ORDER
B.L. Chibber, A.M.
1. The only grievance projected in this appeal by the Revenue is that the learned CIT(A) is not justified in directing the AO to allow the assessee’s claim for investment allowance under Section 32A of the IT Act.
2. The assessee is a registered firm and is engaged in processing and retreading of old tyres. It claimed investment allowance under Section 32A on new machinery of the value of Rs. 4,58,637 which was used for retreading of tyres. The AO was of the view that investment allowance under Section 32A is admissible on machinery or plant used for manufacture or production of any article or thing, not specified in Eleventh Schedule. The AO was also of the view that the activity of retreading tyres does not amount to production or manufacture of any article or thing. He accordingly held that the assessee was not entitled to investment allowance under Section 32A of the Act. In support of his view, the AO relied upon the decision of the Tribunal, Bombay Bench in Tyreage (P) Ltd. v. ITO (1982) 14 TTJ (Bom) 438 where it was held that tyre retreading does not amount to manufacturing.
3. On appeal, the learned CIT(A) held that the assessee-firm was engaged in manufacture of articles, viz., retreading tyres and, accordingly, he directed the AO to grant investment allowance under Section 32A of the Act, subject to fulfilment of other conditions as laid down by the IT Act, 1961. In support of his decision, the learned CIT(A) relied upon the decision of the Special Bench of the Tribunal, Bangalore, in ITO v. General’s New Tread (1985) 23 TTJ (Bang)(SB) 259 : (1985) 13 ITD 460 (Bang)(SB).
4. Shri P.V. Kulkarni, the learned Departmental Representative, brought to our notice a recent judgment of the Madras High Court in the case of CIT v. Madurai Pandian Engg. Corporation Ltd. (1999) 239 ITR 375 (Mad) and submitted that the Hon’ble Madras High Court has held that the business of tyre retreading does not amount to production of a new article and accordingly, the AO was justified in rejecting the claim of the assessee under Section 32A.
5. Shri Sushant S. Phadnis, the learned counsel for the assessee, explained the various processes involved in tyre retreading and submitted that after retreading of an old tyre, a new article/thing comes into being and accordingly, the assessee was entitled to investment allowance under Section 32A, In support of his contentions, he relied upon the decision of the Bangalore, Special Bench, in General’s New Tread (supra). He further relied upon the judgment of the Delhi High Court in the case of Addl. CIT v. Kalsi Tyre (P) Ltd. (1981) 131 ITR 636 (Del) and submitted that the High Court had held that the assessee employed certain industrial processes to worn out tyres and gave it a new lease of life and the process, though not equivalent to the manufacture of a new tyre, stopped very little short of it. It was further held that the nature of the activity of the assessee, which was processing, was akin to an industrial or manufacturing activity. The learned counsel further relied., upon the decision of this Bench in the case of M.B. Chemicals v. Dy. CIT (2001) 70 TTJ (Pune)(TM) 278 : (2001) 76 ITD 1 (Pune)(TM) where it was held, “simply because the finished product has the same chemical composition as the raw material from which it is made, it does not follow that the process involved does not amount to manufacture.” In the light of above decisions, the learned counsel concluded that the CIT(A) was justified in directing the AO to allow the claim of the assessee under Section 32A.
6. We have considered the rival submissions and perused the facts on record. The Hon’ble Madras High Court in the case of Madurai Pandian Engg. Corpn. Ltd. (supra) has held as under :
“The word ‘production’ or ‘produce’ has been used in Section 80HH of the IT Act, 1961, in juxtaposition with the word ‘manufacture’ and it would take in bringing into existence new goods by a process which may or may not amount to manufacture. The article referred to in the section, therefore, has reference to new articles and brought into existence by a process of manufacture or by any other mode, which can be regarded as production. The resultant article whether it is by manufacture or by way of production must be a new article. The term ‘new’ is not found in the section. It must be held to be implicit in the word ‘manufacture’. Having regard to the fact that the word ‘production’ or the word ‘produce’ is used in juxtaposition with the word ‘manufacture’ these terms also must be regarded as referring to production, which brings into existence a new article. When a tyre wears out, its life may be renewed by retreading. A different and distinct commodity cannot be said to have come into existence as a result of retreading.”
In the light of above observations and following the judgment of the Hon’ble Supreme Court in the case of P.C. Cheriyan v. Mst. Barfi Devi AIR 1980 SC 86, the Hon’ble Madras High Court has held that the Tribunal was not right in holding that the business of tyre retreading amounted to the production of a new article entitling the assessee to the relief under Sections 80J and 80HH of the IT Act. In our view, the ratio laid down by the Hon’ble Madras High Court squarely applies to the facts of the case before us and accordingly, we hold that the AO was justified in rejecting the assessee’s claim under Section 32A of the Act.
7. Now, coming to the decisions relied upon by the learned counsel, the decisions in the case of General’s New Tread (supra) and of this Bench in the case of M.B. Chemicals (supra) are by the Tribunal and it is settled law that the judgment of a High Court prevails over a judgment of the Tribunal. In view of the judgment of the Hon’ble Madras High Court referred to supra, the above decisions of the Tribunal are of no assistance to the assessee. As regards the judgment of the Delhi High Court in the case of Kalsi Tyres (P) Ltd. (supra), it is noted that the Delhi High Court had not taken into consideration the judgment of the Hon’ble Supreme Court in the case of P.C. Cheriyan v. Mst Burfi Devi (supra) and accordingly, the judgment of the Hon’ble Madras High Court which is based on the judgment of the Hon’ble apex Court has to be preferred over the judgment of the Delhi High Court. Accordingly, following the aforesaid judgment of the Hon’ble Madras High Court, we reverse the finding of the CIT(A) and decide the issue in favour of the Revenue.
8. In the result, the appeal is allowed.