1991 (4) TMI 33 - HC - Income Tax

Summary

Issues involved:
1. Entitlement to depreciation allowance u/s 32 for assets previously deducted u/s 35(1)(iv)/35(2)(ia).
2. Computation of depreciation allowance without applying Explanation 1 to section 43(1).
3. Determination of whether the assessee carried on the business of manufacturing sugar and tea machinery.
4. Entitlement to relief u/s 80-1 of the Income-tax Act, 1961.

Entitlement to Depreciation Allowance:
The High Court considered the questions referred by the Income-tax Appellate Tribunal regarding the assessee's entitlement to depreciation allowance u/s 32 for assets whose cost was fully deducted in earlier years u/s 35(1)(iv)/35(2)(ia). Referring to a previous judgment, the court affirmed the entitlement of the assessee to the depreciation allowance for the relevant assessment years.

Computation of Depreciation Allowance:
The court also addressed whether the depreciation allowance should be computed based on the actual cost of the assets without applying Explanation 1 to section 43(1). Following the previous judgment, the court answered this question in the affirmative and in favor of the assessee.

Business of Manufacturing Sugar and Tea Machinery:
Regarding the determination of whether the assessee was engaged in the business of manufacturing sugar and tea machinery, the Tribunal found that the assessee engaged in activities such as canvassing orders, preparing designs, and supervising manufacturing under Turner Hoare. Despite utilizing Turner Hoare's facilities, the Tribunal held that the assessee was engaged in manufacturing activity and qualified for relief u/s 80-1.

Legal Interpretation and Decision:
The court examined the arguments presented by both parties, emphasizing the requirement for the assessee to be directly involved in the manufacturing process to be considered engaged in manufacturing activity. Based on the activities undertaken by the assessee, except for manufacturing through Turner Hoare, the court agreed with the Tribunal's finding that the assessee was indeed engaged in the business of manufacturing sugar and tea machinery. Consequently, the court answered the third and fourth questions in the affirmative and in favor of the assessee. No costs were awarded in this matter.