ORDER
Per Shri D. S. Meenakshisundaram, Judicial Member – The Revenue object to the order of the Commissioner of Income-tax (Appeals) holding that the assessee is entitled to investment allowance under sec. 32A of the Income-tax Act, 1961 in respect of machinery used by it for sand blasting.
2. The assessee is a partnership firm carrying on business as Interior Decorators and Contractors. This appeal arises out or their Income-tax assessment for 1983-84, for the previous year ended 31-3-1983. the assessee claimed a sum of Rs. 52,027 as investment allowance in respect of an Air compressor used for sand blasting. It was stated before the Income-tax Officer that the Air compressor was used for industrial purposes and also for sand blasting. which is a scientific method of surface treatment of metal, before applying protective paints. It was therefore claimed that the assessee was entitled to investment allowance in respect of this Air Compressor.
3. The Income-tax Officer did not accept these contentions. He held that the assessee had merely used the Air Compressor for treatment of metal and had not produced or manufactured any of the articles referred to in section 32A. He therefore disallowed the assessees claim for investment allowance.
4. The assessee appealed against this disallowance to the Commissioner of Income-tax (Appeals) and contended as follows :
“Manufacturing activity consists of many stages. Most of the manufacturing concerns get some of the processes done by other units. Aalthough we are basically interior decorators, we have specialised in Industrial painting as will be evident from our letter head. One of the specialised item of painting is by sand blasting and for this purpose air compressor is necessary. The air compressor is not used by us for any other items of work. During the year not used by us for any other items of work. During the year 1983-84 we have done specialised sand blasting and painting work for the following companies who are manufacturers :
(i) L & T McNeil Ltd. Mount Poonamalle Road, Madras – 89.
(ii) Best & Crompton Engg. Ltd. BDS Factory, Ambattur.
(iii) Garware Paints Ltd. madras-2.
(iv) J & S Enterprises, Sholavaram Road, Madras-53.
(v) Jaisum & Enterprises Controls Pvt. Ltd. Ambattur, Madras-1.
(vi) Trailers India, Pantheon Road, Madras.
(vii) Filaments & Windings, Coimbatore.
(viii) Chitram & Co. Royapuram.
(ix) National Switchgear, Nungambakkam.
Sand blasting was done at the site of above Enginerring companies and some constituent items of products manufactured by them such as
Dust filler, top links, side plates, channel switch board, panel frames, Ms transformer Box, Adopter angles, Tanks, control panels, cubicles, BHPV panels, Trunks, Hoist Panel Box covers.
Sand blasting is a scientific method of surface treatment of metal and this is an essential process in the manufacture of final product. And it may thus be seen that we are actually in the manufacturing activities and we use an Air Compressor, labour and materials required in this process of manufacturing.
Hence we submit we have fulfilled criteria for claiming investment allowance as spelled under section 32A of the IT Act.” (sic)
5. The Commissioner of Income-tax (Appeals) examined the assessees contentions in the light of the certificates produced before him and found that sand blasting is a part of the manufacturing process. He further found that in certain manufacturing processes and for indsutrial painting sand blasting process is a must and that it is also used in all the processes where instrumentation process is done and for surface treatment. The Commissioner (Appeals) therefore held that sand blasting is part of manufacturing and that therefore the assessee was entitled to investment allowance on the machinery used for the purpose. According, he directed the Income-tax Officer to allow the assessees claim for investment allowance and allowed the assessees appeal. Aggrieved by this order of the CIT (Appeals), the department has come upon on further appeal to the Tribunal.
6. Shri K. V. Ananthachari, the learned departmental representative relied on the findings of the Income-tax Officer and the provisions contained in sec. 32A (2) (b) (iii) of the Act and contended that in order to qualify for investment allowance the assessee should fulfill the following two conditions, namely (i) the assessee must be an industrial undertaking, and (ii) the machinery in respect of which investment allowance is claimed must be used by the assessee for the construction, manufacture or producation of any articles or thing. The learned departmental representative submitted that what the assessee does is only processing of articles already manufactured by others and that the assessee does not manufacture any particular article or things, which is saleable or marketable. Shri Ananthachari submitted that the sand blasting done by the assessee may be a part of the process of manufacturing the article or things, but the said process did not manufacture or produce any article or thing to constitute the assessee as a manufacturer or producer of an article or thing, as required by sec. 32A of the Act. He argued, what the assessee did was only carrying out of job works for charges, which would not amount to manufacture or production of articles or things for sale. In short, the argument of Shri Ananthachari was that the assessee-firm itself should manufacture or produce a marketable article or things for sale in order to qualify for investment allowance under sec. 32. of the Act. In support of his submissions, Shri Ananthachari relied on the decision in the case of CIT v. Minocha Bros. (P.) Ltd. [1986] 160 ITR 134 (Delhi) and in the case of ITO v. Ahura Shipping & Engg. Co. (P.) Ltd. [1984] 8 ITD 435 (Bom), Shri Anathachari therefore argued that the order of the CIT (Appeals) should be set aside and that the disallowance made by the ITO should be restored.
7. Shri Baskar, the learned counsel for the assessee filed before us a paper book containing the materials that were filed before the CIT ( Appeals) and submitted that apart from the business carried on by the assessee as Interior Decorators, they were also carrying on business in specialised process of sand blasting, an Air Compressor in necessary. The learned counsel referred us to the affidavit of one S. Narayanaswamy, one of the partners of the assessee-firm at page 1 of the paper book and and pointed out that the assessee-firm had a sand blasting Air Compressor during the previous year and had used the same for the purpose of sand blasting in the process of manufacture of the products of the assessees customers. He referred to the certificate dated 14-8-1984 given by Hydraulic Equipments of Ambattur, Madras and by JH Instruments Private Limited of Madras dated 4th August, 1984 to prove that sand blasting equipment was used by the assessee for the purpose of sand blasting on behalf of these customers by installing them in their premises and that sand blasting is a process involved in the manufacture of articles manufactured or produced by there two customers. He also referred us to the literature issued by British Paints under the heading ” Protection Special Coatings Division” under the head “Surface Preparation”, a copy of which appears at pages 7 to 11 of the paper book. He particularly relied on the literature appearing at pages 9 to 11 to prove how sand blasting is itself a manufacturing process of metal surfaces. He also relied on the copies of invoice raised by the assessee on its customers at pages 13 to 19 of the paper book and also to the details of invoices relating to sand blasting done by the assessee on behalf of its customers at page 21 of its paper book. Shri Baskar pointed out that the total receipts from sand blasting done by the assessee for its customers amounted to Rs. 96,598 during the previous year. Relying on these materials, the learned counsel for the assessee argued that the CIT (Appeals) had rightly accepted the assessees claim for investment allowance. He pointed out that the Special Bench of the Tribunal in the case of ITO v. First Leasting Co. of India lTD. [1985] 13 its 234 (Mad.) analysed the provisions of sec. 32A of the Act and held at page 252 in para 31 that a leasing company would also be entitled to investment allowance in respect of plant and machinery leased out by it. He also relied on the decision of the Madras High Court in CIT v. perfect Liners [1983] 142 ITR 654 where it has been held that the word manufacture has to be understood in a wide sense and that after the rough casting was polished, the product was a new product which was utilised as a component in internal combustion engines in the said case, and that therefore, the assessee in the said case would be entitled to the grant of higher development rebate. He also relied on the decision in Sri Balaji Metal Finishers v. ITO [1986] 15 ITD 26 (Hyd) (SB). In this decision it was held that an assessee who was merely undertaking job works of electroplating would be entitled to investment allowance under sec. 32A in respect of the machinery used in electroplating and that the business of electroplating involved manufacture or production of an article or thing The learned counsel also relied on the decision in the case of CWT v. K. Lakshmi [1983] 142 ITR 656 (Mad). wherein it has been held that for the purpose of getting the benefit of exemption under sec. 5(1) (xxxii) of the Wealth-tax Act, read with its Explanation, it may not be necessary that the assessee should be personally engaged in the manufacture, but it is sufficient if it employed its own labourers and that in respect of ” processing”, it will not be correct to state that all the processes resulting in the end-manufacture must be carried out by the assessee himself, and that accordingly if the assessee had done some process which ultimately had brought about the end-product, such an assessee would be entitled to the benefit of the exemption.
8. Shri Bhaskar, the learned counsel for the assessee, argued that the decision of the Delhi High Court in the case of Minocha Bros. (P.) Ltd. (Supra) was a case of builders and the question that was considered by the Delhi High Court was whether a company carrying on business as builders could be considered as an industrial company for the purpose of section 2(6) (c) of the Fiance Acts 1971 and 1972 and that therefore the said decision would not be applicable to the facts of the present case. He next submitted that the decision in Ahura Shipping & Engg. Co. (P.) Ltd.s case (Supra) would also be inapplicable to the facts of the present case, in view of the decisions of the Madras High Court relied on by him as well as the special Bench decision in the case of First Leasing Co. Ltd. (Supra) and the decision of the Third Member in the case of Sri Balaji Metal Finishers (Supra). The learned counsel therefore argued that the decision of the CIT (Appeals) allowing investment allowance in respect of the Air compressor used by the assessee for sand blasting was correct and that the same should be upheld.
9. We have carefully considered the rival submission so parties in the light of the materials placed before us and the decisions cited above.
10. In the affidavit dated 8th August, 1984 filed by the assessee before the CIT (Appeals), it was stated by S., Narayanaswamy, one of the partners of the assessee-firm as follows :-
“I am a partner of Messrs N. Venkataraman, carrying on business at 192, North Usman Road, T. Nagar, Madras-17. I am an Engineer possessing technical qualifications and experience in handing machines machine tools, etc. The Firm Messrs N. Venkataraman have purchased a Sand Blasting Air Compressor, which is used for sand Blasting Air Compressor, which is used for sand blasting. This is a a process in the manufacture of various components and parts for machineries, structurals etc. Various manufacturers, mostly Small Scale Industries which manufacture machine parts. Components etc. require the sand blasting Air Compressor to be installed in their premises for the purpose of sand blasting in the process of manufacture of their products.
I am fully conversant with the technical aspects involved in the above process. The sand blasting Air Compressor is installed in the factory of the manufacturer and is used for the manufacture of the components.
It is clear from this affidavit that sand blasting is process in the manufacture of various components and parts of machineries structural etc. and that various Small Scale Industrial manufacturers who manufacture machine part components have utilised the services of the assessee-firm for carrying out the process of sand blasting. It is to carry out this sand blasting process the assessee had purchased an Air Compressor and had utilised the same in this specialised type of painting process as explained by it before the CIT (Appeals).
11. The two certificates at pages 3 and 5 of the assessees paper book show that the assessees sand blasting equipment was utilised by the assessee in the process of manufacture of those two Small Scale Industries, namely Hydraulic Equipments Ambattur, Madras, and JH Instruments Private Limited, Madras.
12. In the printed literature issued by British Paints under the heading Protection Special Coating Division, Surface Preparation blasting is described in the following words :-
“5. Blast Cleaning :
Blast Cleaning is a process by which the furnace is prepared by bombardment with small hard particles, directed at the surface at high velocity resulting in the dislodging of all scale and underlying excises. To some extent, even the steel surface itself is ruptured. Many varieties of abrasives are used and these are chilled iron grit or shot, malleable from grit or shot. non-metallic grit or shot sand or silica, slag from steel plants, etc. Choice of abrasives depends on the required extent of cleaning and the surface profile required after cleaning.”
Blast cleaning standards are also set out in this literature and there is also a chart at page 11 setting out the results of tests on painted steels as Sheffield (Industrial Atmosphere) with reference to three methods of surface preparation, namely (1) weathered and wire brushed, (2) Pickled, and (3) Blast cleaned. It is seen from this chart that the expected lifetime for blast cleaned surface for two coat scheme was 6.3 years and for four coat scheme 10.3 years as against lesser life for the other two methods of surface preparation.