Commissioner of Income Tax vs Mount Shivalik Breweries Ltd.

N.K. Sodhi J.—This order will dispose of three Income Tax Cases Nos. 61 to 63 of 1995 in which common questions of law and fact

arise. For the sake of convenience, facts are being taken from Income Tax Case No. 61 of 1995.

This petition has been filed by the Commissioner of Income Tax, Patiala, u/s 256(2) of the Income Tax Act, 1961 (for short ""the Act""), for a

direction to the Income Tax Appellate Tribunal, Chandigarh, for referring the following questions of law to this court for its opinion :

(i) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee is

eligible for investment allowance u/s 32A and deduction u/s 80I of the Income Tax Act, 1961, in respect of new industrial unit set up at

Chandigarh, i.e., ''spirit bottling plant'' when the assessee did not qualify the pre-condition of the maintenance of separate books of account and not

indulged in the manufacturing activities ?

(ii) In the alternative, if the claim of the assessee is accepted, whether, on the facts and in the circumstances of the case, the Income Tax Appellate

Tribunal was right in law in directing to allow investment allowance u/s 32A and deduction u/s 80I when the machinery was being used for

manufacturing or production of any articles specified in the Eleventh Schedule of the Income Tax Act, 1961 ?

The following additional question of law was claimed in Income Tax Case No. 62 of 1995 :

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Commissioner

of Income Tax could not intervene u/s 263 to charge interest u/s 216 after allowing opportunity of being heard to the assessee ?

The order of assessment was passed u/s 143(3) of the Act for the assessment year 1984-85 on March 31, 1986. The Assessing Officer

allowed the benefit of investment allowance u/s 32A of the Act but the assessee''s claim for deduction u/s 80I was disallowed. However, on an

application filed u/s 154 of the Act, the benefit of deduction u/s 80I was also allowed. Thereafter, the Commissioner of Income Tax exercised his

jurisdiction u/s 263 of the Act and held that before the assessee could be granted relief under sections 32A and 80I of the Act, it was necessary

for it to maintain separate books of account and also show that it has set up a new industrial unit. The Commissioner found that no separate

account books had been maintained by the assessee in regard to its spirit bottling plant at Chandigarh and that there was no manufacturing activity

involved in the bottling plant. According to the Commissioner, the basic conditions for the grant of relief under the aforesaid sections were not

satisfied. Accordingly, the assessment order was modified and the investment allowance u/s 32A and the deduction u/s 80I were disallowed.

Not being satisfied with the order of the Commissioner, the assessee preferred an appeal before the Income Tax Tribunal who after taking into

account the certificate of the internal auditor, the affidavit of the company secretary and other material on record came to the conclusion that the

assessee was maintaining separate books of account in respect of the spirit bottling plant at Chandigarh. On the question as to whether the bottling

plant involved any manufacturing activity, it was held that the original commodity, i.e., rectified spirit underwent certain processes whereby it got

converted into rum, whisky and brandy. According to the Tribunal in market parlance, rectified spirit is not the same thing as rum, brandy or

whisky and, therefore, it held that the assessee was engaged in manufacturing activity so as to be entitled to the relief under sections 52A and 80I

of the Act. The appeal filed by the assessee was consequently allowed. The Revenue filed an application u/s 256(1) of the Act, which was

dismissed, as according to the Tribunal the findings recorded by it were findings of fact and no referable question of law arose from its order dated

March 29, 1994. It is against this order that the present petition has been filed u/s 256(2) of the Act.

Having heard learned counsel for the department and after perusing the orders of the Tribunal, we are of the opinion that the following question

of law does arise from the order of the Tribunal ;

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was eligible for investment

allowance u/s 32A and to the deduction u/s 80I of the Act in regard to its new industrial unit set up at Chandigarh ?

In the result, we allow this petition and direct the Tribunal to refer the above question of law to this court along with the statement of case.