Circular No. 314 -Income Tax dated 17-9-1981
255. Investment allowance on new machinery or plant installed in small scale industrial undertaking – Computation of aggregate value for the purposes of ascertaining ‘small-scale industrial undertakings’ in terms of Explanation (2) to sub-section (2)
1. Section 32A was introduced by the Finance Act, 1976 to allow investment allowance, inter alia, in respect of new machinery or plant installed after the31st March, 1976 in a “small-scale industrial undertaking” for the purpose of business of manufacture or production of any article or thing.
2. The term “small-scale industrial undertaking” has been defined in Explanation (2) to section 32A(2) as an industrial undertaking, the aggregate value of whose machinery and plant (other than tools, jigs, dies and moulds) installed as on the last day of the previous year does not exceed Rs. 10 lakhs (in cases where the previous year ends after 31-7-1980—Rs. 20 lakhs). A question has been raised whether the term “machinery and plant”, used in this Explanation includes all machinery and plant to arrive at the monetary ceiling or whether the ceiling should be determined according to the norms laid down by the Department of Industries in this regard. According to the Department of Industries, the cost of generating sets and of extra transformers, etc., which have to be installed by the assessee as required by the State Electricity Boards will be excluded.
3. The question has been considered in consultation with the Ministry of Law. There is no express or implied legislative intendment disclosed in Explanation (2) to section 32A(2) read with section 43(3) of the Income-tax Act, which would permit exclusion of any items other than tools, jigs, dies and moulds from the value of plant and machinery. The norms laid down by the Department of Industries, unless legally incorporated in the Income-tax Act, cannot be invoked for the purpose of excluding additional items like generating sets, transformers, etc. All items of plant and machinery as on the last day of the relevant previous year other than tools, jigs, dies and moulds are, therefore, to be taken into consideration and their aggregate value will be computed for the purpose of ascertaining whether the assessee is a “small-scale industrial undertaking”.
4. The above clarification will apply, mutatis mutandis, in the case of “initial depreciation” under section 32(1)(vi). However, the definition of “small-scale industrial undertaking” for the purpose of initial depreciation given in Explanation (3) to section 32(1)(vi) is slightly different from that given for the purpose of investment allowance inasmuch as the cost of tools, jigs, dies and moulds is not to be excluded in arriving at the monetary ceiling of the value of plant and machinery.
Circular : No. 314 [F. No. 202/20/79-IT(A-II)], dated 17-9-1981.
