INCOME TAX OFFICER v. RAMCHANDRA RICE MILLS
[Citation -1986-LL-0828]

Citation 1986-LL-0828
Appellant Name INCOME TAX OFFICER
Respondent Name RAMCHANDRA RICE MILLS
Court ITAT
Relevant Act Income-tax
Date of Order 28/08/1986
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags manufacture or production • business of construction • process of manufacture • industrial undertaking • investment allowance • plant and machinery • assessable income • new machinery • milling paddy • hire charges • new aircraft • end product • new article • sales-tax • rice mill • new ship
Bot Summary: The ITO held that the assessee is not entitled to investment allowance as the firm runs rice mill and the process carried on by it is only to convert paddy into rice which does not amount to either manufacture or production of any new article or thing. The ITO further held that in income-tax a complete different thing or article should be brought into being for qualifying for exemption under s. 32A. Ultimately the ITO purported to have followed one of the order of his own Commissioner wherein a similar claim of investment allowance was disallowed and ultimately he disallowed the investment allowance and he also held that an investment allowance reserve of Rs. 26,242 as part of the assessable income of the assessee firm. Aggrieved against the dismissal of the claim for investment allowance the assessee went in appeal before the CIT(A), Visakhapatnam and it was contended that the ITO disallowed the claim for investment allowance merely on the ground that no manufacturing activity was involved in dehusking paddy into rice and according to the ITO a rice mill does not manufacture any new article or thing. The first question that arises for consideration is whether for claiming investment allowance on plant and machinery is it essential that the manufactured goods should belong to the assessee. From the above it is clear that in order to claim investment allowance on a new ship or aircraft it is not only essential for the assessee to purchase new ship or aircraft but it is also essential that it should be engaged in the business of operation with that of ships or aircraft. Under the circumstances we should imagine that the authorities were hardly justified in having even a doubt as to assessee's eligibility for investment allowance in respect of machinery used in its business. We have already held that even on the wording of the section it is not essential that the assessee should be the owner of the paddy manufactured into rice before claiming investment allowance.


T.V. RAJAGOPALA RAO, J.M. This is departmental appeal directed against order of CIT(A) dt. 25th Feb., 1985 relating to asst. yr. 1979-80. questions which fall for consideration in this appeal are, firstly person who mills paddy for others received hire charges is entitled to investment allowance and whether it is essential to be owner of goods manufactured before claiming investment allowance under s. 32A. 2 . relevant facts are as follows. assessee is firm of three partners and it carries on business of milling paddy in its rice mill for hire. Concerned asst. yr. is 1979-80 for which previous year ends by 30th Sept., 1978. In accounting year relevant to present assessment year assessee firm installed some more items of plant and machinery of total value of Rs. 1,39,958.73 and assessee firm claimed investment allowance of Rs. 34,989.68 being 25 per cent of cost of plant and machinery. ITO held that assessee is not entitled to investment allowance as firm runs rice mill and process carried on by it is only to convert paddy into rice which does not amount to either manufacture or production of any new article or thing. process employed by assessee firm is dehusking paddy and converting into rice and nature of article remains same. Though assessee firm is industrially engaged in processing of goods, it is not concern engaged in manufacture or production of any article or thing. In order to impress upon ITO that paddy and rice are two different commodities, he had relied upon Supreme Court decision in State of Karnataka vs. B. Raghurama Shetty (1981) 47 STC 369 (SC). ITO held that this decision was rendered in connection with levy of sale-tax and for purpose of sales-tax it had treated both of them as separate and distinct commodities. ITO held t h t ratio of Supreme Court obtaining in sales-tax law cannot automatically be applied to income-tax as sales-tax and income-tax were different. ITO further held that in income-tax complete different thing or article should be brought into being for qualifying for exemption under s. 32A. Ultimately ITO purported to have followed one of order of his own Commissioner wherein similar claim of investment allowance was disallowed and ultimately he disallowed investment allowance and he also held that investment allowance reserve of Rs. 26,242 as part of assessable income of assessee firm. As against claim of loss of Rs. 5,690 in its revised return dt. 16th Dec., 1981 taxable income of assessee was determined at Rs. 1,17,480 before firm's tax was deducted as per assessment order dt. 14th Dec., 1982 under s. 143(3) r/w s. 144B. 3 . Aggrieved against dismissal of claim for investment allowance assessee went in appeal before CIT(A), Visakhapatnam and it was contended that ITO disallowed claim for investment allowance merely on ground that no manufacturing activity was involved in dehusking paddy into rice and according to ITO rice mill does not manufacture any new article or thing. assessee cited before ld. CIT(A) decision of Hon'ble Supreme Court in (1981) 47 STC 369 (SC) (supra) wherein it was held that paddy and rice are two distinct commodities and milling of paddy involved manufacturing process. order of "B' Bench of this Tribunal dt. 29th July, 1983 passed in case of Sri Ramakrishna Boiled & Raw Rice Mill (ITA No. 946 (Hyd) 1982), relating asst. yr. 1980-81 which also held to same effect, was also cited. assessee also referred to Laxmichand Badrinarayan, vs. CST AIR 1971 H.P 74, decision of Punjab and Haryana High Court in M/S Ganesh Trading Co. vs. State of Haryana AIR 1971 P & H 26 which were all upheld in Supreme Court decision in AIR 1974 SC 1362. Therefore it was argued that assessee manufactured or produced rice employed both labour and machinery in licensed industrial establishment. ld. CIT (A), however, held that in accounting year relevant to asst. yr. 1978-79 assessee had s e t up or installed machinery of Rs. 3,95.099.81. ITO recorded that no investment allowance was claimed during that year as there was no taxable profit. However, he found no claim for investment allowance also was made in asst. yr. 1978-79. Therefore, he found that it would be improper for him to decide on admissibility of claim for investment allowance relating to asst. yr. 1978-79. However, for present assessment year ld. CIT(A) found that assessee is not entitled to investment allowance either on buildings or on expansion of buildings. On that ground he confirmed disallowance of investment allowance on total amount of Rs. 92,9 28 . However, he found that during relevant accounting year assessee had installed following plant and machinery: Mill machinery-expansion (boiled Rs. (a) section) 96,458.12 (b) Boiler expansion 1,882.97 (c) Blower 1,843.55 (d) Par-boiling plant expansion 30,996.14 H.T. & Electrical system- (e) 10,714.27 expansion . Total Rs. 1,41,895.00 ld CIT(A) also found that above machinery and plant are specifically installed in boiled section. Therefore, he directed ITO to satisfy himself by verifying details of machinery to be in accordance with r. 5AA of IT Rules, after satisfying himself about details as well as creation of necessary reserves ITO was directed to grant investment allowance. Thus he partly allowed appeal filed by assessee by his impugned orders. 4. Department having been aggrieved by impugned order filed present appeal. Thus, appeal stands for our consideration. In grounds it is contended that assessee is not engaged in process of manufacture and it is only owner of goods viz., paddy who engaged in process of manufacture. Further assessee is running or providing certain services by way of milling to owner of paddy on payment of certain hire charges. fact that assessee's business is not manufacturing or processing of goods but it is only for rendering of service of milling was ignored. 5 . We have heard Shri N. Santhanam, ld. Departmental Representative and K.N. Krishnamurthy, ld. counsel for assessee. first question that arises for consideration is whether for claiming investment allowance on plant and machinery is it essential that manufactured goods should belong to assessee. In this connection close reading of s. 32A(2)(a)(b) would provide clue. Sec. 32A(2) (a) is as follows: " (2) ship or aircraft or machinery or plant referred to in sub-s.(1) shall be following, namely: (a) new ship or new aircraft acquired after 31st day of March, 1976, by assessee engaged in business of operation of ships or aircraft." From above it is clear that in order to claim investment allowance on new ship or aircraft it is not only essential for assessee to purchase new ship or aircraft but it is also essential that it should be engaged in business of operation with that of ships or aircraft. When we contrast above position with that of new machinery or plant installed after 31st March, 1976 following position emerges. Sec. 32A(2)(b)(iii) which needs (b) any new machinery or plant installed after 31st day of March, 1976 (iii) in any other industrial undertaking for purposes of business of construction, manufacture or production of any article or thing, not being article or thing specified in list in Eleventh Schedule. It is admitted that rice is not article specified in list of Eleventh Schedule. In contrast to new ship or new aircraft it is enough for new machinery or plant is installed for purpose of business of manufacture or production of any article or thing. Of course on true construction business itself may not be of assessee and it is enough if only plant and machinery manufactures or processes any article or thing. article or thing need not necessarily belong to assessee himself. Therefore, we hold that there is no legal sanction behind argument that assessee should own business of manufacturing or processing of goods and that paddy milled should belong to assessee. ownership of paddy milled is not at all relevant for purpose of determining grant of investment allowance. What is essential to see is whether any manufacturing or processing goods takes place through plant and machinery newly set up. Once that test is satisfied then assessee who installed plant and machinery for his business is entitled to investment allowance. There is already decided case in favour of this assessee on this point rendered by B-Bench of this Tribunal on 29th July, 1983 passed in case of M/s. Sri Rama Krishna Boiled Raw Rice Mill vs. ITO, ITA No. 946 (Hyd) 1982. At para 6 of said order following is held: "Hence, it is matter now beyond doubt that paddy and rice are commercially two different commodities. assessee, therefore, manufacture or produces rice which is different from its raw material-paddy. It employs both labour and machinery, though either of them would be sufficient for construing that there has been manufacture. work is also done in licensed industrial establishment. Under circumstances we should imagine that authorities were hardly justified in having even doubt as to assessee's eligibility for investment allowance in respect of machinery used in its business." In said order all case law which was cited by assessee before CIT(A) was also cited before Tribunal. Further learned Members took n o t e of another Supreme Court case reported in Idandas vs. Anant Ramachandra Phadke AIR 1982 SC 127 where Supreme Court laid down three tests to hold that manufacturing process is used. tests are (i) Certain commodity should have been produced: (ii) process of production must involve either labour or machinery; and (iii) end product should have distinct character, name and use. Members also noted that Punjab and Haryana High Court decision which specifically deals with paddy and rice was clearly approved by Hon'ble Supreme Court. We respectfully follow decision of B-Bench cited above as it is in accord with decision of Hon'ble Supreme Court on question of definition of 'manufacture' as well as while holding that paddy and rice were two distinct and different commodities. We have already held that even on wording of section it is not essential that assessee should be owner of paddy manufactured into rice before claiming investment allowance. assessee in this case installed machinery and carried on business of manufacturing or processing of goods. It had milled paddy of others into rice. manufacturing or processing of goods. It had milled paddy of others into rice. Under circumstances we do not see any flaw in order of CIT(A) which is questioned before us. In result, as appeal is found to be without merit it is dismissed. *** INCOME TAX OFFICER v. RAMCHANDRA RICE MILLS
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