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In an amendment made under section 32 of the income tax Act, 1961 it is provided that new industrial undertakings set up on or after 01.04.2002 would qualify for additional depreciation of 15% with respect to investments made in new plant and machinery. Further in the section it is also provided that such relief would even be admissible for capacity expansion by 25%. Further the terms “installed” capacity has been further defined to mean capacity of production as existing on the last day of the previous year. This would mean there must be an increase in capacity by not less than 33% of the opening installed capacity. Apparently, a mistake has resulted in stating the words as “on or after the 31st day of March, 2002” in place of “on or after the 1st day of April, 2002”.

Further it is provided that such additional relief is meant only in case of an industrial undertaking, which manufactures or produces an article or thing. The Income-tax Act does not define the expression “industrial undertaking”. Therefore one has to refer for its meaning elsewhere in similar enactments or on the basis of judicial pronouncements.

Ship Scrap Traders Vs. Commissioner of Income-tax (251ITR806) held that the concept of industrial undertaking need not necessarily be confined to
manufacture and production of articles and even in the absence of either of them there could be an industrial undertaking.

In this case issue before the High Court was whether the ship breaking could be characterized as an activity amounting to manufacture or production of an article or articles, as the case may be.
The Court observed that whether a particular activity is a manufacturing activity is dependant upon several factors and no straitjacket formula or principle can be applied. Manufacture implies a change but every change is not manufacture. There must be a transformation of kind and a new different item should have been emerged having different features. For manufacture there should be some alteration in the nature or character of the goods. By the process of manufacture something is produced and brought into existence which is different from that out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or article is produced or manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. Further the Court explained that the word “production” has a wider connotation than the word “manufacture”.

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