GENERAL CONTRACTS CO vs. COMMISSIONER OF INCOME TAX

ITR/38/1996HC GujaratGJHC24021718199625 August 2006Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.S.GARG9 pages
AI SummaryDismissed

What were the facts?

The assessee, a partnership firm engaged in contract work for Gujarat Mineral Development Corporation (GMDC) involving mining and excavation of lignite, claimed investment allowance under Section 32A of the Income Tax Act for Assessment Years 1986-87 and 1987-88. The Assessing Officer denied the claim, holding that the assessee was providing services and labour only, not engaged in mining itself, and thus not entitled under Section 32A(2)(b)(iii). The CIT(Appeals) allowed the claim. The Revenue appealed to the ITAT, which restored the Assessing Officer's order, finding the activity to be a service and labour contract not resulting in manufacture or production. The assessee has filed a Reference before the High Court.

What did the High Court hold?

The High Court held that the Tribunal was right in its finding that the assessee is not entitled to investment allowance. The Court reasoned that Section 32A(2)(b)(iii) requires the industrial undertaking to be engaged in the business of construction, manufacture, or production of any article or thing. The activity of removal of overburden/earth excavation work carried out by the assessee for facilitating mining was primarily a service and labour contract. The use of sophisticated plant for such work did not result in the manufacture or production of any article or thing, which is a condition precedent for investment allowance. The Court distinguished the Sesa Goa Ltd. and Sandeep Construction Pvt. Ltd. cases, finding that the N.C. Budharaja and Co. judgment, which held that construction is different from manufacture or production, was applicable. The Court noted that the Supreme Court in N.C. Budharaja and Co. observed that construction of a road, dam, or similar structures does not fall within the sweep of manufacture or production. Therefore, the Tribunal's order was upheld.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is not entitled to investment allowance u/s. 32A of the I. T. Act amounting to Rs.7,87,652/- in A.Y. 1986-87 and Rs.14,37,943/- in A.Y. 1987-88? Assessee's contentions: The assessee argued that its activity of removing overburden and excavating ores constitutes an industrial activity, entitling it to investment allowance. It relied on the Supreme Court judgment in Commissioner of Income-Tax vs. Sesa Goa Limited and a Division Bench judgment of the High Court in CIT vs. Sandeep Construction Pvt. Ltd., contending that the Tribunal misconstrued and misapplied the N.C. Budharaja and Co. judgment. Revenue's contentions: The Revenue supported the Tribunal's order, arguing that the language of Section 32A clearly indicated the assessee's ineligibility for investment allowance. It relied on the Supreme Court judgments in Builders Association of India vs. Union of India and C.I.T. vs. N.C. Budharaja and Co.

Which sections of the Income-tax Act were involved?

Section 32A,Section 32A(1),Section 32A(2)(b)(iii)

AI-generated summary — verify with the full judgment below

ITR/38/1996 1/9 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 38 OF 1996 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE M.R. SHAH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the Civil Judge? ========================================================= M/S. GENERAL CONTRACTS CO. - Applicant(s)

Versus COMMISSIONER OF INCOME TAX - Opponent(s) ========================================================= Appearance : MR. S.N. DIVATIA for Applicant(s). MR. MANISH R. BHATT for Opponent(s). ========================================================= CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE M.R. SHAH Date : 25/08/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG)

The Income Ta

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