1. This is a departmental appeal. The asses-see is a company and the proceedings relate to its assessment for the assessment year 1979-80.
The assessee is mainly engaged in carrying out large scale repairs to ships and executing allied engineering jobs in respect of ships, barges, off shore oil rigs, tankers, etc. The operations consist of getting various components and equipments manufactured or fabricated in its own workshop as well as by sub-contractors according to the required drawings and designs and then assembling and utilising them for and in the course of carrying out the repair assignments.
2. Stating that the execution of such jobs involves the following stages: (ii) Purchase of substantial quantities of engineering materials such as iron and steel sheels, bars, angles, tubes, etc., as well as several other components; (iii) Conversion of these into required forms and shapes by various machining and engineering processes; (iv) Assembling and installing such processed components in the course of repairing jobs on board the ships, barges, etc.; the assessee claimed that it was an industrial company/industrial undertaking entitled to investment allowances under Section 32A of the Income-tax Act, 1961 ('the Act') and also to relief under Section 80J of the Act. Observing that the assessee-company was neither manufacturing nor producing any article or thing, the ITO rejected the assessee's claim. On the other hand, the Commissioner (Appeals) has, for reasons given in para 2 of his order, accepted the claim and directed the ITO to allow the assessee investment allowance under Section 32A and deduction under Section 80J. It is pertinent to mention that the Commissioner (Appeals) has for the purpose, mainly relied on the Orissa High Court's decision in the case of CIT v. N.C. Budharaja & Co.  121 ITR 212 and the Bombay High Court's decision in the case of CIT v. Pressure Piling Co. (India) (P.) Ltd.  126 ITR 333.
3. It is submitted before us by Shri Krishnan, the senior departmental representative, that the Commissioner (Appeals) has not appreciated the facts correctly. According to him, the facts clearly indicated that the assessee was neither manufacturing nor producing any article or thing and was, therefore, not entitled to investment allowance under Section 32A and deduction under Section 80J. Shri Trivedi, the learned counsel for the assessee, has strongly relied on the order of the Commissioner (Appeals). Both the parties, it may be stated, have advanced detailed arguments and relied on a number of High Courts decisions and the Tribunal's orders in support of their rival contentions. We propose to deal with all their contentions in the course of our order.
4. It may be mentioned at the outset that by means of the first ground, the department has challenged the order of the Commissioner (Appeals), directing the ITO to consider the assessee-company as an industrial company. It, however, appears that the expression "industrial company" has been loosely used by the authorities below as well as the assessee and in fact for the purpose of entitlement to investment allowance under Section 32A, the assessee has to be 'an industrial undertaking' within the meaning of Section 32A and not 'an industrial company'.
5. Therefore, in order to appreciate the rival contentions, it is desirable to refer to the provisions of Section 32A(2) as investment allowance is available to only such ships, aircrafts, machinery or plant as are contemplated in Sub-section (2) of Section 32A. (2) The ship or aircraft or machinery or plant referred to in Sub-section (1) shall be the following, namely:-- (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 1976, (i) for the purposes of business of generation or distribution of electricity or any other form of power; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.
Similarly, in order to qualify for deduction under Section 80J an industrial undertaking has to satisfy Sub-section (4); particularly Clause (iii), which is relevant in this case: (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; 6. There is not even a suggestion that the assessee is a small-scale industrial undertaking within the meaning of Sub-clause (ii) or set up for the purposes of business of generation or distribution of electricity or any other form of the power within the meaning of Sub-clause (i) of Clause (b) of Sub-section (2) of Section 32A.Therefore, in order to be entitled to investment allowance under Section 32A, the assessee-company has to satisfy the condition laid down in Sub-section (2)(ii) of Section 32A. The assessee, as stated above, is admittedly constructing, manufacturing or producing any one or more of the articles or things specified in the list in the Ninth Schedule. Similarly, for entitlement to relief under Section 80J, the assessee has to satisfy the conditions laid down in Sub-section (4) of Section 80J. One of the conditions is enumerated in Clause (iii). Again Clause (iii) requires that the industrial undertaking must manufacture or produce articles besides other things, with which we are not concerned in this appeal. The short question that arises for consideration, therefore, is, whether or not the assessee-company manufactures or produces articles or things, there being no suggestion that the assessee is engaged in the business of construction. This has to be examined on the facts of the case, viz., that the assessee is mainly engaged in carrying out large scale repairs to ships though the job undertaken include manufacture or fabrication of parts, components and other equipments necessary for undertaking large scale repairs. In other words, just because the assessee, for and in the course of undertaking large scale repairs of ships, has to do fabrication and manufacture of certain items, it can be held that the assessee manufactures or produces articles or things. If we were to decide this issue on the basis of first principle, we would have straightaway held that the assessee does not manufacture or produce any article or thing; as, according to us, when a person manufactures or produces an article or a thing, it is implied that such articles or things are manufactured or produced for the purpose of sale and not for the purpose of some job work.
7. However, as stated by us earlier, a number of High Court decisions as well as the Tribunal's orders were cited by the parties before us.
Therefore, it is only desirable to refer to them in somewhat detail before we decide the issue before us.
The facts before the Orissa High Court in the case of N.C. Budharaja & Co. (supra) were the followings: The High Court was concerned with the term 'industrial undertaking' in Section 80HH of the Act, for which there was no statutory definition. The assessee was engaged in the construction of dam which was an irrigation project of considerable magnitude. In was held that a dam could be an article and that an article need not be confined to movable property.
The question involved before the Bombay High Court was, in the case of Pressure Piling Co. (India) (P.) Ltd. (supra), about the interpretation of the expression 'new industrial undertaking' within the meaning of Section 84(1), (2)(iii) of the Act corresponding to Section 80J. The assessee-company carried on the business of laying foundations for buildings by a specialised patented method known as pressure piling.
The question was whether the company manufactured or produced an article or a thing. It was held that the bringing of piles into existence, though ultimately the piles would become part of the building, was an independent product and as such the assessee was entitled to relief under Section 84 as it then stood. The question before the Bombay High Court in the case of CIT v. N.U.C. (P.) Ltd. [19801 126 ITR 377 was about the interpretation of the expression 'industrial company' as defined in Section 109(iii) of the Act and Section 2(7)(d) of the Finance Act, 1966. The business of the assessee-company was the construction and repair of buildings. In the process of and for the purposes of construction and repairs the company manufactured window and door frames and concrete beams and slabs. It was held that though such an activity was, admittedly, in the process of the construction and repair of buildings, there was no scope for dividing the business of the company into two parts, for neither the frames nor the slabs or beams were manufactured or prepared independently of the buildings or sold as such in the market.
The Madras High Court in the case of CWT v. K. Lakshmi  142 ITR 656 was concerned with the interpretation of, what is meant by 'engaged in manufacturing or processing of goods' an defined in Explanation to Section 5(1)(xxxii) of the Wealth-tax Act, 1957. The assessee in that case purchased art silk yarn, dyes, lace, etc., and gave them to the weavers to convert them into cloth for which weaving charges, dyeing charges, etc., were paid by the assessee. The cloth so manufactured was being sold by the assessee. It was held that it will not be correct to state that all the process resulting in the manufacture must be carried out by the assessee himself. Accordingly, if the assessee has done some process which ultimately has brought about the end product, such an assessee will be entitled to the benefit of exemption.
The Hyderabad Bench 'A' of the Tribunal was concerned with the question of investment allowance under Section 32A in the case of Progressive Engg. Co. v. ITO  3 ITD 172 (Hyd.). The assessee-firm was doing business as contractors and had claimed investment allowance on its machinery used in the construction of a dam. It was held that the assessee was entitled to investment allowances. The Bangalore Bench of the Tribunal was also dealing with the question of investment allowance under Section 32A in its order in the case of Naveen Mechanised Construction Co. (P.) Ltd. v. First ITO  3 ITD 456 (Bang.). In that case the assessee, a contractor, had undertaken the construction of additional water conductor system, tunnels and exit channels in a dam. The ITO had allowed the claim for investment allowance under Section 32A. The Commissioner, on the other hand, held that business of construction could not be called an industrial undertaking as the manufactured items were used for self consumption only. According to the Tribunal, the mere fact that the manufactured items were for self consumption would not be fatal to the claim. The Hyderabad Bench 'A' of the Tribunal was also concerned with the question of investment allowance in the case of Durandel Foods (P.) Ltd. v. ITO  6 ITD 207 (Hyd.). The assessee in that case was engaged in packing malted food 'Horlicks'. Under an agreement with HMM Ltd. the process carried on by the assessee involved rigid procedure, formulae, specifications, standards and other instructions as per the agreement. The assessee used its own machinery and labour for such packing. It was held that the assessee did manufacture or, at any rate, produce a commercially different article in respect of bottled Horlicks and it was entitled to claim investment allowance. The Special Bench of the Tribunal at Delhi was concerned with the interpretation of the expression 'industrial company' under Section 2(9)(c) of the Finance Act, 1976, as well as the question of relief under Section 80J. The assessee-company was mainly engaged in the construction of civil works like dams, etc. While the assessee's claim that it was a new industrial company was accepted, the other claim that it was a new industrial undertaking under Section 80J was rejected.
8. The facts in the assessee's case are nearest to those in the Bombay High Court's decision in the case of N.U.C. (P.) Ltd. (supra). No doubt the said decision was concerned with the question of interpretation of the expression 'industrial company' as defined in Section 109(iii) of the Act and Section 2(7)(d) of the Finance Act, 1966. The definition of 'industrial company' does not require manufacture or production of an article or thing. It only requires construction of ships or processing of goods. Yet, the High Court held that construction and repair of buildings did not make the company an 'industrial company'. Facts in the two cases before the Tribunal were different. The assessees in both the cases were constructing/manufacturing things/articles rather than repairing them. Having regard to the above discussion, we are inclined to hold that the assessee-company is not an industrial undertaking for the purpose of Section 32A or Section 80J. Accordingly, we set aside the order of the Commissioner (Appeals) and restore the order of the ITO.