THE HON'BLE SRI JUSTICE B.PRAKASH RAO And THE HON'BLE SRI JUSTICE R.KANTHA RAO R.C.NO.68 OF 1996 ORDER: (Per the Hon’ble Sri Justice B.Prakash Rao) This revision arises out of a reference made under Section 256 (1) and 256 (2) of the Income Tax Act, 1961 {“the Act” for brevity}, for decision of this Court on the question as to whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the activity of the assessee in breaking the ship into parts and selling the scrap amounts to ‘manufacture’ entitling the assessee to investment allowance. Heard the learned Standing Counsel for the Revenue and Sri C.Kodanda Ram, learned Senior Counsel appearing for the assessee. Briefly stated, the facts of the case are that assessee is a company engaged in ship breaking and selling the scrap. The said assessee claimed investment allowance of crane and weighing machines, totalling to Rs.16,51,090/-. The case of the assessee was that the ship breaking and selling the scrap is a manufacturing activity and therefore, he claimed that he is entitled to the investment allowance, whereas the same has been contested by the Revenue denying that such an activity would not fall within the mischief of the manufacturing activity. The Income Tax Officer held that the ship breaking activity is neither manufacturing nor constructing activity and it is only removing the parts from the ship and selling and therefore, the assessee is not entitled to any investment allowance. Further, the Commissioner of Income Tax allowed the appeal of the assessee and the claim made by him, relying upon the decision reported in CST v. Indian Metal Traders[1], wherein it was held that the ship-breaking activity amounts to manufacturing. As also the decision of the Madhya Pradesh High Court reported in G.R.Kulkarni v. The State[2], wherein also it was held that the activity of breaking of boulders into metal was held to be ‘manufacture’. On further appeal to the Tribunal, reliance was sought to be placed on the decision reported in Pio Food Packers[3] and also the decision of the Madhya Pradesh High Court in Visham v. CST[4]. On considering the same, the Tribunal held that those decisions are quite distinguishable and since the question involved is squarely covered by the above decisions, the ship-breaking activity fall within the mischief of manufacturing and upheld the order of the CIT. Hence, the reference. Learned Standing Counsel appearing for the Revenue submits that for considering the investment allowance, the relevant decision is under Section 32A of the Act and the same could not in any circumstances appears only to the owner of the ship or aircraft or machine and he is meddling with it or not otherwise in that of ship making and that activity cannot be treated as investment allowance. Learned counsel appearing for the respondent sought to place reliance on the decision reported in Vijay Ship Breaking Corporation v. CIT (SC)[5], wherein the Apex Court considered the provisions of Sections 80HH and 80-I of the Act and held that the ship breaking activity is not a manufacturing activity and more so, only a production activity. Considering the aforesaid submissions and on perusal on the material available on record, it is seen that in regard to the question which came up for consideration, it is relevant to have a look at Section 32A of the Act, which reads as under. Investment Allowance 32A (1) In respect of a ship or a aircraft or machinery or plant specified in Sub-Section (2), which is owned by the assessee and wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the proviso of this Section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee: Further reliance was sought to be placed by the assessee on sub- clause (ii) thereof, which reads as under. 32A (2) The ship or aircraft or machinery or plant referred to in Sub- Section (1) shall be the following, namely :- (b) any new machinery or plant installed after the 31st day of March, 1976, - (ii) In a small-scale industrial undertaking for the purposes of business or manufacture or production of any article or thing. From the above, it is contended that the expression manufacturing would have also include the ship breaking whereas the learned Standing Counsel sought to distinguish the decision cited by the assessee that the said decision was considering the provisions of Sections 80HH and 80-I of the Act and therefore, relying on the same for the purpose of consideration it may be treated as investment allowance. Be that as it may, irrespective of the fact that whether the decision takes any provision, the ultimate approach should be to see that whether similar aspect has come up for consideration unless otherwise distinguished. The aforesaid Sub-clause to Section 32A of the Act squarely mentions about the manufacture. In the aforesaid decision of the Supreme Court, it was held that whether the same can be treated as such and on facts also the said decision squarely applies to the present situation where the present activity is also that of ship breaking. In view of the same, we hold that the purpose of Section 32A of the Act squarely fall within the mischief of Section 32A of the Act for claiming the benefit of investment allowance. Hence, the reference is answered in the affirmative. _________________ (B.PRAKASH RAO, J) ________________ (R.KANTHA RAO, J) 25th February 2010 RRB [1] 41 STC 169 [2] 8 STC 294 [3] 46 STC 63 [4] 24 STC 1969 [5] (2009) 314 ITR 309 (SC)