COMMISSIONER OF INCOME-TAX v. BABCOCK & WILCOX OF INDIA LTD.
IT Ref. Nos. 5, 70 & 93 of 1987, 41 of 1990 & 199 of 1993, decided on August 20, 1999.
HIGH COURT OF CALCUTTA
Y. R. MEENA, J. :
On these five reference applications, i.e., IT Ref. No. 5 of 1987, IT Ref. No. 41 of 1990, IT Ref. No. 70 of 1987, IT Ref. No. 93 of 1987 and IT Ref. No. 199 of 1993, the Tribunal has referred the following questions for our opinion :
Common question for asst. yrs. 1978-79 and 1979-80 in IT Ref. No. 41 of 1990 and IT Ref. No. 5 of 1987.
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the claim of the investment allowance of the assessee under section 32A of the IT Act, 1961, and in that view was correct in modifying the order of the CIT passed under section 263 of the IT Act, 1961, for allowing the claim ?”
The common question in asst. yrs. 1978-79 to 1981-82 and 1983-84 :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee fulfilled the conditions laid down in section 32A of the IT Act, 1961 and in that view upholding the order of the CIT(A) allowing assessee’s claim for investment allowance amounting to Rs. 20,39,759 under section 32A of the said Act, for the asst. yr. 1981-82 ?”
Since common question of law is involved in all these reference applications, we dispose of these reference applications by this common order. The only difference in the facts in IT Ref. No. 41 of 1990 for the asst. yr. 1978-79 and IT Ref. 5 of 1987 is that initially, the ITO in his regular assessment order allowed investment allowance under section 32A of the IT Act, 1961, but that assessment order was set aside by the CIT under section 263 of the Act and directed the ITO to withdraw that investment allowance. That order was challenged and finally, the Tribunal has taken the view that the assessee is entitled for investment allowance under section 32A of the Act.
2. The assessee was engaged in business of erection and commissioning of power and industrial boilers as sub-contractor of a holding company, namely, A. C. C. Vickers Babcock Ltd. The holding company manufactures all the parts of the boilers and on an order of a person, all the parts were sent at the site and thereafter, the assessee-company operated to erect the boiler. The assessee claimed, on the basis of this erection of the boiler that the assessee is a manufacturer of boiler, therefore, entitled for investment allowance, plant and machinery, which he use, for the purpose of manufacture of articles or things.
The case of the assessee is that erection of boiler is amounting to manufacturing of boiler. Therefore, the plant and machinery which the assessee has used for erection of the boiler is entitled for investment allowance on that machinery under section 32A of the Act. The investment allowance was allowed by the ITO. Thereafter, the CIT on perusal of the assessment record of the assessee for the asst. yrs. 1978-79 and 1979-80 found that though the assessee is erecting the boiler, but there is no manufacturing activity. He issued show-cause notice why that investment allowance should not be withdrawn. After considering the explanation, the CIT was of the view that by erection of the boilers the assessee is not engaged in manufacturing and production of articles or things. He set aside the order of the ITO on this point and directed to make a fresh assessment order withdrawing the investment allowance, allowed to the assessee under section 32A of the Act.
3. In appeal before the Tribunal, the Tribunal has considered its order in Singh & Jain Engineers (P) Ltd. in ITA No. 1187 (Cal) of 1982 and also the decision of the Orissa High Court in CIT vs. N. C. Budharaja & Co. (1980) 121 ITR 212 (Ori) : TC 25R.197. Following these decisions, the order of CIT under section 263 was set aside, holding that the assessee is entitled to investment allowance under section 32A of the Act. In other assessment years Tribunal has followed its view taken in asst. yrs. 1978-79 and 1979-80 and held that assessee is entitled for investment allowance under section 32A of the Act, 1961.
4. In a reference before us, the learned counsel for the Revenue, Mr. Agarwal, submits that the Tribunal has followed the decision of the Orissa High Court and now the decision has been reversed by the Supreme Court in CIT vs. N. C. Budharaja & Co. & Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) : TC 25R.185. He further submits that the meaning of ‘erection’ should not be stretched to treat it as manufacturing. The definition is not given. The normal meaning should be taken as the word used.
5. On the other hand, the learned counsel for the assessee, Dr. Pal, submits that a holding company which manufactures the parts of the boiler simply supplying parts of the boiler at the sight and thereafter the sub-contract has been given to the assessee for erection of the boiler in a factory. The assembling of parts is as good as manufacturing. He placed reliance on Narne Tulaman Manufacturers (P) Ltd. vs. Collector of Central Excise (1990) 183 ITR 577 (SC). He further submits that even any machinery or parts thereof, including the boiler if embedded in the earth, that does not lose its movable character. For that, he placed reliance on the decision of the Supreme Court in AIR 1998 SC 1484. He further submits that after some process or assembling of the end-product is different, that is as good as manufacturing of articles or things.
6. The admitted facts are that the assessee-company is a subsidiary company of ACC Vickers Babcock Ltd. If any order is placed by any person to the holding company, that ACC Vickers Babcock Ltd., the holding company supplies all the parts of boiler to erect the boilers at site for erection of boiler. The holding company sublet that contract to the assessee to erect the boiler.
The question for our consideration is whether the erection of a boiler by the assessee is a manufacturing activity as referred in s.32A as industrial company within the meaning of cl. (3) of sub-section (2) of section 32A. Whether the assessee manufactures article or things.
The main question for our consideration in reference application whether the Tribunal is justified in allowing the claim of the assessee for investment allowance under section 32A, while the job of the assessee is to erect the boiler. The expression erect is not defined under the provisions of this Act for the purpose of investment allowance under section 32A of the Act. In a note submitted by the learned counsel, Dr. Pal, it is stated that all the parts of the boiler is manufactured by the holding company but for erection, assessee requires highly skilled persons, plant and machinery, such as machinery like cranes of various edges, discs of various edges and welding generator and that the boiler also can be shifted by dismantling and that can be erected in some other places. Therefore, it is movable article. Therefore, merely because it is embedded in the earth, it does not lose its character of movable article. For that Dr. Pal places reliance on the decision of Supreme Court in Sirpur Paper Mills Ltd. vs. Collector of Central Excise.
In para 4 their Lordships observed that, if the appellant wanted to sell the paper-making machine, it can be shifted from one place to another. When it can be shifted, it cannot be treated as immovable property. Dr. Pal submits, when machine installed and embedded in earth it does not lose its character of movable property. So is the case with boiler. When boiler is fixed and erected in a particular industry it can be shifted to some other place by dismantling and can be removed and erected at some other places. Therefore, the boiler is an article or things. It cannot be put at par with dam, canal or roads as referred in the decision of the Supreme Court in CIT vs. N. C. Budharaja & Co. & Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) : TC 25R.185.
7. We do not agree with the submission of Dr. Pal that boiler is a movable article or thing. The admitted facts are that all the parts of the boiler are supplied and transported to the site and at the site assessee has with the help of those parts erect boiler and if assessee wants to shift that boiler to some other place, the boiler has to be dismantled and only the part of which were supplied by the holding company can be transported and again the boiler can be erected at new place. Therefore, boiler itself in intact position cannot be shifted. First the boiler has to be dismantled and its parts are to be transported to some other place for erection of a boiler. What is movable things or article are the parts of the boiler and not the boiler which has been erected. Therefore, boiler which was erected cannot be said as movable article or things.
8. Dr. Pal further submits that the investment allowance is permissible in case the assessee manufactures or produces article or things. The word “production” has a wider meaning. In case of production, manufacturing is not necessary and if he produce articles or things, assessee is entitled for investment allowance. Therefore, even the assembling of parts in some cases is a manufacturing activity. But in assembling of parts the end-product should be different. He places reliance on Narne Tulaman Manufacturers (P) Ltd. vs. Collector of Central Excise (supra). In Narne Tulaman Manufacturers (P) Ltd., their Lordships have considered the provisions of section 2(f) of the Central Excise & Salt Act, 1944, and considered whether by process any object becomes new commercial goods having distinctive name, character or use would be manufacture and can it be said that it is a manufacturing activity ? Their Lordships held that a new product known in the market and falling under the tariff item “weighbridges” came into being the manufacturer of weighbridges is liable to pay excise duty.
Admittedly there is no definition of “manufacturing or production” given under the Act 1961, for the purpose of cl. (3) of sub-section (2) of section 32A
Therefore, we have to go by the normal dictionary meaning or the meaning which is understood in common parlance. In the Websters’ New Dictionary, the meaning of “erection” has been given as under :
‘”Erect” upright vt. set, up, build, erectile a, erection, nerection (L. erectus, upright).’
9. The question for consideration is, when the assessee erects by way of assembling the parts supplied to it by its holding company and gives shape to a boiler, can it be said that it is a manufacturing activity of the assessee ? The erection is as goods as installation or set up or build the boiler at site. It cannot be equated with the manufacture of article or thing. While allowing the claim of assessee Tribunal has heavily relied on the decision of Orissa High Court in Budharaja’s case (supra). That decision has been overruled by the Apex Court in Budharaja case (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) : TC 25R.185 (supra). While reversing the view taken by Orissa High Court, their Lordships observed at p. 425 as under :
“the High Court was not right in dissociating the said word from its context viz., the preceding words, which has led them to attach an unnatural meaning to the said word.”
When the “word or phrase” is not defined under the Act, a normal meaning of that word should be taken, which is understood in common parlance.
The word ‘erection’ has not been used in cl. (3) of sub-section (2) of section 32A. In such a case how erection of boiler can be treated as manufacturing of boiler by way of assembling the parts of the boiler and erecting it in a factory ? We cannot equate it with a weigh bridges which are manufactured after assembling some different parts and can be removed and known in market with a distinctive name than the parts assembled. In case in hand the parts of boiler were known as parts of boiler and not in the different names in the commercial market. Therefore, no new product has come into existence. Thus, the case relied upon by learned counsel Dr. Pal has no application on the facts of this case.
10. In the result, we answer the question referred in these reference applications in negative, i.e., in favour of the Revenue and against the assessee. These reference applications are disposed of accordingly.
All parties are to act on a Xeroxed signed copy of the operative part of this judgment on the usual undertaking.