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income-tax Officer Vs. Hydle Constructions (P.) Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)6ITD575(Delhi)
Appellantincome-tax Officer
RespondentHydle Constructions (P.) Ltd.
Excerpt:
1. of the above five appeals, there is one asssesee's appeal relating to the assessment year 1976-77 whereas there are two cross-appeals by the department and the assessee relating to the assessment years 1977-78 and 1978-79. the main points involved in these appeals are common and they relate to the assessee's claim for being treated as an industrial company as defined in section 2(9)(c) of the finance act, 1976 (similar in other years finance acts) and the claim of the assessee for relief under section 80j of the income tax act, 1961 ('the act'). while in the assessment year 1976-77 both the points were decided by the commissioner (appeals) in favour of the assessee, in later assessment years, namely, 1977-78 and 1978-79, the commissioner (appeals) has held that the assessee was not an.....
Judgment:
1. Of the above five appeals, there is one asssesee's appeal relating to the assessment year 1976-77 whereas there are two cross-appeals by the department and the assessee relating to the assessment years 1977-78 and 1978-79. The main points involved in these appeals are common and they relate to the assessee's claim for being treated as an industrial company as defined in Section 2(9)(c) of the Finance Act, 1976 (similar in other years Finance Acts) and the claim of the assessee for relief under Section 80J of the Income tax Act, 1961 ('the Act'). While in the assessment year 1976-77 both the points were decided by the Commissioner (Appeals) in favour of the assessee, in later assessment years, namely, 1977-78 and 1978-79, the Commissioner (Appeals) has held that the assessee was not an industrial company for the purposes of concession in the rate of tax under the Finance Act.

However, the assessee's claim for being treated as an industrial undertaking under Sections 80J and 80HH of the Act was accepted by the Commissioner (Appeals) in both the years. The Commissioner (Appeals) has further decided the question of investment allowance under Section 32A of the Act and the manner of allowance of Section 80J relief. The Division Bench which heard the matter was of the view that there were some conflicting opinions expressed on the issues involved in these appeals and, therefore, the matter should be heard by a Special Bench.

!t was in these circumstances that the Special Bench has been constituted by the President. Besides the assessee and the departmental representative, certain counsels of the interveners have also been heard at great length.

2. The assessee-company had the following main objects as given in its memorandum of association: "A. The main objects to be pursued by the company on its incorporation are: 1. To carry on the business of contractors for construction of roads, buildings, houses, flats, factories, office, dams, canals, tanks, reservoirs, cyphons, bridges, hydel projects, power houses, tunnels, culverts, drains, channels, sewages, gardens and pleasure gardens and all sorts of contracts for procurement and supply for local, municipal, State, Central authorities, Government departments, railways, universities or for any other person, firms or companies.

2. To undertake the construction of every description and to erect, rebuild, enlarge, alter, pull down, improve, re-model existing works and 10 convert and appropriate land for roads, streets, squares, gardens, playgrounds and other conveniences.

3. To buy, purchase or otherwise acquire or construct multi-storey flats, houses, buildings, factories and other properties lease-hold or free-hold either on rent, lease or for any other consideration and to sell, let, mortgage, assign, pledge, lease out or otherwise dispose of on instalment basis or under hire-purchase agreements or in any other manner and generally to deal with the properties of the company that may be necessary or convenient for any of the objects of the company.

4. To act as consultants, advisers, architects, civil engineers, designers, town planners, valuers, surveyors and supervisers for all sorts of building activities and allied jobs and works, which may be usefully or conveniently combined by research, development, improvement with the business of the company.

There were certain incidental and ancillary objects as well. Before the ITO, it was found that the assessee-company was deriving income from construction of tunnels and the assessee claimed deduction under Section 80J. The assessee further claimed that it should be treated as an 'industrial company' and lower rate of tax should be charged on that basis. The ITO, however, did not accept this claim of the assessee on both the points.

3. When the matter came before the Commissioner (Appeals), he disposed of the assessee's appeal by a brief order. He held that the assesses is mainly engaged in the business of manufacture or processing of goods and he was also satisfied that not less than 51 per cent of the assessee's income was attributable to such manufacture or processing of goods. For this, he relied on certain decisions, mainly the decision of the Delhi High Court in the case of National Projects Construction Corpn. Ltd. v. CWT [1969] 74 ITR 465, CIT v. Pressure Piling Co.

(India) (P.) Ltd., [1980J 126 ITR 333 (Bom.), CIT v. N.C. Budharaja & Co. [1980) 121 ITR 212 (Ori.) and National Planning & Construction Ltd. v. CIT [1980] 122 ITR 197 (Cal.). The Commissioner (Appeals) also accepted the plea of the assessee regarding relief under Section 80J.4. In the assessment years 1977-78 and 1978-79, however, the same Commissioner (Appeals) held that the assessee-company could not be considered to-be an industrial company and for this he relied upon the decision of the Bombay High Court in the case of CIT v. N.U.C. (P.) Ltd. [1980] 126 ITR 377. However, the other claims regarding Sections 80J and 80HH were accepted by him.

5. We may now proceed to consider the two questions separately. On behalf of the intervenes, arguments have been advanced by Shri A.K. Sen and Shri Harnam Shankar, advocates, only on the question of a construction company being considered as an industrial company. On behalf of the other interveners, namely, Shri Bansi Lal Bafna and others, arguments were advanced mainly with reference to the provisions under the Wealth-tax Act.

6. Under the scheme of the various Finance Acts, a concessional rate of tax is levied on an industrial company and that term is defined in the Finance Acts as under: 'industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.

Explanation: For the purposes of this clause, 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 in the construction of ships 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 VIA of the Income-tax Act) is not less than fifty-one per cent of such total income.

The case of the revenue is that a company carrying on business of civil construction work like construction of dams, bridges, etc., could not be considered to be an industrial company as the business of construction as such has not been included in the definition of industrial company under the Finance Act. The departmental representative referred to the definition and pointed out that while referring to the construction of ships the definition has not referred to any other construction and has, therefore, excluded other construction works from the meaning of industrial company. The definition was analysed to mean a company which is mainly engaged: 1. In the business of generation or distribution of electricity or any other form of power.

It was contended that the Legislature has referred to a separate segment of activity, namely, 'construction' but for this purpose, it is confined to the construction of ships only. It was further submitted that if the Legislature wanted the benefit to go to other construction works they could have mentioned other construction activities as well.

The learned departmental representative proceeded to argue that a company which is carrying on civil construction works has to carry on manufacturing and processing activities but what they manufacture or construct could not be considered 'goods'. It was pointed out that in constructing a building, a dam or a tunnel what is being created could not be considered as 'goods' which are essentially movable things. It was further submitted that the assessee's case could not be covered under any other activity falling under the definition of 'industrial company'.

7. Continuing his arguments, it was submitted by the departmental representative that the fact that the assessee-company was generating its own electricity for the purposes of its construction work could not be covered under the definition as it cannot be held that the company was engaged in the business of generation or distribution of electricity. It was contended that while making a tunnel the assessee was neither manufacturing nor carrying on any processing of goods. The departmental representative strongly relied upon the decision of the Bombay High Court in the case of N.U.C. (P.) Ltd. (supra). In that case, the company was carrying on business of civil construction works and repairs of buildings. In the process of and for the purposes of construction and repairs it manufactured window and door-frames and concrete beams and slabs. The question arose whether such a company was an industrial company within the meaning of Section 2(1)(d) of the Finance Act, 1966. It was held by the High Court that the definition in the Finance Act covered only that construction company which was engaged in the construction of ships and by implication excludes from the definition a company which is engaged mainly or otherwise in the construction of anything other than ships. According to the High Court, the business of the company could not be divided between the making of door and window frames and/or concrete beams and slabs and in the construction work itself. It was held that such a company could not be considered as an industrial company. It was contended by the departmental representative that the above decision was a direct decision which supports the department's case on the question of the assessee's claim for being treated as an industrial company. It was further urged that this being the only decision on this point, the Tribunal should follow it. According to the learned departmental representative, 'construction' and 'manufacture' referred to two distinct activities and the activity of construction could not be considered as the activities of manufacture only because in carrying on the construction works some manufacturing or processing of goods has to take place.

8. It was further urged by the departmental representative that one of the projects of the assessee was only in the nature of repairs and such activity could not be considered to be an industrial activity involving any manufacturing or processing of goods. In the alternative, it was further submitted that even if it was admitted that the assessee was engaged in the manufacture or processing of goods, there was no material to point out whether the company was mainly engaged in these activities. The submissions of the departmental representative were that in such a situation, it was necessary to establish the extent of income being generated by manufacture or processing of goods. It was pointed out that without satisfying these conditions, it was not possible to accept the claim of the assessee.

9. The departmental representative made reference to the decision of the Delhi High Court in the case of National Projects Construction Corpn. Ltd. (supra). He contended that the decision in that case has been relied upon by the assessee and the Commissioner (Appeals) but that decision was not applicable to the issue before us. He contended that the Delhi High Court was considering the question of an industrial undertaking falling under Section 45(d) of the Wealth-tax Act, 1957 ('the 1957 Act') where 'industrial company' means an undertaking engaged in the manufacture, production or processing of goods or articles or in mining or generation or distribution of electricity or any other form of power. It was pointed out that this definition was materially different from the definition of 'industrial company' as defined in the Finance Acts. It was pointed out that the definition in the Wealth-tax Act does not refer to 'construction of ships' and, thus the factors which were considered by the Bombay High Court were not considered by the Delhi High Court. It was also pointed out that the word 'mainly' was not used in the definition given in the Wealth-tax Act.

10. The departmental representative further pointed out that for finding out whether a company was mainly engaged in an activity one has to look to the business as a whole and in the case of the assessee it could not be held that he was carrying on business of manufacture or processing of goods. He pointed out that the Bombay High Court had not accepted the plea of the assessee-company in that case that although the company was engaged in the business of construction, it was also at the same time manufacturing or processing windows frames, door frames, cement beams and slabs, and the income derived from such manufacture constitute a larger portion of the total income derived by it from its overall business of construction.

11. Referring to the Bombay High Court's decision ia the case of Pressure Piling Co. (India) (P.) Ltd. (supra), it was submitted that the case was regarding the claim under Section 84 (now Section 80J) and as the company was manufacturing pressure piles, it was held that the benefit of Section 80J would be available to the assessee and it was not disability that the pressure piles were installed at the site of the work and there was no sale of goods as such. It was pointed out that a pile was like a pillar and it could be considered as 'goods' or 'articles' but the same thing could not be said about dams or tunnels.

It was further pointed out that this case as well as the decision of the Delhi High Court in the case of National Projects Construction Corpn. Ltd. (supra) has been considered by the Bombay High Court in the case of CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696. It was pointed out that in that case also the main business of the company was to construct dams, bridges, buildings, etc. The High Court held that the buildings and the bridges could not be said to be 'goods'. The processing activities carried on by the assessee was only incidental or subsidiary to the main activity of construction. There was also a finding that the processing activity was only a small component of the company's activity. The High Court further held that the manufacturing or processing of goods was merely a feeding activity and company which engages in an engineering activity of construction of dams, bridges, etc., cannot be said to be a company which is either wholly or mainly engaged in the manufacture or processing of goods. Relying strongly on this decision, the learned departmental representative submitted that the case of the assess.ee fell squarely under the ratio of this judgment.

12. The departmental representative then took us to the decision of the Calcutta High Court in the cases of National Planning & Construction Ltd. (supra). In that case also the company which carried on business of building contractor, had a factory where it manufactured pre-cast floor tiles, pre-stressed concrete girders and hollow cast cement bricks which it used in its construction work. The assessee had claimed that it was an 'industrial company' within the meaning of the Finance Act. According to the assessee, it was mainly engaged in processing and manufacturing concrete slabs as also in building constructions.

According to the department, the activities of the assessee carried on in the course of construction of building would not constitute manufacturing or processing of goods. The Tribunal held against the assessee. The High Court, however, held that under the Explanation to the definition of the industrial company even cases of companies having more than one business has been covered and if 51 per cent of income is generated from manufacturing or processing of goods such company should be considered as 'industrial company'. For ascertainment of this fact, the High Court remanded the matter to the Tribunal. It was pointed out by the departmental representative that if the plea of the assessee was accepted then the question will still remain whether the assessee-company was mainly engaged in manufacturing or processing of goods. He suggested that in that situation the matter may be sent back to the lower authorities for ascertaining the facts.

13. The departmental representative tried to strengthen his case by referring to the change in the definition of 'industrial company' in the Finance Act, 1983. He pointed out that whereas in the First Schedule of the Finance Act, 'industrial company' has been defined in the same manner as in the earlier years, the definition has been changed for the purposes of Paragraph E of Part II of the First Schedule. For that purpose industrial company has been defined as follows: Explanation: For the purposes of this Paragraph, 'industrial company' means a company which is 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.

(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) 'project' means a project for the construction of a building, road, dam, bridge or other structure or assembly or installation of any machinery or plant.

He pointed out that certain activities had been added in the definition and that has been made applicable for the purposes of collecting advance tax.' These activities are transport of passengers or goods and the execution of projects which includes a project for construction of a building, road, dam, bridge or other structure or assembly or installation of any machinery or plant. It was contended that the specific addition in the scope of industrial company would, therefore, become relevant from the assessment year 1984-85 and this has been done to give benefit to a company carrying on these activities from that year. A company having income from such projects can now claim to be an industrial company and get concessional rate of tax ft was, therefore, clear that prior to this change such construction works were not covered under the definition of 'industrial company'.

14. Concluding his arguments on this point, the departmental representative submitted that the assessee was bound to rely on the decision of the Orissa High Court in the case of N.C. Budharaja & Co.

(supra) but he pointed out that the judgment of the Orissa High Court was pronounced while interpreting the provisions of Section 80HH of the Act. He further pointed out that their Lordships of the Orissa High Court have wrongly considered the Industrial Disputes Act, 1947, for determining the nature of an industrial undertaking for the purposes of Section 80HH. In that case, the assessee-company constructed a dam and for that various materials were brought to the site and new product in the shape of dam was created. The High Court further held that there was no warrant for the submission of the revenue that a dam could not be an 'article'. It was, therefore, contended that this decision of the Orissa High Court should not be followed for the purposes of deciding whether the assessee was an industrial company or an industrial undertaking under Section 80J.15. On behalf of the assessee, we have heard Shri A.K. Sen, Senior Advocate and Shri Harnam Shankar, who represented the case on behalf of the interveners, Arvind Construction Co. (P.) Ltd. and Shri S.L. Batra, who was representing the assessee. Shri A.K. Sen submitted that as there was some sort of conflict between the decisions of the High Courts, the decision of the Delhi High Court in the case of National Projects Construction Corpn. Ltd. (supra) should be followed. He contended that the definition in Section 45(d) of the Wealth-tax-Act was very close to the definition given in the Finance Act. He submitted that by adding the activity of 'construction of ships', the Legislature has not excluded such other construction activities which involved manufacture or processing of goods. It was contended by him that if the decision of the Bombay High Court in the case of N.U.C. (P.) Ltd. (supra) was strictly followed, it will lead to incongruous results. He illustrated his argument by stating that in the construction activity various manufacturing as well as activity of processing of goods are undertaken. Big boulders are broken into smaller stone pieces, cement is processed to manufacture concrete slabs and certain other movable parts are first manufactured before they are utilised in the construction work. All these activities independently are eligible for being treated as manufacturing or processing of goods and would, thus, get covered under the definition of industrial company. However, where a construction company after carrying on these activities constructs a dam or tunnel or a building, the benefit should not be denied to such a company. It was pointed out that a company carrying on construction activity can get the benefit of being treated as an industrial company if it is in a position to show that its minor activity is industrial activity or its main income is from manufacturing or processing of goods. He submitted that intermediate articles produced should also be taken into consideration for deciding the nature and the extent of the activity of the company and it was not correct to restrict oneself only to the ultimate product. It was further pointed out by the learned advocate that the decision of the Bombay High Court in the case of Shah Construction Co. Ltd. (supra) proceeded on the findings of the Tribunal that the manufacturing activity was of a very small proportion as compared to the total activity of the company. In the end he submitted that the principles laid down by the Delhi High Court should be applied and the construction company should also be considered as industrial company.

16. Further arguments on behalf of the interveners of Arvind Construction Co. (P.) Ltd. was advanced by Shri Harnam Shankar. He also strongly relied on the decision of the Delhi High Court and submitted that the construction company should be treated as engaged in the activity of manufacturing and processing of goods. Making a reference to the facts of the case which he was representing, the learned Counsel drew our attention to the detailed letters written to the IAC where activities of the company were enumerated. He further submitted that in all the cases on major construction companies there was substantial activity involving manufacture as well as processing of goods. He pointed out that if such companies are covered under one of the limbs of the definition of industrial company, the claim of such companies could not be denied on the ground that there was no mention of construction of building while a mention has been made to the construction of ships. In the end, the learned Counsel submitted that if it was not possible for the Tribunal to give a general finding that all the construction companies should be treated as industrial company, the facts of each case should be looked into to determine whether the company was mainly engaged in manufacture or processing of goods.

17. Shri R.S. Baid Mehta addressed us on behalf of the interveners, M.Bansilal Bafna and M. Sameermal Bafna of Madras, stating that the company has a claim under the Wealth-tax Act and they have no material pending regarding the treatment of the company as an industrial company under the Finance Act or regarding the claim under Section 80J. He submitted that under the Wealth-tax Act, there was no mention of construction of ships and, therefore, a construction undertaking engaged in the manufacture, production or processing of goods should be held eligible for the benefit under the Wealth-tax Act. We have mentioned the arguments of Shri Mehta for the purposes of record as his arguments did not cover the issue involved in the case of the assessee.

18. The learned counsel for the assessee, Shri S.L. Batra, cook up through the history of the term 'industrial company' and its definition from year to year. According to his submission, the definition of 'industrial company' refers to the engagement of such company in certain activities. These activities are: (i) Business of generation or distribution of electricity or any other form of power; It was contended by him that a company may have any or more than one of the above activities and one has to determine whether the company is mainly engaged in such activity. He further contended that each activity has to be considered separately as well as cumulatively.

Referring to the business of the assessee-company, he submitted that the assessee has been engaged in the construction of tunnels of very large magnitude and was also engaged in the construction of hydle works. In the year in question, the name of the works undertaken were the Tava Project, Sohag-pur Link Tunnel, Low Pressure Tunnel and power house at Kyrdomkulai and hydle projects at Garampani and Chukka. He explained that the assessee used to blast big rocks or hills to create a continuous hole which was to be made into a tunnel by utilising several concrete materials and steel structures. He also submitted that the assessee-company was not using any sub-contractor for carrying on its works. The assessee-company was having its own generators for generating electricity which was being utilised in its various construction works. Thus, according to him, one of the activities contemplated in the definition of industrial company was directly present in the case of the assessee. It was further submitted that in using the dynamite for making a large hole in the hills for the rocks, the assessee was engaged in an activity which was very much like 'mining'. Further, it was submitted that for the purposes of the construction of tunnels, the assessee needed various steel items which were being fabricated by the assessee in its own workshops. For concrete works, the assessee was making slabs from cement and various other materials like 'bajari', 'rori' and 'cement' were processed to make them into a concrete structure to support the tunnels. The assessee was obtaining big pieces of stones and was crushing them into various forms and sizes of boulders which were utilised in making of tunnels and other projects. He, therefore, submitted that all the activities were integrated for making the tunnels and the assessee was, thus, engaged in the activities covered in the definition of 'industrial company'. He pointed out that some of the activities are for repairs of tunnels but that too involved processing of goods at a large scale. He referred to the specific example of the link tunnel and submitted that the accounts themselves showed that the assessee was using various materials for producing various component parts which ultimately went into construction of the tunnels. According to the learned Counsel, the direct use of materials in concreting the tunnels was an example of processing of goods. It was also contended that the inclusion of 'construction of ships' does not mean to exclude any other construction of projects like tunnel which involved manufacturing as well as processing of goods.

19. The learned Counsel for the assessee further submitted that the assessee's activities were treated as any other industry for various laws like provident fund, employees insurance, industrial disputes, etc., etc. The learned Counsel took us through the meaning given to manufacturing and processing of goods and submitted that the activity by the assessee of making steel structures and concrete slabs and various other components used in his work was an activity of manufacturing and wherever various building materials were processed and ultimately utilised in making of tunnels or hydel projects it was processing of goods. It was also contended by the learned Counsel that company's activities are so much dominated by such manufacturing activity as well as processing of goods, that it can be safely claimed that this was the main activity of the company.

20. Coming to the case laws, the learned Counsel strongly relied on the decision of the Delhi High Court in the case of National Projects Construction Corpn. Ltd. (supra). In that case also the company was engaged in the construction of dams, barrages, etc., of a considerable magnitude. It had large projects for processing of steel, crushing stone, manufacturing lime and surkhi for the purposes of utilising the products in the construction of the various river valley projects undertaken by it. The question arose whether the company was entitled to exemption from wealth-tax under Section 45(d). The Tribunal had held that the main business of the company was construction of dams and barrages and the activity of manufacturing or processing of goods was merely incidental for the purposes of carrying out its main work. The benefit had, therefore, been denied to the assessee. When, however, the matter went before the High Court it was held that though the activity of manufacturing and processing of goods might be termed 'a feeding activity', the proportion that the assessee's manufacturing activity assumed made it one of the assessee's principal activities. The High Court further held that an undertaking engaged in the manufacture of goods for its own use may, therefore, actually qualify for the exemption. The High Court had held that the word 'engage' employed continuity of action and meant devoting attention or employing oneself predominantly. The manufacturing or processing of goods should not be a mere casual employment and the extent of activity would be a relevant factor for determining whether the company was engaged in such activity. It was submitted by the learned Counsel for the assessee that the language used in the relevant provisions of the Wealth-tax Act was almost the same as in the present case and the same meaning should be given in the present case as well.

21. The learned Counsel then proceeded to rely on a large number of decisions. A few of them may be noted. He referred to the decision of the Allahabad High Court in the case of Addl. CIT v. Farrukhabad Cold Storage (P.) Ltd. [1977] 107 ITR 816 where cold storage was held to be an industrial company as according to the High Court, it was engaged in the processing of goods. Their Lordships have held that the processing of goods need not lead to manufacture of a new article and where the potatoes were kept in refrigerator and there was prevention of decay it was processing of goods. He referred to the various English case laws considered in this decision, where it was held that the word process in its ordinary connotation meant not more than the application of a method of manufacture or adaptation of goods or materials towards a particular use. Applying the above principles, their Lordships held that 'processing of goods' used in the definition of industrial company only required that the goods or materials must be adapted for a particular use. Their Lordships had also referred to the decision of the Supreme Court in the case of Union of India v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791 where it was held that the manufacture and processing of goods could not be equated. Whereas 'manufacture' meant bringing into existence of a new substance or articles, processing of goods need not result in the creation of an absolutely new articles.

22. The other case on which the assessee laid great stress was the decision of the Kerala High Court in the case of Cochin Co. v. CIT [1978] 114 ITR 822 where also the definition of 'industrial company' as given in the Finance Act, 1966 has been considered. Here, the company was engaged solely in the business of processing and export of fish. It was held by the High Court that as this was the sole activity, it was not necessary to go into the Explanation to the definition to again determine whether the company was mainly engaged in the specified activities.

23. The learned Counsel for the assessee also relied on the decision of the Calcutta High Court in the case of National Planning & Construction Ltd. (supra). It was submitted that in the present case, almost the entire activity of the assessee was covered under the definition of 'industrial company'.

24. The learned Counsel for the assessee further contended that it would be a narrow construction to hold that all the construction activities were excluded because the construction of ships has been specifically mentioned. He pointed out that the construction of ships was a specific activity which the Government wanted to encourage and, therefore, it has been specifically mentioned. However, the assessee claimed to be covered under the definition, as its activities entitled it to be taken as 'industrial company'.

25. The learned Counsel for the assessee further contended that whereas some of the activities of the assessee-company would come under 'manufacture', the other activities would certainly be covered under 'processing of goods'. It was submitted by him that even a work of repair would involve mainly processing of goods. He pointed out that 'processing of goods' has been given a very wide meaning by the Courts and activities like crushing of stones, processing of cotton, retreading of tyres, running of a cold storage and rice or dal husking has been considered as processing of goods. The learned Counsel further submitted that the amendment in 1983 including construction activities also specifically should be considered as merely clariflcatory and intended to remedy the result of certain decisions by which construction activities were sought to be excluded.

26. The departmental representative in reply submitted that the assessee could not be held to be carrying on business of generating electricity, even if he was generating electricity for being used in his construction project. It was further contended that blasting the hills for making a hole could not be considered as mining activity and it could also not come under the processing of goods. He submitted that lining of a tunnel and other such activities do not involve any processing of goods as what was being processed is the hill or rock which are not 'goods' but which are immovable properties. It was contended that when the assessee uses dynamite to blast a rock or hill, he is merely using an instrument on the hill itself and no processing of goods as such is involved. As the assessee does not take out any mineral, he cannot claim to be engaged in mining activities. It was vehemently contended that for being qualified as an industrial company the entire activities of the company should be seen to decide whether it is mainly engaged in the processing of goods. It was further submitted that even if it is accepted that some of the activities involved manufacture or processing of goods, such activities could be very little or insignificant, In this connection, he also referred to Circular No. 103, dated 17-2-1973, where it was clarified [1973] 88 ITR (St.) 80 that an industrial company would include a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining, even if its income for such activities is less than 51 per cent of its total income and also a company which, even though not mainly so engaged, derives in any year 51 per cent or more of its total income from such activities.

It was submitted that in the present case, the main business was construction of dams and tunnels and, therefore, it cannot be held that the main activity is the manufacture or processing of goods. As regards the second requirement one has to see whether 51 per cent of the company's income is attributable to the specified activities.

27. The departmental representative further referred to the paper book of the intervener, Arvind Construction Co. (P.) Ltd., wherein the Tribunal had held that the company was an 'industrial company'. He submitted that though the High Court had not allowed any reference under Section 256(2) of the Act, the department's special leave petition had been admitted by the Hon'ble Supreme Court and the matter was still pending at that stage. It was, therefore, contended that the decision of the Delhi High Court was being disputed and the matter has not yet been finally decided. According to the departmental representative, 'construction' was a separate segment of activity and the Legislature has provided that only construction of ships would get the benefit and, therefore, it was not necessary to go to other segment of activity like manufacturing or processing of goods. In the end, he submitted that amendments made in 1983 could not be considered to be merely clarificatory as the change has been made only for the purposes of advance tax and is, therefore, applicable only to the assessment year 1984-85. The object was to enlarge the scope and not to merely clarify the position which was already there. It may be mentioned that from both sides certain other case laws were also cited but we are not referring to all of them and we would consider the main decisions which cover the arguments from both sides.

28. After carefully considering the facts of the case and the arguments advanced by both the parties, we proceed to consider the question whether the assessee-company could be considered to be 'industrial company' within the meaning of the Finance Act. In interpreting a particular provision, the words used have to be given their natural meaning and the intention has to be gathered mainly from the language used. If two definitions are similar, the same meaning should be given but if there are certain distinguishing features like omission of a requirement or addition of some term, the significance of such omission or addition has also to be kept in view. From this point of view, we consider the definition of industrial company. We find that the analysis made by the departmental representative as given in para 6 above is basically correct. However, a close reading of the definition shows that crucial words are 'mainly engaged'. When we go to the Explanation we find that the various parts of the definition have been described as 'activities'. We have, therefore, to find out whether the company in question is mainly engaged in one or the other of the activities mentioned therein. While in respect of generation or distribution of electricity or any other form of power the activity should be in the nature of business of such generation or distribution, in respect of other activities, the word 'business' has not been used.

Thus, it appears that in respect of other activities it is possible that the company may carry on any other business but while doing so may be mainly engaged in one of the activities like manufacture or processing of goods, It is seen that a difference of approach has arisen between the High Courts. We have already analysed the decisions which have been relied upon by the parties and it is clear that the very approach is different. The Bombay High Court has approached the matter from the angle of the business of the company and not its being engaged in some activities. According to the Bombay High Court in N.U.C. (P.) Ltd.'s case (supra) the definition covers only that construction company which is engaged in the construction of ships and by implication excludes from the definition a company which is engaged in the construction of anything other than ships. According to the Hon'ble High Court, the business of the company could not be divided into parts and making of door and window or concrete beams or slabs being in the process of construction and requirements of the building could not entitle the assessee for being treated as an 'industrial company'. According to the Hon'ble High Court if there was a manufacturing activity or processing of goods in the course of carrying out the construction work it cannot be held that the company is engaged in the manufacture or processing of goods. Thus, their Lordships were first influenced by the inclusion of 'construction of ships' which according to them excluded other construction activities and at the same time they declined to consider the activities in which the company was engaged, if ultimately the company was to use the goods produced in the construction work. This approach has become further clarified in the case of Shah Construction Co. Ltd. (supra). That was also a case of construction company and the question was whether the company was mainly engaged in the manufacture or processing of goods. The business of the company was to construct dams, bridges, buildings, etc. The Tribunal had held that the assessee-company could not be said to be engaged wholly or mainly in the processing of goods though the assessee-company was required to carry out some processing activity such as mixing of certain materials to make concrete, converting of big boulders into smaller stones and so on, such processing activity was incidental or subsidiary to the main activity of construction. It was also held that when compared to the principal value of the business such process was only small component of its activity. The High Court held that where main business was construction business, any activity which may be described as manufacturing of goods or processing of goods is an ancillary to the construction activities of the assessee. Such a feeding activity could not make the company as mainly engaged in the manufacture or processing of goods. The High Court, however, held that there was no material to show the extent of manufacturing or processing of goods which is required for such construction activities.

29. We are of the view that by including 'construction of ships' there is no implied exclusion of other construction activities. Construction of ships has always been considered as an important activity to which various encouragements have been given by fiscal laws. In the English language the word 'manufacture' is not used for ships and the words which are used are 'construction of ships' or 'ship building'. It was due to this that the construction of ships had been separately mentioned. As we have analysed the definition of the industrial company, we have seen that the various activities have been put under four parts and if a company is mainly engaged in one of the activities it would be entitled for benefit contemplated under the Finance Act. We are of the view that by using the words 'construction of ships', other construction activities are not excluded provided they can be brought under any other activities mentioned in the definition. In other words, even a construction company constructing tunnels, dams and bridges may be held to be entitled to the lower rate of lax if on facts, it can be held that the company is mainly engaged in the manufacture or processing of goods. This interpretation finds strength from the ratio of the judgment of the Delhi High Court in the case of National Projects Construction Corporation Ltd. (supra). We have briefly mentioned the facts and the judgment earlier in the order. The High Court was considering the scope of 'industrial undertaking' as used in Section 45(d) of the 1957 Act. 'Industrial undertaking' was defined to mean an undertaking engaged in the manufacture, production or processing of goods or articles or in mining or generation or distribution of electricity or in any other form of power. The WTO had not allowed exemption as according to him, the company was not engaged in the manufacture, production or processing of goods or articles. The Tribunal had held that as the manufacturing or processing of goods was incidental and carried on with the object of fulfilling the main activity of the company, the manufacturer did not qualify for the exemption under Section 45(d). It was further held by the Tribunal that the company was really engaged in the construction of dams or barrages and engaged itself in the activity of producing and processing of goods or articles and quarrying stones only incidentally for the purpose of carrying out its main works and, therefore, it could not be said that the company was engaged in the manufacture, production or processing of goods. The High Court found that the manufacturing and processing work undertaken by the assessee-company was of considerable magnitude. The High Court held that the only condition prescribed was that the undertaking should be engaged in manufacture, production or processing of goods or articles. The words 'engaged in a manufacture, production or processing of goods' should normally, therefore, mean continuously occupied in the manufacture as a principal business as distinguished from an occasional participation or casual employment. The High Court further held that it was not necessary that articles manufactured or processed were sold as such and they could be used by the assessee in its own business. Their Lordships held that if the incidental or feeding activity is of a large magnitude then one has to see or decide whether or not the undertaking is engaged in the manufacturing activity, etc., from a business point of view. The High Court further held that it may be a feeding activity but the proportion that the manufacturing activity seems to have assumed makes it one of the assessee's principal activities.

30. Though this decision was given in the Wealth-tax Act, it has to be taken into consideration as words used are similar though with some difference. The first difference is that 'construction of ships' as such has not been mentioned in the Wealth-tax Act. Secondly, the word 'mainly' has not been used under the Wealth-tax Act, though the High Court interpreted it in the sense of main activity. This view would find support to some extent from the decision of the Calcutta High Court in the case of National Planning Construction Corpn. Ltd. (supra) which has been referred to in para 12 above. From that judgment it appears that according to the Calcutta High Court where there are more than one activities, the quantum of income has to be seen to decide whether the company was mainly engaged in that activity.

31. From the above discussions, we note that there is a divergence of approach between that the Bombay High Court has held in the two cases referred to above and what the Delhi and Calcutta High Courts have held in the cases mentioned above. We, as discussed above, hold that the activities of a company should be scrutinised and if on the basis of those activities it is found that the company is mainly engaged in the manufacturing or processing of goods, the benefit should not be denied to the company only on the ground that it is a construction company which has the object of constructing tunnels, bridges and other such civil works. It is true that by the amendment made in 1983, the definition of industrial company has been changed to include 'execution of project' as one of the activities and project includes construction works as well as assembly or installation of any machinery or plant.

Thus, this activity as such has come to be included in the definition only after this amendment. In other words, a company engaged in construction of a building, road, dam, bridge or other structures would get the benefit under the Finance Act, 1983, even if they do not involve the company in manufacturing or processing of goods to a substantial extent. However, our conclusion remains that a construction company like the assessee can get benefit of a lower rate of taxation if on facts it can be established that it is mainly engaged in the manufacture or processing of goods, even if such activity is a feeding activity for the construction work.

32. Now the question which arises is whether on the facts of the present case, the assessee is engaged in the manufacture or processing of goods and whether it can be held that the company is so 'mainly engaged'. Considering the various activities which include manufacturing of steel structure, making of concrete slabs and other such activities are the activities of either manufacture or processing of goods. When several materials are mixed in a particular proportion so as to make a reinforced concrete and such slabs are used in the main construction work, it is certainly processing of goods. The departmental representative has, however, accepted that in a normal construction work of this type, manufacturing or processing of goods has invariably to be undertaken. It is, therefore, clear that the assessee-company is engaged in the manufacture or processing of goods.

The question, however, still remains whether such engagement can be considered to be 'mainly' on the facts of the case. This can be held on the basis of the nature and extent of activity and if there are various activities then on the basis of the explanation it has to be determined with reference to the income from such activities. The matter has not been examined from that angle. There has to be a balance sheet of assessee's activities to ascertain whether the main activity is of manufacture or processing of goods or of other nature. We are not impressed by the learned Counsel's argument that the activities of the assessee come under other heads of the definition as well. When the company generates electricity for its business, it cannot be held that it is carrying on the business of generation and distribution of electricity. In the same way, we do not agree that any mining activity is involved when the assessee uses dynamite in a hill or removes big boulders after use of explosives. The only part of the definition under which the activity of the company have to be considered are the 'manufacture or processing of goods'. For this purpose, we would send back the case to the assessing officer to determine the extent of activity by looking to the nature of activities in each year separately. If predominant activity is of such nature that will come under manufacture or processing of goods, the benefit should be given to the company. In the alternative, if various types of activities are found to be there, Explanation to the definition should be applied and the extent of income from such manufacturing and processing of goods should be worked out, if necessary, on cost accountancy basis. This will determine whether the company is mainly engaged in the activity of manufacture and processing of goods. The first ground is disposed of accordingly.

33. The next ground in the departmental appeals relates to the disallowance of assessee's claim under Section 80J. In the assessment years 1977-78 and 1978-79, the ground' in the departmental appeals also challenges the allowances of relief under Section 80HH. In the assessee's appeal also there is a ground regarding relief under Section 80J and it relates to the direction of the Commissioner (Appeals) that the deduction under Section 80J should be worked out in accordance with the provisions of the amended law in this regard with retrospective effect.

34. According to the ITO, the assessee was not entitled to deduction under Section 80J for the same reasons as it was not eligible for concession as an industrial company. No separate reasons were given for that. The Commissioner (Appeals) had also followed the same line and as he was allowing the assessee's claim for being treated as an industrial company he allowed the case of the assessee on the question of Section 80J as well. The Commissioner (Appeals) directed the ITO to examine the claim under Section 80J and allow it in accordance with law on the principles laid down by the Supreme Court in the case of Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195. This direction which was given in the assessment year 1976-77 was repeated in the assessment years 1977-78 and 1978-79. While doing so the Commissioner (Appeals) had observed that the assessee-company satisfied the condition regarding manufacture or production of articles.

35. Before us, the departmental representative has submitted that the authorities below have erred in automatically allowing the claim of the assessee under Section 80J only on the ground that he had considered the claim of the company for being treated as an 'industrial company' to be acceptable. It was contended by him that the requirements of Section 80J are given in that very section and it was not necessary to go to other laws for determining whether a particular industrial undertaking qualify relief under Section 80J or not. He referred to the provisions of section 80J(4) and contended that only that industrial undertaking could get the deduction which manufactures or produces articles. It was contended that the assessee being an industrial company was not actually manufacturing or producing articles and for this purpose he submitted that ultimate product has to be seen and not the intermediate or feeding products. He pointed out that 'articles' clearly refers to the end-product and such end-product should be movable property and not immovable property like buildings, bridges or tunnels. He further pointed out that there was no mention of 'processing of goods' in Section 80J(4) and, therefore, there was a basic difference between requirements of Section 80J and those given in the definition of 'industrial company'. He referred to the various dictionaries for giving the meaning of the word 'articles' and pointed out that all of them were agreed that it refers to movable things and not immovable things like a house property or a structure like bridge.

He referred to Article 366(12) of the Constitution of India where 'goods' include all articles also. He, thus, pointed out that the structure like a tunnel could not be considered as an article or goods and it would not be correct to say that the assessee was manufacturing or producing tunnels which are goods or 'articles'.

36. The departmental representative submitted that the decision of the Orissa High Court in the case of N.C. Budharaja & Co. (supra) was against the department. In that case, the High Court was considering the meaning of 'industrial undertaking' as used in Section 80HH. There also, the assessee-firm was undertaking the construction of an irrigation project. The Commissioner in a proceeding under Section 263 of the Act had held that the assessee was not manufacturing or producing articles and, therefore, it was not eligible for deduction under Section 80HH. The Tribunal had referred to the various industrial activities in the course of the business of the assessee. Though those activities were merely processing of goods they also came near 'manufacture', and articles finally produced had considerable commercial value. The High Court held that as the assessee had undertaken manufacture of certain materials which is ultimately utilised in the construction of dam and had worked for ultimate production of a dam it was clear that the assessee was producing article in the form of a dam. According to the High Court, articles need not be confined to movable property, The High Court also observed that the intention was not to restrict the benefit only to such industrial undertaking which was manufacturing or producing articles.

37. The departmental representative submitted that the decision of the Orissa High Court should not be followed as they had laid stress on the meaning of industrial undertaking as given in the Industrial Disputes Act which was not relevant in the present context. He pointed out that though the industrial undertaking as such had not been defined, the conditions which enable an industrial undertaking to qualify for the benefit under Section 80J are clearly given. He submitted that the reference to other Acts was not called for, for this purpose. He also submitted that the High Court had not taken into consideration the provision of the Constitution where there was clear indication that the articles would refer to only movable property.

38. As against the above decision of the Orissa High Court, the departmental representative relied on the decision of the Gujarat High Court in the case of Cellulose Products of India Ltd. v. CIT [1977] 110 ITR 151, In this case, the High Court had held that the word 'articles' refer only to the end-product or the final product for the manufacture of which undertaking has been set up and it does not refer to intermediate product even if it is a marketable commodity. In that case, the company was held not eligible for deduction under Section 84 (now Section 80J) on the production of cellulose pulp as the undertaking was for the production of another article. It was further held that the company was eligible for deduction for 5 years after the main product started to be manufactured. It was contended by the revenue that the assessee-company had to make certain component parts for being used in the construction work but it had to be seen what was the end-product. As ultimately a dam or a tunnel was brought into existence, one has to see whether it was manufacturing or producing articles. It was contended that the benefit under Section 80J or 80HH could not be made available to a construction company. It was further contended that the processing of goods may result in making of an immovable structure but that will not be producing article within the meaning of the section. The departmental representative also derived support from the decision of the Bombay High Court in the case of Pressure Piling Co. (India) (P.) Ltd. (supra). In that case it was held that the pile has independent existence and is an article. It was further held that the fact that the piles were made at the site did not mean that the assessee was not producing them. The High Court had also held that it was not necessary that all articles must necessarily have the quality or the possibility of being sold and purchased across the counter and that they must necessarily be transportable in order to be classified as an article. The High Court has observed that the pile was like a pillar and had their an independent existence. In the present case, however, the intermediate goods had no independent existence and they could not be held to be manufacturing or producing articles. He also pointed out that the High Court observed that before superstructure was constructed, a pile was an independent product as such. In the present case, however, in making a tunnel, the assessee was not producing any independent article and ultimately what was being produced was an immovable property. It was, therefore, contended by the departmental representative that the benefit under Section 80J or Section 80HH cannot be extended to the assessee-company.

39. The learned counsel for the assessee, on the other hand, pointed out that in making out tunnels or power house, the assessee was manufacturing or producing articles which were being ultimately used in the construction work. He submitted that he was relying on the case of Orissa High Court in the case of N.C. Budharaja & Co. (supra) and also the decision of the Delhi High Court in National Projects Construction Corpn. Ltd.'s case (supra) and submitted that the assessee was throughout manufacturing or producing articles in the course of his construction work. He submitted that dams and tunnels were articles as held by the Orissa High Court.

40. We have carefully considered the rival arguments on this point. We are of the view that the lower authorities erred in making this as corollary of the first point regarding industrial company. Every industrial company need not have an industrial undertaking which is eligible for benefit under Section 80J or 80HH. Every provision has to be applied on the basis of the conditions laid down in that case and the requirements given in that section. There are various points of difference between 'industrial company' as defined in the Finance . Act and an 'industrial undertaking' to which benefit under Section 80J is available. Besides the fact that the industrial undertaking can be owned by any person other than a company, the other differences are very material. It is not necessary to detain ourselves for deciding whether a construction company is an industrial undertaking. The words 'industrial undertaking' are not defined in the section itself and one has to take the general meaning as used at the other places and if necessary in other laws. The construction work has the possibility for becoming industrial undertaking depending on the nature of the work done and the extent to which the undertaking uses man and machines. A construction company of the magnitude of the assessee can be said to be an industrial undertaking but question does not end there. Section 80J does not apply to all the industrial undertakings. It only applies to an industrial undertaking which fulfils all the conditions laid down in Section 80J(4). The conditions as given in Section 80J(4) are as under: (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (IV) in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power: We do not proceed to consider various provisos and Explanations. The conditions which are important for our purpose are condition numbers (iii) and (iv). Those conditions are that the industrial undertaking manufactures or produces articles and has begun to manufacture or produce articles within the specified period. Clause (iv) also lays down certain other conditions with reference to manufacture or production of articles. Deduction under Section 80J also starts after undertaking starts manufacturing or producing articles. Thus, the whole emphasis in Section 80J is on the manufacture or production of articles by the industrial undertaking. The words 'processing of goods' which is an intermediate activity before final manufacture is missing from the conditions in Section 80J whereas it is found in the definition of industrial company and at several other places. In the definition of an industrial company, the main emphasis was the company being mainly engaged in a specific activity whereas in Section 80J the emphasis is not on the activity itself but on ultimate production of articles or their manufacture.

41. We have, therefore, to determine whether the assessee-company manufactures or produces articles or has begun to manufacture or produce articles within the specified period. The essence of manufacturing is the conversion of raw materials into entirely a new commodity or a new thing. The words 'produce article' have slightly a different meaning from the manufacture but in essence it is the same.

The article to be produced should be very much different from the raw materials used for the purpose. What is the ultimate manufacture or produce should be 'articles'. These articles, in our opinion, referred to such articles for the production of which the under-taking has been formed. We must ascertain whether undertaking is going to manufacture or produce articles and if so what is that article or articles. We are inclined to follow the decision of the Gujarat High Court in the case of Cellulose Products of India Ltd. (supra) and hold that the 'articles' should only mean the end-product and not the intermediate product. Their Lordships of the Gujarat High Court while considering this question observed as under: It is obvious on a plain reading of Section 84 that the articles which are referred to in Clause (iii) of Sub-section (2) are the end-product or the final product for the manufacture of which the undertaking has been set up and since the same words, namely, 'manufacture or produce articles' are with a slight variation occurring in Section 84(7)(i), the same meaning of the word 'article' should be given to the word in that clause also in view of the well known principle of interpretation that when the same words are used in the same section of the same statute, as far as possible the same meaning should be given to the same word in both the places. The words in Section 4(7)(i) are 'begins to manufacture or produce articles'. If the qualifying Clause (iii) in Sub-section (2) 'manufactures or produces articles ... in any part of India' means only manufactures or produces articles which are the final product of the undertaking or the end-product of the undertaking, then there is no reason to assign any other meaning to the word 'articles' when Section 84(7)(i) speaks of the undertaking beginning to manufacture or produce 'articles'. This is as it appears to us on a plain reading of the section. Therefore, it is necessary for us to examine the materials on record to ascertain as to why was this industrial undertaking set up what was the article which this particular undertaking was intended to manufacture or produce.

Giving the above meaning it would be seen that in the case of the assessee the end-product is a tunnel or a power house or a dam. In our opinion, a tunnel or a power house or a dam cannot be considered to be 'articles' as the reference in the section appears to be an independent commodity. From that angle, we find that the assessee-company was not manufacturing or producing articles. If all the intermediate products were eligible for deduction under Section 80J, the question would arise as to when such undertaking starts being eligible for the relief under Section 80J. A company may start making out slabs in one year and the other small structural components in another year and may ultimately construct the dam in the third year. If the ultimate product is to be considered the undertaking could not be eligible in the first two years and in the third year when the ultimate product comes into existence, it is found that it is not an article, as it is an immovable property.

We are not inclined to take the view that the making of tunnel or dam can also be considered as a manufacture of articles. While we do so, we respectfully depart from the decision of the Orissa High Court in the case of N.C. Budharqja & Co. (supra). Section 80J has to be considered as a whole and when we look to its requirements, we find that an undertaking like the assessee cannot get the benefit under Section 80J as it stands. In the course of making of dams or tunnels, the assessee may acquire various raw materials and may process them to construct the dam. In that process it is likely that some components are manufactured by undertaking itself. That will be an intermediate product. However, it cannot result in the conclusion that the undertaking is manufacturing articles for which it has come into existence. If each intermediate articles was to be taken into consideration, there will be no end to the confusion of computation or grant of relief. In fact, Section 80J does not contemplate such a meaning. It has, therefore, to be held that the assessee-company in its undertaking for the construction of tunnels or dams is not manufacturing or producing articles so as to enable it to get deduction under Section 80J. The same position will apply to the claim of the assessee under Section 80HH. The language there is also similar to the language used in Section 80J.42. While we have not agreed on the assessee's claim under Section 80J, we also proceed to consider the grounds taken by the assessee in respect of the mode of calculation of relief under Section 80J. In view of our findings above, the assessee would not be entitled to a deduction under Section 80J and, therefore, the question of computation will not arise. However, as the ground has been taken in the assessment years 1977-78 and 1978-79, we proceed to consider it. The Commissioner (Appeals) has directed that the computation should be made in accordance with the provisions of Section 80J as amended retrospectively by the Finance (No. 2) Act, 1980. The only submission of the learned Counsel was that the direction should also refer to the ultimate decision of the Supreme Court about the retrospective operation of Section 80J. After considering the submission, we would direct that if it becomes necessary to compute the relief under Section 80J then the decision of the Supreme Court is bound to be taken into consideration by the ITO. In fact, such a direction is implied as the law to be applied is as per the statute and also as interpreted by the Supreme Court. We will leave this matter at that.

43. This now leaves us with the grounds taken by the department for the assessment years 1977-78 and 1978-79 regarding investment allowance under Section 32A. The Commissioner (Appeals) has held that the investment allowance is allowable to the assessee in both the years and he has directed the ITO to examine the assessee's claim and allowed it on the machinery installed and used provided all other conditions of Section 32A are satisfied. The learned Commissioner (Appeals) considered the legal position as obtaining in the assessment years 1977-78 and 1978-79 but has not proceeded to consider implications of those provisions. Section 32A was first introduced with effect from 1-4-1976 and by it investment allowance has replaced the initial depreciation allowance which was earlier allowed to the assessee. In the assessment year 1977-78, investment allowance is allowable if the machinery installed is used for the purposes of construction, manufacture or production of any one or more articles or things specified in the list in the Ninth Schedule. It is an admitted position that the assessee is not constructing, manufacturing or producing any article or thing specified in the Ninth Schedule. In view of this, investment allowance cannot be allowed to the assessee for the assessment year 1977-78. The Commissioner (Appeals) has erred in directing the ITO to examine the assessee's claim under Section 32A for the assessment year 1977-78 as the assessee is not at all entitled to this allowance as it does not fulfil the requirements of the section.

44. In the assessment year 1978-79, however, the law was changed. For this year, it was provided that an assessee would be entitled to investment allowance if machinery was used in an industrial undertaking for the business of construction, manufacture or production of any articles or tilings not being an article or thing specified in the list in the Eleventh Schedule. In other words, except for such machinery which are producing articles or things in the Eleventh Schedule, other machinery which are used for the purposes of business of construction, manufacture or production of any other thing would get investment allowance. Thus, it would appear that the business of the assessee insofar as it is a business of construction, manufacture or production of any articles or things would be eligible for investment allowance.

The ITO will, therefore, bear in mind the above requirement of law while satisfying himself the assessee's eligibility by fulfilling the other conditions given in Section 32A. Subject to the above clarification the direction of the Commissioner (Appeals) insofar as it relates to the assessment year 1978-79 will stand while his direction in the assessment year 1977-78 will be vacated.

45. We would like to summarise our findings on the various points raised in these appeals: 1. The assessee-company having as its main business carrying out of civil construction works like tunnels, power houses, etc., can be treated as an industrial company if on facts it is found that the company is engaged in manufacture or processing of goods.

2. In order to find out whether the company was mainly engaged in the activity of manufacture or processing of goods, the income-tax authorities have been directed to ascertain the relevant facts and come to a conclusion on consideration of all the materials and also having regard to the Explanation to the definition of 'industrial company' as given in the Finance Act.

3. The assessee-company which is engaged in constructing tunnels, dams, power houses, etc., is not eligible for deduction under Section 80J or 80HH as the construction undertakings cannot be held to be manufacturing or producing articles within the meaning of Section 80J or 80HH. 4. In case, the relief under Section 80J is to be worked out, the provisions of Section 80J as in force in the relevant assessment years should be taken into consideration having regard to the retrospective amendment of that section as well as any decision which may be pronounced by the Supreme Court on this question.

5. While the assessee-company is not entitled to investment allowance under Section 32A for the assessment year 1977-78, the claim of the assessee has to be considered for the assessment year 1978-79 and the same has to be allowed provided all other conditions laid down in that section are satisfied.


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