-1- IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T Commissioner of Vs. M/s Gotan Lime Stone Income Tax-II, Jodhpur Khanij Udyog (i) D.B.Income Tax Appeal No.41/2002 Commissioner of Vs. M/s Gotan Lime Stone Income Tax-II, Jodhpur Khanij Udyog (ii) D.B.Income Tax Appeal No.42/2002 Commissioner of Vs. M/s A.R.Enterprises(P) Income Tax, Udaipur Limited, Udaipur (iii) D.B.Income Tax Appeal No.77/2002 UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961. Date of Judgment: Sept.06, 2007 P R E S E N T HON'BLE MR.JUSTICE P.B.MAJMUDAR HON'BLE MR.JUSTICE DEO NARAYAN THANVI Mr.K.K.Bissa, for the appellants. Mr.Vikas Balia ) Mr.Anjay Kothari) for the respondents. REPORTABLE BY THE COURT : (PER THANVI J.) 1. As common questions of law with regard to the entitlement of investment allowance under Section 32A of the Income Tax -2- Act, 1961 (hereinafter referred-to as “the Act”) are involved in these three appeals, therefore, they are being disposed-of by this common judgment. Though the facts in three appeals are little bit different as referred hereunder: (i) D.B.INCOME TAX APPEAL NO.41/2002: 2. In this appeal, the assessee was carrying-on business of excavation of lime stone and sale thereof. The Assessing Officer allowed investment allowance of Rs.3,30,292/- while making assessment under Section 143(3) of the Act for the Assessment Year 1990-91 on the cost of Loaders & Dumpers vide Annex.1 but the Commissioner of Income Tax passed the order under Section 263 of the Act and held that the assessee is not entitled to investment allowance under Section 32-A of the Act by holding that the dumper/loader is a motor vehicle vide Annex.2. In appeal, the Income Tax Appellate Tribunal, Jodhpur set aside the order of the Commissioner of Income Tax and restored the order of Assessing Officer granting investment allowance on Dumpers and Loaders as not being road transport vehicle vide Annex.3. -3- (ii) D.B.INCOME TAX APPEAL NO.42/2002: 3. In this appeal also, the assessee was carrying-on business of excavation of lime stone and sale thereof and was granted investment allowance on dumpers for a sum of Rs.2,70,747 while making assessment under Section 143(3) of the Act for the Assessment Year 1989-90 vide Annex.1, but in appeal, the Commissioner of Income Tax, Jodhpur passed the order under Section 263 of the Act that dumper is a road transport vehicle and the assessee is not entitled to investment allowance on dumpers vide Annex.2. In appeal before the Income Tax Appellate Tribunal, Jodhpur, the order of the Commissioner was set aside and that of the Assessing Officer was restored by holding that assessee is entitled to investment allowance under Section 32A of the Act on the cost of purchase of new dumpers vide Annex.3. (iii) D.B.INCOME TAX APPEAL NO.77/2002: 4. In this appeal, the assessee was engaged in the business of running hydraulic excavators and tippers for Cement Companies on hire basis by realizing rent for operation of hydraulic excavators and tippers. The assessee claimed investment allowance on the hydraulic excavators and tippers -4- under Section 32 A of the Act for the Assessment Year 1992-93 for a sum of Rs.16,69,796 but the Assessing Officer declined to allow the investment allowance on the ground that plant & machinery are road transport vehicle and are not used by the assessee for his own business for the purpose of either construction, manufacturing or production of an article or thing required to be carried-on by him vide Annex.3. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax, Udaipur, who allowed the appeal and set aside the order of the Assessing Officer by holding that the machines used by the assessee are rock brokers into small pieces and not road transport vehicles and he was allowed investment allowance vide Annex.2. The Revenue went in appeal before the Income Tax Appellate Tribunal, Jodhpur, which dismissed the appeal of the Revenue vide Annex.1. 5. In all the three appeals filed by the Revenue, the orders of the ITAT have been challenged on the ground that the investment allowance granted by the Tribunal on dumpers, loaders, tippers and hydraulic excavators is against the spirit of Section 32-A of the Act. The proviso to Sub-sec(1) of Section 32A debars the road transport vehicle to be covered for the purpose of deduction on investment and it is admissible only to the assessee whose machinery or plant are owned by him and -5- wholly used for the purpose of business carried on by him. 6. Mr.K.K.Bissa, learned appearing on behalf of the Revenue has submitted that tippers and hydraulic excavators are road transport vehicle and are not used for the purpose of business carried on by the assessee, therefore, the Tribunal has wrongly allowed investment allowance on these so-called machines, which are used by the assessee for his own business, which have been claimed by the assessee for his own business in Appeal Nos.41 and 42 of 2002 and used on hire basis in Appeal No.77/2002. In support of his contention, he has placed reliance on the following judgments (1) M/s Birla Cement Works vs. State of Raj. reported in 129 Taxmann p.729; (2) Chief General Manager Jagannath area vs. State of Orissa reported in (1996) 10 SCC p.676; (3) CIT vs. Shiv Constructions reported in 165 ITR p.159; (4) N.C.Budharaj's case reported in 204 ITR p.412; (5) Builders Association of India vs. Union of India reported in 209 ITR p.877; and (6) CIT vs. Khaders International Const. reported in 213 ITR p.869 (Ker). 7. On the contrary, Mr.Vikas Balia and Mr.Anjay Kothari, learned counsel for the assessee – respondents, have vehemently argued that dumpers, tippers and hydraulic excavators are not road transport vehicles within the four -6- corners of proviso to sub-section (1) of Section 32A of the Act and are machines engaged in the business of excavation of mines by cutting them into pieces irrespective of the fact as to ultimate profit of the mines of lime stone or its pieces which goes to someone else. These excavating machines are ofcourse earth moving machines but the person who excavates mines with these machines, is carrying on business of excavation itself and is entitled to investment allowance under Section 32A of the Act. The Tribunal has rightly held while relying upon the various decisions of the High Court and the Hon'ble Supreme Court that investment allowance is admissible on these machines. In support of their contention, learned counsel have placed reliance on the following judgments (7) C.I.T. vs. Gujarat Narmada Valley Fertilizers Co. Ltd. reported in 281 I.T.R. 297(Guj); (8) C.I.T. vs. Bajrang Enterprises reported in 258 ITR 448 (Mad); (9) C.I.T. vs. Shriram Transport Finance Co. Ltd. reported in 254 ITR 558 (Mad); (10) C.I.T. vs. C.S.Anand reported in 225 ITR 573 (Pat); (11) C.I.T. vs. Sibson Construction & Co. reported in 221 ITR 468 (Gau); (12) Good Year India Ltd. vs. Union of India reported in (1997) 5 SCC 752; (13) C.I.T. vs. Mahalinga Setty & Co. reported in 195 ITR 526 (Kar); and (14) C.I.T. vs. Shaan Finance (P) Ltd. reported in 231 ITR 308 (SC). 8. We have bestowed our anxious consideration on the rival -7- contentions purforth by the learned counsel for the Revenue and Assessees. Section 32A of the Act relates to grant of investment allowance which was inserted by the Finance Bill of 1976 with effect from 1.4.1976. Clause 8 of the Finance Bill, 1976 seeks to insert a new Section 32A of the Act, which provides for the deduction of tax computable sums by way of investment allowance of the actual cost of certain new machinery which was initially twenty five percent of the actual cost of new machinery or plant, other than office appliances or road transport vehicles installed after 31.3.1976 for the purpose of business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the Ninth Schedule to the Act or of manufacture or production of any other articles or things by a small scale industrial undertaking. This scheme of the investment allowance was introduced broadly on the lines of development rebate. Though Section 32A of the Act has eight Sub-sections but for the relevancy of these appeals, Sub-section (1) with its proviso and Sub-section (2) are reproduced below: Investment allowance. 32A (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a -8- 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: Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub- section shall have effect as if for the words “twenty five per cent”, the words “twenty percent” had been substituted: Provided (further) that no deduction shall be allowed under this section in respect of - (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year. Explanation.- For the purposes of this sub-section, “actual cost” means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under sub-section (6) of Section 32AB.” (2) The ship or aircraft or machinery or plant referred to in sub-section(1) shall be the following, namely: (a) a new ship or new aircraft acquired after the 31st day of March, 1976 by an assessee engaged in the business of operation of ships or aircraft; -9- (b) any new machinery or plant installed after the 31st day of March, 1976, - (i) for the purposes of business of generation or distribution of electricity or any other form of power; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.” 9. From a bare reading of this sub-section(1), it appears that a ship or aircraft or machinery or plant specified in sub-section (2) should be owned by the assessee and wholly used for the purpose of business carried on by him. Clause-B to second proviso of Sub-section (1) of Section 32A debars road transport vehicles from the purview of deduction as investment allowance. There is no dispute with regard to the fact that in all the three appeals, loaders, dumpers, tippers and hydraulic excavators are owned by the assessee respondents. The question for determination before us is as to whether these machines are road transport vehicles and are wholly used for the purpose of business carried on by the assessee. We first take up the question of machines like tippers, dumpers and hydraulic excavators, which are either used as road transport vehicles or -10- not? 10. Under the Scheme of the Motor Vehicles Act, 1939, the “road transport vehicle” has not been specifically defined but the “motor vehicle” or “vehicle” has been defined under Section 2 (28) of the said Act, which reads as under: “(28) “motor vehicle” or “vehicle” means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chasis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty five cubic centimetres.” 11. From a bare reading of this sub-section, it is clear that any mechanically propelled vehicle adapted for use on roads is a motor vehicle but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty five cubic centimetres. So far as the dumpers, tippers and excavating machines are concerned, they are ofcourse adapted for use upon the roads and have been defined as “construction equipment vehicle” under sub-rule (ca) of Rule 2 of the Central Motor Vehicles Rules, 1989 (hereinafter referred-to -11- as “the Rules of 1989”) inserted by G.S.R.642(E) with effect from 28th July, 2000, which reads as under: “2.Definitions.- In these rules, unless the contest otherwise requires.- ..... (ca) “construction equipment vehicle” means rubber- tyred (including pneumatic tyred), rubber-padded or steel- drum wheel mounted, self-propelled, excavator, loader, backhoe, compactor roller, dumper, motor grader, mobile crane, dozer, fork-lift truck, self-loading concrete mixer or any other construction equipment vehicle or combination thereof designed for off-highway operations in mining, industrial undertaking, irrigation and general construction but modified and manufactured with “on or off” or “on and off” highway capabilities. Explanation.- A construction equipment vehicle shall be a non-transport vehicle the driving on the road of which is incidental to the main off-highway function and for a short duration at a speed not exceeding 50 kms per hour, but such vehicle does not include other purely off-highway construction equipment vehicle designed and adopted for use in any enclosed premises, factory or mine other than road network, not equipped to travel on public roads on their own power.” 12. Under this Clause, “excavator”, “loader” and “dumpers” have been included as “construction equipment vehicle” and are termed as “non-transport vehicle” under the Explanation given to this clause. A “Non-transport vehicle” has been defined under the Rules of 1989 as a motor vehicle under sub-rule (h) of Rule 2 of the Rules of 1989 by GSR 338(E) with effect from 26.3.1993, which reads as under: -12- “2.Definitions.- In these rules, unless the contest otherwise requires.- ..... (h) “Non-transport vehicle” means a motor vehicle which is not a transport vehicle. 13. It is clear from the perusal of the above definition under the Act and the Rules that vehicles of special nature like dumpers, tippers and excavators are non-transport vehicle but they are motor vehicle within the definition of Section 2(28) of the Act. Dis-entitlement of investment allowance under Section 32A of the Act is for the road transport vehicles and not on all motor vehicles including “construction equipment vehicles” which are “non-transport vehicles”. Whether the owners of the dumpers, tippers or hydraulic excavators are entitled for investment allowance under Section 32A of the Act or not, has been elaborately discussed by various High Courts and Hon'ble Supreme Court. 14. In C.I.T. vs. Gujarat Narmada Valley Fertilizer Co.Ltd. (supra 7), the Gujarat High Court while interpreting the words “road transport vehicle”, has held that the tractor-trailers would not fall within the meaning of road transport vehicles and that assessee is entitled to claim investment allowance. -13- 15. In C.I.T. vs. Bajrang Enterprises (supra 8), the Madras High Court held that the investment in the dumpers have been made by the assessee and the dumpers having been used for the purpose of mining, investment allowance was clearly allowable. 16. In C.I.T. vs. Shriram Transport Finance Co. Ltd.(supra 9), the same proposition was laid down by the Madras High Court on the mobile crane used in quarrying operations, which was not termed as road transport vehicle but was termed as an item of machinery for the purpose of depreciation under Section 32 and investment allowance under Section 32A of the Act. 17. In C.I.T. vs. C.S.Anand (supra 10), the Patna High Court has held that the dumpers are not road transport vehicles and the Tribunal was right in holding that investment allowance was allowable on the cost of new dumpers. 18. In C.I.T. vs. Sibson Construction and Co. (supra 11), the Gauhati High Court held that the dumper is an earth moving machinery engaged in heavy construction works like dam and the rule making authority has not stated that earth moving machinery was required to do some more movement on the earth and the investment allowance was allowed on the dumper -14- under Section 32A of the Act. 19. Hon'ble Supreme Court in Good Year India Ltd. vs. Union of India (supra 12), held as under: “10. A close reading of the definition of “motor vehicle” in Item 34 reveals that the striking ingredient thereof is that it should have been “adapted for use upon roads”. Merely because the areas on which such heavy-movers traverse might sometimes include roads also is not enough to hold that they were “adapted for use upon roads”. Such use of the heavy-mover on the road may only be ancillary or incidental to the main use of it. Emphasis in the definition must be on the words “use upon road” as those words would denote the principal or dominant use and not where it may move incidentally.” Though this was a matter of Central Excises and Salt Act, 1944 but the question of refund was there about the heavy motor vehicle adapted for use upon the roads such as dumpers and earth movers as accessible to excise duty. 20. The law cited by the learned counsel for the Revenue is distinguishable from the facts of the present case because in M/s Birla Cement Works' Case (supra 1), it was held that dumpers are motor vehicles within the definition of Section 2(28) of the Act and are entitled to be taxed under the Rajasthan Motor Vehicles Taxation Act. -15- 21. In Chief General Manager's case (supra 2), the dumpers were subjected to tax under the Orissa Motor Vehicles Taxation Act, 1975 because they were running on the roads. 22. In Shiv Construction vs. C.I.T. (supra 3), the Gujarat High Court held that dumpers are road transport vehicles and are not entitled to development rebate under Section 33A of the Act. That was a case of development rebate under Section 33A of the Act and the question was not examined on merit, as the counsel for the assessee conceded that dumpers are road transport vehicles. In that case, the Court further observed that the Revenue cannot take up an inconsistent stand that the dumpers were road transport vehicles for the purpose of development rebate and that they were not so for the purpose of depreciation. 23. Thus, from the decisions, referred-to above, it can safely be said that under the Motor Vehicles Act, 1939, the dumpers, tippers and hydraulic excavators are construction equipment vehicles within the definition of Section 2(ca) of the Act and are non transport vehicles by virtue of explanation attached to this definition and cannot be categorized as road transport vehicles for the purpose of entitlement of investment allowance under Sec.32A of the Act. 24. The definition of construction equipment vehicle being a -16- non transport vehicle was inserted as late as in the year 2000 and the matters in hand are of earlier assessment year but while interpreting the provisions of a Section, the Court can take aid from the aims & objects of the Act appended with the Bill, which throw light on the legislative intent. Ofcourse, the road transport vehicle was not defined but every transport vehicle is a road transport vehicle which carries passengers or goods. A vehicle which does not carry so and is engaged in the business of excavation are earth moving machines and can safely be termed as non transport vehicle by virtue of Rule 2(h) of the Rules of 1989 inserted with effect from 26.3.1993, when the Commissioner of Income Tax decided the appeals. 25. In view of what is stated above, we find no error with the finding of the learned Tribunals that construction equipment vehicles, not being road transport vehicles, are entitled to investment allowance under Section 32A of the Act. 26. The next question which arises for consideration is with regard to the entitlement of investment allowance in respect of a machinery or a plant owned by the assessee which is wholly used for the purpose of business carried on by him. So far as the Appeals No.41 and 42 of 2002 filed by the Revenue against M/s Gotan Lime Stone Khanij Udyog are concerned, there is no -17- dispute that in both the appeals, the assessee was carrying-on business of lime stone and sale thereof and the loaders & dumpers were used by the assessee for its own business and were owned by it. But in the Appeal No.77/2002, the assessee was engaged in the business of running hydraulic excavators and tippers for Cement Companies on hire basis by realizing rent for operation of hydraulic excavators and tippers. The investment allowance on the purchase of these machines was disallowed by the assessing authority by treating them as road transport vehicles not being used by the assessee for his own business. But the Commissioner of Income Tax and the Tribunal both allowed the investment allowance. Learned counsel for the Revenue has argued that the orders of the Commissioner of Income Tax and the Tribunal are contrary to the spirit of Section 32A of the Act because of the fact that the assessee is not engaged in any business carried on by him but the machinery which is owned by the assessee, has been hired to various Cement factories which are carrying on the business of Cement, where the lime stone is extracted from the mines. According to him, a contractor or lessee or licensee engaged in the business of contract, cannot claim benefit under Section 32A of the Act, whereas the learned counsel appearing for the assessees have countered the arguments with the scheme of the Act and also on the basis of the law cited by them. -18- 27. It is not in dispute that the tippers and hydraulic excavators which are used by the assessee in Appeal No.77/2002 are owned by him but they are engaged in the business of letting out the same on hire basis for Cement factories. As referred-to above, the scheme of investment allowance introduced with effect from 1.4.1976 by the Finance Act of 1976 has taken the shape of development rebate which is granted under Section 33 of the Act. Assessee cannot ofcourse claim benefit of both the Sections in the same assessment year. Now, the Section 32A of the Act has been omitted by the Finance Act of 1990. During the applicability of these provisions under Section 32A of the Act, the words “wholly used for the purpose of business carried on by the assessee” have been interpreted by the Courts on the facts of a given case, but while interpreting the language of this provision on investment allowance, the Court has also to look into the the language of depreciation allowance given under Section 32 of the Act.