1. This is an appeal filed by Progressive Engineering Co., Hyderabad, against the order of the Commissioner (Appeals)-I, Hyderabad, for the assessment year 1979-80.
2. The assessee is a registered firm doing business as contractors. The only dispute before us relates to the question of investment allowance in respect of its machinery used in construction of a dam at Bargi in Madhya Pradesh. The machinery under consideration was used in its work.
The assessee's claim is for the allowance of Rs. 5,02,334. The ITO did not allow the same, as according to him, the assessee was not engaged in the manufacture of any article or a thing within the meaning of Section 32A of the Income-tax Act, 1961 ('the Act'). This view was upheld by the Commissioner (Appeals) in his detailed order. He found that the decision of the Orissa High Court in the case of CIT v. N.C.Budharaja & Co.  121 ITR 212 squarely supported the assessee's case. All the same, he felt 'with due respect' that the view of the High Court holding that a firm of contractors could be treated as being engaged in industrial undertaking was not the correct view. The assessee has come up in second appeal. It relied upon the decision of the Orissa High Court in Budharaja's case (supra) and another decision of the Bombay High Court in the case of CIT v. N.U.C. (P.) Ltd.  126 ITR 377. The assessee has furnished copies of its submissions before the ITO detailing the nature of the machinery and the work it had put in actual construction of the dam. The machinery consisted of Compressures, Tippers, Crushers, Exploders, Jack Hammers, Mixers and General Machinery, etc. The learned departmental representative pointed out that the assessee was constructing a masonry dam and could not be treated as being engaged in an industrial undertaking in the ordinary sense of the word.
3. We have carefully considered the records as well as the arguments.
The work undertaken by the assessee is a large one. The cost of machinery alone came to Rs. 60,00,000. The assessee employed a large number of items of machinery, broadly under the following heads : Earth moving machinery consisted of Compressors, Exploders and Jack Hammers and other machinery consisted of Mixtures and General machinery. The assessee had to use the above machinery for moving the earth, preparation of concrete mixture and building of the dam. The assessee had to have generators as alternative power supply for activising its machinery like Air Compressors and to activise Exploders for blasting the rocks. It is not necessary to go into various types of activities undertaken by the assessee as part of its obligations for completing the contract. The assessee-rirm's partnership deed itself shows that it was a firm engaged in engineering contract works for the Government, local bodies, etc. It is not disputed that the assessee engages itself in the activities mentioned below. Section 32A requires, inter alia, that the machinery or the plant should be installed after 31-3-1976, "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 is common ground that the darn does not come under the list of articles mentioned in the Eleventh Schedule. The dispute is whether the assessee is an industrial undertaking and if so, whether the machinery is used for the purpose of its business of construction, manufacture or production of any article or a thing. The assessee would say that the presence of 'comma' after the word 'construction' would suggest that 'construction' by itself would be an industrial undertaking. The ITO would say that the word 'construction' along with the words 'manufacture or production' would qualify the words 'article or thing'. In other words, construction should be of an article or a thing and that construction by itself will not be enough.
The Commissioner (Appeals) has stressed this aspect of the matter and that is why he went on to differ with the view of the Orissa High Court in Budharaja's case (supra) under the wrong inference that the High Court was not aware of the intendment of the provision which brought in the word 'construction' in connection with the extension of the relief to ships and aircrafts. In other words, the history of the investment allowance alone with similar relief in the past according to him, would suggest that the word 'construction' is used so with reference to 'ship and aircraft' and not with reference to other 'articles or things'.
While we may agree with the revenue's point of view that construction by itself would not qualify for investment allowance and that construction should be of an article or a thing, we are not in a position to agree with it that the construction of a dam is not construction of a thing. The word 'construction' would equally apply to describe the activity of building a dam, as a ship or an aircraft.
Again, the Orissa High Court in Budharaja's case (supra) has pointed out 'industrial undertaking' has no statutory definition. It has further pointed out that the assessee did manufacture certain materials which were used in construction. But the decision of the High Court mainly turned on the ground that the word 'article' would not exclude a 'dam'. The word 'article' need not be confined to a movable property.
After repeating the taxpayer counsel's proposition that 'there would be no justification to hold that a dam is not an article in the sense of the term', it proceeded to observe that there is considerable force in this argument. It is in this context that it allowed the relief under Section 80HH of the Act for construction of a dam in similar wording of relief under Section 80HH (sic). The decision did not depend upon the use of the other word 'construction' which was absent in Section 80HH, which was introduced by the Direct Taxes (Amendment) Act, 1974 with effect from 1-4-1974. The addition of the word 'thing' also suggests a wider meaning. The addition of the word 'construction' in Section 32A(2)(b)(iii) would make the assessee's eligibility even clearer. The Bombay High Court in the case of N.U.C. (P.) Ltd. (supra) was dealing with the definition of 'industrial company' in Section 2(7)(d) of the Finance Act, 1966 where the words were 'construction of ships' as distinct from 'manufacture or processing of goods'. In fact, the Bombay High Court had occasion to refer to the decision of the Orissa High Court in the case of Budharaja (supra) and re-called that the finding of the Orissa High Court was that "the business of a contractor who has undertaken the construction of an irrigation project would thus, according to the Court, be an industrial undertaking for the purposes of the Industrial Disputes Act, 1947". A contractor who was engaged in building construction and repair was found to be not an industrial undertaking only in the limited context of the definition of 'industrial company' in Section 2(7)(d) of the Finance Act, which was concerned only with 'construction of ships' and 'manufacture or processing of goods'. Hence, the decision of the Bombay High Court in N.U.C. (P.) Ltd.'s case (supra) does not help the revenue as we are now concerned with the provisions which are more analogous to the definition under Section 80HH with which the Orissa High Court was concerned. The Delhi High Court in the case of National Projects Construction Corporation Ltd. v. CWT  74 ITR 465 considered that a similar company engaged in the construction of dams and barrages, etc., would be an industrial company as it had large workshops at work sites for processing steel, crushing stones, etc., for the purposes of construction of the river valley projects and that such articles produced, though not sold to the public would constitute feeding activity, giving rise to the inference that the assessee was engaged in manufacturing or processing of goods. This kind of "manufacture' is done by the assessee in this case also. Here also, the word 'construction' or 'thing' was absent in the definition of 'industrial undertaking' in the Explanation to Section 45(6) of the Wealth-tax Act, 1957 and even so the company was considered to be an industrial company. The Bombay High Court in the case of CIT v. Pressure Piling Co. (India) (P.) Ltd.  126 ITR 333 considered that the business of laying "pressure piling foundations for buildings with concrete mixture subjected to special processes under pressure along with iron bars" was an activity which could be considered as manufacture under Section 84(1) and (2)(iii) as it then stood under the Act, for the assessment year 1964-65. Here also the phrase 'industrial undertaking' did not include the word 'construction' or the word 'thing'. Even in such circumstances, merely the activity of putting pressure piling foundations was treated as a manufacturing process. The assessee before us is, therefore, in a much better position to deserve the investment allowance. The Calcutta High Court in National Planning & Construction Ltd. v. CIT  122 ITR 197 was dealing with the business of a building contractor who was manufacturing concrete slabs for its use in the construction of the buildings. This was treated as construing 'industrial activity' to make it an industrial company if that part of the income attributable to the manufacture of slabs exceeded 51 per cent of its total income. In this case, the Tribunal held that the assessee was not an industrial company on the ground that the manufacture of concrete slabs was for the purpose of its own use and that it was not manufacturing the slabs for sale to outside customers.
In the Tribunal's view, it could not, therefore, be treated as an industrial company. Here also, the High Court was concerned with the definition of 'industrial company' under Section 2(8)(c) of the Finance Acts, 1974 and 1975, which did not have the word 'construction' or the word 'thing'. Even so, it was held that part of the income could be treated as being derived from an industrial activity. Though this decision is of a limited assistance to the assessee, the broader definition by the inclusion of the words 'construction' and 'thing' in the place of 'manufacture or processing of goods' would certainly enlarge the meaning so as to justify the inference in favour of the taxpayer. As pointed out earlier, the Orissa High Court in Budharaja's case (supra) has already taken the view in favour of the taxpayer under an analogous provision. The activity encountered in the Orissa High Court case is identical with that of the assessee. There is no other decision to the contrary. The first appellate authority, therefore, should have directed the ITO to grant the allowance, subject only to the other conditions being satisfied.
4. In this view, we allow the appeal and direct the ITO to consider the claim of investment allowance on merits, on the basis that, the assessee's activity is of an 'industrial undertaking' which is engaged in the business of construction or manufacture of articles or things.