1992 (5) TMI 48 - AT - Income Tax

Summary

Issues: Disallowance of carry forward of investment allowance on Leaf Carrying Basket Trailers for assessment year 1984-85.

Analysis:
1. The assessee claimed investment allowance on Leaf Carrying Basket Trailers used in the process of manufacturing tea. The Commissioner of Income-tax (Appeals) disallowed the investment allowance, stating that the Trailers were not directly contributing to the manufacturing process and were not categorized as machinery for depreciation purposes.

2. The assessee contended that the Trailers were essential for carrying green leaves from the garden to the factory for processing into marketable tea. It was argued that the Trailers should be considered machinery, citing precedents and the Income-tax Rules. However, the CIT (Appeals) upheld the disallowance, stating that the Trailers did not directly contribute to the manufacturing process.

3. During the appeal before the Tribunal, the assessee's counsel argued that the Trailers should qualify for investment allowance, citing examples of other items like tubewells and weighing machines that were allowed the benefit. The Tribunal noted that the dispute centered on whether the Trailers were part of the machinery used in the production or manufacture of tea.

4. The Tribunal analyzed Rule 8 of the Income-tax Rules, which deems income from the sale of tea grown and manufactured as business income. It emphasized that the integrated income of both activities (growing and manufacturing tea) should be considered business income, and no activity could be singled out for separate treatment.

5. Referring to legal principles of deeming provisions, the Tribunal concluded that the Trailers used for carrying leaves were integral to the integrated business of selling tea grown and manufactured. It held that the Trailers should be considered part of the machinery used in the business, and thus, the assessee was entitled to the investment allowance on the Trailers.

6. The Tribunal allowed the appeal, directing the Assessing Officer to permit the investment allowance on the Trailers. The decision was based on the interpretation of Rule 8 and the application of legal fiction principles to deem the Trailers as part of the machinery used in the business of selling tea grown and manufactured.