1998 (6) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for weighted deduction under section 35B of the Income-tax Act, 1961.
2. Definition and interpretation of "small-scale industrial undertaking" under the Explanation to section 35B(1A) and section 32A(2) of the Act.
3. Inclusion of specific assets (library, patterns, generators, tractors) in the aggregate value of plant and machinery for determining "small-scale industrial undertaking."

Issue-wise Detailed Analysis:

1. Eligibility for Weighted Deduction under Section 35B of the Income-tax Act, 1961:
The Income-tax Officer granted a weighted deduction of Rs. 90,873 under section 35B for the assessment year 1979-80. The Commissioner, upon reviewing the records, held that the assessee was not eligible for this deduction as it did not hold an export house certificate and was not a "small-scale exporter." The Tribunal upheld the Commissioner's decision, leading to the assessee seeking a reference on the matter.

2. Definition and Interpretation of "Small-Scale Industrial Undertaking" under the Explanation to Section 35B(1A) and Section 32A(2) of the Act:
The core issue revolved around whether the assessee qualified as a "small-scale industrial undertaking" as defined in clause (2) of the Explanation to section 32A(2) of the Act. According to this clause, an undertaking is deemed small-scale if the aggregate value of its machinery and plant (excluding tools, jigs, dies, and moulds) does not exceed ten lakh rupees as of the last day of the previous year. The Tribunal and the Revenue argued that all machinery and plant, except the four excluded items, should be considered in this valuation.

3. Inclusion of Specific Assets (Library, Patterns, Generators, Tractors) in the Aggregate Value of Plant and Machinery for Determining "Small-Scale Industrial Undertaking":
The dispute centered on whether items like the library, patterns, generators, and tractors should be included in the aggregate value of plant and machinery. The Tribunal included these items, concluding that the assessee did not qualify as a small-scale industrial undertaking. However, the High Court opined that the machinery or plant referred to in the Explanation to section 32A(2) should only include items eligible for investment allowance under section 32A. The Court emphasized that the Explanation should be read within the context of the investment allowance scheme, excluding items like office appliances and road transport vehicles, which do not qualify for investment allowance.

The Court cited the Bombay High Court's decision in CIT v. Reunion Engineering Co. (P.) Ltd. and the Kerala High Court's decision in CIT v. Travancore Mats and Mattings Co., supporting the view that the definition of "machinery and plant" should exclude items not eligible for investment allowance. The Tribunal was directed to reassess whether any of the disputed items (library, patterns, generators, tractors) fell within the proviso to section 32A(1) and should be excluded from the aggregate value.

Conclusion:
The High Court reframed the question of law to focus on whether the assessee was a small-scale industrial undertaking within the meaning of clause (2) of the Explanation below section 32A(2). The Court did not answer the reframed question but returned the reference unanswered, directing the Tribunal to re-evaluate the appeal in light of the Court's interpretation and directions. The assessee was awarded costs of Rs. 1,000.