Judgment:
1. This appeal by the assessee for the assessment year 1984-85 is directed against the order of the Commissioner of Income-tax (Appeals) dated 4-5-1988 and the controversy raised relates to disallowance of carry forward of investment allowance of Rs. 38,675 claimed on Leaf Carrying Basket Trailers.
2. The assessee-company in the relevant period derived income by sale of tea grown and manufactured by it. The assessee claimed investment allowance on machinery and plant employed by it including Leaf Carrying Basket Trailers (hereinafter referred to as Trailers'). There is no discussion in the assessment order regarding disallowance but before the CIT (Appeals) it was stated that "presumed reason for the disallowance" was that the Trailers were considered transport vehicles.
3. In appeal before the CIT (Appeals) it was contended that the Trailers were not intended for transport of goods or passengers from one point to another on road. The Trailers were used for carrying green leaves from garden to factory where they were processed and manufactured to have marketable tea. It was stated that without use of Trailers process of manufacture of tea would be incomplete. It was accordingly contended that Trailers should be treated as an item of machinery and investment allowance allowed thereon. Reliance was placed before the CIT (Appeals) on the decisions of the Tribunal, Bombay Bench dated 21 -7-1973 (ITA No. 1615/Bom./72-73) and also of Hon"ble Calcutta High Court in the case of Orissa Minerals Development Co. Ltd. v. CIT[ 1979] 117 ITR 434. The CIT (Appeals) held that disallowance of investment allowance on facts and circumstances of the case was justified. The decisions cited before him as per CIT (Appeals) were not on all fours with the facts in the assessee's case. The CIT (Appeals) held that the Trailers in question were not used or contributed directly to the manufacturing process. It was not an item of machinery categorised in Appendix I of Income-tax Rules providing for rates of depreciation. In the above view of the matter, the CIT (Appeals) rejected the assessee's appeal. Hence, the present appeal before the Tribunal.
4. We have heard the parties. Before us, Shri P.T. Sanyal, the learned counsel for the assessee, stated that it was not necessary that the Trailers for getting benefit of investment allowance should be directly engaged in the manufacture of articles. In this connection, Shri Sanyal cited authorities holding that items like tube wells, weighing machines, air-conditioners and electric fans, internal telephone system, data processing machines were held to be entitled to investment allowance development rebate. Shri Sanyal further relied on Rule 8 of the Income Tax Rules, 1962 providing for computation of income derived from sale of tea grown and manufactured as if it was income from business. It was accordingly contended that carriage of green leaves to factory was an integral part of a single activity involved in sale of tea grown and manufactured. The departmental representative, on the other hand, relied on the order of the CIT (Appeals) on this point.
5. Having considered the rival submissions of the parties, we are of the view that the assessee is entitled to investment allowance on the Trailers. Similar allowance has been granted to the assessee on other items and there is no controversy about the assessee being an "industrial undertaking" duly qualified to claim investment allowance under Section 32A of the Income-tax Act, 1961. The dispute before us is limited to claim on Trailers employed for carrying plucked leaves from garden to factory. The assessee's claim has been rejected on the ground that Trailers employed for carriage of leaves did not form part of machinery used for production or manufacture of tea. Carriage of green leaves is only a part of agricultural process.
6. In our opinion the objection raised by the Revenue is not well-founded. "Income from sale of tea grown and manufactured is to be computed under Sub-rule (1) of Rule 8 of the Income-tax Rules as if it was income derived from business and 40 per cent of such income is deemed to be income liable to tax." A perusal of the aforesaid Rule 8(1) makes it clear that under the said rule income from sale of tea grown and manufactured by a seller has to be computed as if it was income derived from business which would imply that deduction allowable under the Act in respect of income derived from business would be allowed in the case of income derived from sale of tea grown and manufactured. [Reproduced observations of the Supreme Court from the case of Tata Tea Ltd. v. State of West Bengal [1988] 173 ITR 18]. There is no doubt that carriage of green tea leaves to the factory taken as a single activity cannot be held to be "manufacture". It is a pari of agriculture only. But then special provisions of Rule 8 and consequences thereof must be noted. Income from sale of tea grown and manufactured consists of two components: (i) Tea Grown and (ii) Tea Manufactured. The deeming provision of Rule 8(1) takes integrated income of both the activities as business income. There is prohibition on account of fiction in sub Rule (1) of Rule 8 to single out any activity of integrated income and consider it separately.
7. It is accepted and established rule of construction of deeming provision that legal fiction created has to be carried to its logical conclusion. The legal proposition we are referring to is best illustrated in the following oft-quoted observations of Lord Asquith in East End Dwellings Co. Ltd. v. Vinsbwy Borough Council [1952] AC 109: If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so. also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of tents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
There is no dispute that the income of the company was computed and charged to tax under Rule 8(1). Under the said sub-rule "income derived from sale of tea grown and manufactured" is to be computed "as if it were income derived from business". Thus whatever may be the nature of income sub-rule makes it a business income. The imagined state of affairs require that it be treated as business income. Having done so natural consequences and incidents have to follow and one is prohibited to boggle down one's imagination and still hold that it is not business income. To do so would be to ignore the inevitable consequences and corollaries following imaginary state of affairs as per requirement of law. It is, therefore, not possible to de-thread any activity like carriage of green leaves as agriculture only. The rule of prohibition laid down by Lord Asquith and consistently upheld and followed by the Supreme Court in several cases is fully applicable. Thus, the Trailers employed for carriage of leaves are part of machinery used in integrated business of sale of tea grown and manufactured. There is no justification for denying claim of investment allowance on Trailers.
For all the foresaid reasons, we accept the claim of the assessee and direct the Assessing Officer to allow investment allowance on Trailers in question.