COMMISSIONER OF INCOME TAX Vs. SECALS LIMITED

JUDGEMENT

(1.) BEFORE we refer to the facts, we may recapitulate subsection (1) (b) (B) (i) of section 33 of the Income-tax Act, 1961, which says that the sum referred to in clause (a) of sub-section (1) of section 33 shall be in the case of machinery or plant where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule - thirty-five per cent. of the actual cost of the machinery or plant to the assessee, where it is installed before the 1st day of April, 1970, and twenty-five per cent. of such cost, where it is installed after the 31st day of March, 1970. Clause (a) of sub-section (1) of section 33 states that subject to section 34 of the Act, a deduction will be allowed in respect of the previous year in which the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b) in respect of a new ship or new machinery or plant which is owned by the assessee and is wholly used for the purposes of the business carried on by him.

(2.) IT is not in dispute that all particulars as contemplated under section 33(1) and (2) were furnished by the assessee for the assessment year 1975-76 and it claimed development rebate deduction at 25 per cent. of the cost of the machinery which it had set up for the manufacture of steel castings at a cost of Rs. 41,41,784. The Income-tax Officer as well as the Appellate Commissioner and the Tribunal have held on the facts of this case that entry 11 of the Fifth Schedule to the Act was attracted and while the Income-tax Officer has held that on the phraseology of the entry, "steel castings and forgings and malleable iron and steel castings", development rebate could not be given to the assessee as the new machines were for that not only the machines for steel castings and steel forgings and machines for manufacturing malleable iron and steel castings should qualify for the rebate but also the machines installed for manufacturing steel castings or forgings or malleable iron and the Tribunal has held that the assessee qualified for the rebate as the requirement of the law is that the machine or the plant should be either for steel castings or steel forgings or malleable iron or steel castings. Whether the additive expression in entry 11 of the Fifth Schedule be read as disjunctive at each place in the sentence, as the Tribunal has held that instead of "steel castings and forgings and malleable iron and steel castings", it should be read as "steel castings or forgings or malleable iron or steel castings" or should be read as the Income-tax Officer has held that steel castings and forgings identify the type of the machine or plant which qualifies for deduction and malleable iron and steel casting similarly identifies another type of machine and plant, in other words, the end product should not be identified only as steel casting or steel forging or malleable iron, but it should be steel casting and forging and malleable iron and steel casting is no longer relevant because the Supreme Court has in the case of CIT v. Krishna Copper and Steel Rolling [1992] 193 ITR 281, made a thorough study and held that in case the end-product is not a finished product in the sense that it has not taken the character of a new product, it has to be treated to be an article manufactured from iron and steel and it will fall under item No. 1 of the Fifth Schedule. While considering in the case of steel-rolling mills engaged in the manufacture of M. S. (Mild steel) rods, bars or rounds, the question whether they were entitled to a higher rate of development rebate specified in section 33(1)(b)(B)(i)(a) and to relief under section 80-I as it stood at the relevant time of the Income-tax Act, 1961, the Supreme Court observed (at page 284) :

(3.) WE do not for the said reason think that the question referred to us needs a specific answer and any specific answer which a court shall attempt may create confusion. To cover all the aspects of the permissible rebate, the question that may be put and answered by all concerned should be whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 33(1)(b)(B)(i)(a) of the Act, the assessee is entitled to development rebate either under item No. 1 of the Fifth Schedule or item No. 11 thereof. The Supreme Court has categorically pointed out that so long as the product retains the character of the raw material that is of iron and steel, it will qualify under item No. 1 and when it is a product identifiable as an article made of iron and steel, it will qualify under item No. 11. The reference is answered accordingly. No costs.