898. The assessee had made reserve as required and the ITO allowed the investment allowance as claimed. Since the assessee had only a loose investment allowance was indicated in the assessment order as an amount which would be carried forward. The Commissioner noticed the assessment. He was of the view that the activity of electroplating cannot be treated as manufacture and that, therefore, investment allowance was wrongly allowed. He issued notice to show cause why the investment allowance should not be withdrawn acting under Section 263 of the Income-tax Act, 1961 ('the Act'). The assessee replied with reference to case law that the assessee's activity constituted manufacture. The assessee's arguments were found unaccountable inasmuch as the Commissioner found that electroplating was akin to galvanising and that galvanising was not treated as manufacture in the decision of the Calcutta High Court in CIT v. Hindus than Metal Refining Works (P.) Ltd. [1981] 128 ITR 472. Relying upon this decision, he directed the ITO to withdraw the investment allowance. The assessee is, therefore, in appeal against the said order. The learned representative for the assessee took us over the accounts of the assessee and described its activities. He claimed that the assessee has used the machinery which was purchased at a cost of nearly Rs. 1.5 lakhs for electroplating various industrial and other items like parts for fan equipment, scooter, refrigerators and rickshaws besides electroplating safety pins, hair pins, nuts, bolts, screws and washers, etc. He also pointed out that the assessee purchased various raw materials which included metals, acids, chemicals, oils, emery wheel, etc. Though the assessee was doing job works for others, there was considerable outlay of materials and that the cost of such materials and direct expenses like direct wages amounted to 67.56 per cent of the total receipts. This, according to him, indicated the extent of materials used. He referred to definitions under sales tax law and the Factories Act, 1948, to support his claim that even mere ornamentation or coating may involve manufacture. He also sought to buttress his case by a "technical opinion from Andhra Pradesh Industrial & Technical Consultancy Organisation Ltd., a subsidiary of Industrial Development Bank of India to the effect that the assessee's activity would constitute manufacture. This report also sought to distinguish electroplating process from galvanising process. With the aid of this report and other technical details, the learned representative sought to impress upon us that electroplating involved various complex processes and has to bs treated as a manufacturing process. He cited a number of authorities of various High Courts and the Tribunal. In fact, he has filed the detailed lost of them with the propositions which he wants to canvass with reference to these decisions.
(3.) THE learned departmental representative, on the other hand, claimed that the technical opinion was with reference to the Factories Act which naturally seeks to give an extended meaning to the word 'manufacture' so as to bring within its scope a larger number of establishments. In fact, the Madras High Court in the case of CIT\. Buhari Sons (P.) Ltd. [1983] 144 ITR 12 had pointed out that the definitions under the Factories Act would not be applicable where the issue involved is whether an assessee is an industrial company or not. Hence, the position cannot be different for the purposes of investment allowance. He, therefore, contended that this could not be the basis of any conclusion. If it is argued that electroplating is a complex process, he contended that so was galvanising. In one the coating was with zinc while in other it could be with any other metal. Zinc is used for anti-corrosion while the other metals are used for shining or for some other such purposes. THE product in either case continued to be the same. He, therefore, argued that it will not be open to us to ignore the decision of the Calcutta High Court which is nearest to the assessee's facts. He also sought to justify the order of the Commissioner on the basis of another argument. He pointed out that the basic material never belonged to the assessee. Its entire receipts are by way of service charges. He claimed that this distinction was noticed by the Bombay Tribunal in the case of ITO v. Ahura Shipping & Engg. Co. (P.) Ltd. [1984] 8 ITD 435 wherein this Tribunal, according to him, excluded job works from the purview of 'investment allowance'. In this connection, he referred to the following passage from the above decision: ...THE short question that arises for consideration, therefore, is whether or not the assessee-company manufactures or produces articles or things, there being no suggestion that the assessee is engaged in the business of construction. This has to be examined on the facts of the case, viz., that the assessee is mainly engaged in carrying out large scale repairs to ships though the job undertaken include manufacture or fabrication of parts, components and other equipments necessary for undertaking large scale repairs. In other words, just because the assessee, for and in the course of undertaking large scale repairs of ships, has to do fabrication and manufacture of certain items, it can be held that the assessee manufactures or produces articles or things. If we were to decide this issue on the basis of first principle, we would have straightaway held that the assessee does not manufacture or produce any article or thing, as, according to us, when a person manufactures or produces an article or a thing, it is implied that such articles or things are manufactured or produced for the purpose of sale and not for the purpose of some job work. [Emphasis supplied](p. 439) He contended that if the assessee's arguments were to be accepted, the persons who manufactured the products would be denied the benefit of investment allowance while the assessee to whom the goods did not belong would be allowed this deduction. This, according to him, would lead to anomalous result.;