1995 (3) TMI 126 - AT - Income Tax

Summary

Issues:
Whether the assessee is entitled to investment allowance in respect of machineries installed for the purpose of preparing potato chips.

Detailed Analysis:

1. Facts of the Case: The assessee claimed investment allowance for plant and machinery used in manufacturing potato chips. The Assessing Officer disallowed the claim, stating that the process did not amount to manufacture. The CIT(A) upheld this decision, leading to the appeal.

2. Assessee's Argument: The assessee's counsel argued that the process involved various steps like cleaning, peeling, slicing, frying, etc., resulting in a new and distinct item, as supported by certificates and correspondence. Cited judgments included Empire Industries Ltd, Union Carbide India Ltd, Talakshi Lalji & Co., and ITO v. A. Joseph Louis.

3. Department's Argument: The Departmental Representative contended that the activity was food preparation, not industrial manufacturing. Relied on judgments from Kerala, Bombay, and Karnataka High Courts to support this stance.

4. Legal Precedents: The Tribunal discussed legal precedents, including the Supreme Court cases of Union of India v. Delhi Cloth & General Mills and Dy. CST v. Pio Food Packers, emphasizing the need for a transformation resulting in a new commodity for a process to be considered manufacturing.

5. Decision: The Tribunal analyzed the process of making potato chips, concluding that it amounted to manufacturing as the original commodity (potato) was entirely transformed into a new and distinct item (potato chips). Highlighted the commercial distinction between the two products and their different uses, supporting the assessee's claim for investment allowance.

6. Authorities' Distinction: Distinguished the judgments relied upon by the Department, emphasizing that hotel industry activities were considered trading, not manufacturing, based on the main objective of the concern. Explained that the context of the definitions and statutes indicated a separate treatment for hotel businesses from industrial undertakings.

7. Legislative Intent: Noted that legislative provisions treated hotel businesses differently from industrial undertakings, indicating a separate categorization. Concluded that the assessee's activity qualified as manufacturing, entitling them to the investment allowance under section 32A.

8. Final Decision: The Tribunal allowed the appeal, ruling in favor of the assessee's entitlement to investment allowance for the machinery used in manufacturing potato chips.

This detailed analysis of the judgment highlights the arguments presented, legal precedents discussed, and the Tribunal's reasoning leading to the final decision in favor of the assessee.