TMI Blog1992 (3) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the definition of 'industrial company' in the Finance Act and whether the High Court decision referred to above would equally apply in both the cases." That is how these appeals have come up before this Bench of 5 Members. 2. At the outset, it may be stated that it was agreed between the parties that this Bench has to dispose of these appeals on the basis of the grounds taken up in the memo of appeals and, therefore, the aforesaid question though couched in general terms has to be restricted to the provisions of Section 80-I of the Income-tax Act, 1961 ('the Act'). 3. The common issue raised in these appeals is whether the assessee, engaged in the construction of buildings, would be entitled to deduction contemplated under section 80-I of the Act. 4. The assessment years involved in the case-of M/s R.M. Enterprises are 1983-84 and 1984-85, while in the other cases it is only 1984-85. All the assessees are partnership concerns and are carrying on, inter alia, building construction activity. 5. The Income-tax Officer rejected the claim made under section 80-I of the Act on the ground that the activities of the assessees do not fall under the ambit of 'Industrial Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of tax applicable to such company provided in the annual Finance Act and 'Industrial Undertaking' with which we are concerned in these appeals, that the absence of the word 'construction' in section 80-I of the Act is not fatal so as to deny the assessees the benefit of deduction provided in that section, that the expression 14 article or thing" used in Section 80-I of the Act should not be confined to movable properties only as according to him that expression in its sweep, would include immovable properties also like the one in the present cases, that in the absence of the definition of the words "article" or "thing" provided in the Act, one has to look for dictionary meaning of these words and that when two views are possible on interpretation of the provisions of a Statute, the one in favour of the assessee should be preferred. 9. The learned representative for the Revenue, on the other hand, strongly supported the action of the IT authorities. According to him, the question that has to be decided in these appeals is whether the words "article or thing" are synonymous with the word "goods" used in the definition of an 'Industrial Company' in the Finance Acts. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in conjunction with "any money, bullion, jewellery" which clearly shows that the words "article or thing" have reference to movable properties only. Referring to Sections 80HHC, 80-I(8) and 80J(6B) of the Act, where the use of the word "goods" is to be found, the learned representative for the Revenue strongly argued that all these words namely, article, thing and goods are synonymous and refer to movable properties only. 10. The learned counsel for the assessee, in his reply, submitted that on a proper reading of Section 80-I of the Act, there is no warrant to construe the words "article or thing" to refer to movable properties only. According to him, in the case of N.U.C. (P.) Ltd. and Shah Construction Co. Ltd. , the Hon'ble High Court has given restricted meaning to the definition of 'Industrial Company' contained in the Finance Acts only because the word "construction" is used in connection with ships and not in connection with other construction activities. He also pointed out that the said provision advisedly contains the word "goods" which would refer to movable properties only but, in the instant case, we are concerned with the meaning of an 'Industrial Undertaking' whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, and begins to manufacture or produce articles or things at any time within the period of four years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking : Provided further that the condition in clause (iii) shall, in relation to a small scale industrial undertaking, apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. (5) The deduction specified in Sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things (such assessment year being hereinafter in this section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year. (8) Where any goods held for the purposes of the business of the industrial undertaking ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees in the present case are engaged in building construction activities of a complex nature employing not only substantial magnitude of man power but also using heavy machineries other than tools and implements generally pressed into service in such activities. The assessees make doors, windows and wooden frames as also manufacture concrete slabs and other allied items which are utilised in building construction though the extent of such manufacture or production was not readily available when called for during the course of hearing. 14. It is in the above background that we have to construe the true meaning of the expressions "Industrial Undertaking" and "manufactures or produces any article or thing" in the context in which they appear in Section 80-I of the Act. The definition of these words are not provided in the section or in the entire Act. Therefore, both the parties referred to other allied sections of the Act, of the Wealth Tax Act, 1957, as well as of the annual Finance Acts, wherein such words appear. They also relied on some decided cases where in the Courts/Tribunal had occasion to consider such words in the context in which they appear in various sections, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the purposes of this Explanation :--- (i) a company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VI-A of the Income Tax Act) is not less than fifty-one per cent of such total income; (ii) "projects" means a project for the construction of a building road, dam, bridge or other structure or assembly or installation of any machinery or plant." It would be noticed from the above that building construction activity is outside the purview of an "industrial activity", insofar as industrial company is concerned. If that were not so, then there was no need to use the expression "execution of projects" and the definition of the expression "projects". Therefore, the expression "manufacture or processing" would not in its ambit, take construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery or plant installed after the 31st day of March, 1976,--- (i) for the purposes of business of generation or distribution of electricity or any other form of power; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule." It would be observed that in sub-clause (ii) the word "construction" is not used, while the said word is to be found in sub-clause (iii). Further, a small scale industrial undertaking would be entitled to investment allowance, even in respect of "manufacture" or "production" of any article or thing listed in Eleventh Schedule of the Act. The word "construction" is used in sub-clause (iii) along with the words, "manufacture or production". Therefore, it is possible, to hold that an assessee engaged in building construction activity would be eligible to claim investment allowance under section 32A of the Act. (e) Section 33 of the Act deals with development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived from the activities are given, while in the other industrial undertakings only one or the other deduction is granted. Further, in the case of certain "industrial company" a rebate in the rate of tax is also granted in addition to these two deductions. It is no doubt true that the expression "industrial undertaking" has wider connotation than the expression "industrial company". All industrial companies would be industrial undertakings. However, all industrial undertakings need not be industrial companies. The expression "any industrial undertaking" used in various aforesaid sections refers to all types of taxable entities, including a company. Therefore, the decision rendered with reference to an "industrial company", as defined in the annual Finance Acts, may not be applicable to other industrial undertakings. Again, the qualification "mainly engaged" used in the Finance Acts are conspicuous, by its absence in the sections of the Act referred to above. Further, deductions under sections 80HH, 80HHA, 80-I, 80-J are granted with reference to profits and gains derived from an industrial undertaking. In other words, profits and gains derived from manufacture or production of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Against D. Section 80-I (a) Walaiti Ram Gupta Co. v. ITO [1990] 33 ITD 544 (Delhi) -do- Favour E. Section 80-J (84) (a) CIT v. Cellulose Products of India Chemicals Production or manu- Ltd. [1991] 192 ITR 155 (SC) facture of specific intermedia- ries would be covered. (b) ITO v. Hydel Construction (P.) Ltd. [1983] 6 ITD 575 (Delhi) (FB) Construction Against (c) CIT v. Pressure Piling Co. India (P.) Pilings Favour Ltd. [1980] 126 ITR 333 (Bom.) (d) ITO v. Poyilakkada Fisheries (P.) Ltd. [1985] 14 ITD 224 (Coch.) (SB) Fisheries -do- ------------------------------------------------------------------------------------------------ 18. Since the judicial opinion on this topic is not uniform as is apparent from the various decisions relied upon and cited and though we did derive sufficient guidance from them, still ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction from such profits and gains of an amount equal to eight per cent there of in computing the total income of the company. (2) This section applies to a domestic company, save in a case where such company is a company which is referred to in section 108 and has a gross total income of fifty thousand rupees or less. (3) Where a company to which this section applies is entitled also to the deduction under section 80-H, the deduction under sub-section (1) of this section shall be allowed with reference to the amount of the profits and gains attributable to the priority industry or industries as reduced by the deduction under section 80-H in relation to such profits and gains. The priority industry referred to in sub-section (1) of section 80-I was defined in section 80-B(7) of Finance (No. 2) Act, 1967 which provided: "(7) 'Priority industry' means the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, and not of an immovable character. A ship is a movable property; in the business of a hotel what is produced or manufactured is again movable property; so also in the business of repairs to ocean-going vessels or other powered craft. Even the industrial undertaking as such has to produce movable articles or things. It is not possible for an industrial undertaking to produce immovable properties. An industrial undertaking has to produce only movable property and they will, therefore, be articles or things. Looked at from this angle, an industrial undertaking engaged solely in the construction of 'buildings' cannot treat the buildings so built as movable articles so as to claim entitlement for the deduction mentioned in this section. Even an industrial undertaking has, therefore, to produce only articles or things and only then it will be eligible for the deduction provided in this section. It is now settled law that the articles and things so produced need not be end-products. They can be intermediate products capable of being sold or consumed. 19. As noted above, we are concerned with the provisions of section 80-I of the Act, which provides for deduction in respect of profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allied articles, which are used in the building construction activity. In other words, we are inclined to agree with the stand taken on behalf of the Revenue that the words "article or thing" as used in section 80-I of the Act refer to movables only. Therefore, the assessee would not be entitled to deduction under section 80-I of the Act in respect of profits and gains arising out of the construction of entire building as such. 21. Since the extent of manufacture or production of frames, doors and windows, as well as of cement concrete slabs and other allied articles, which are used in the building construction activity could not be readily furnished by the assessee, when called for during the course of hearing, we would set aside the orders of the IT authorities on this issue and restore the case once more to the file of the ITO, with a direction to grant deduction under section 80-I of the Act with reference to profits and gains attributable to the manufacture and production of frames, doors and windows, as well as cement concrete slabs and other allied articles, which are used in the building construction activity and modify the assessments accordingly, after giving an opportu ..... 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