COMMISSIONER OF INCOME TAX Vs. SALEM TEXTILES LIMITED

JUDGEMENT

(1.) THE assessee is a public limited company. We are concerned with two assessment years, viz. 1974-75 and 1975-76 and the question raised is whether the assessee is entitled to claim higher development rebate in respect of generators, trolley and diesel tanks installed by the assessee and used for the purpose of its business. In the original assessment made for the said assessment years, the assessee was granted development rebate at the rate of 25 per cent in respect of generators, trolley and diesel tanks. THE ITO reopened the assessment under s. 147(b) of the IT Act, 1961 (hereinafter to be referred to as 'the Act'), and held that development rebate is not admissible in respect of trolley and diesel tanks, but in respect of generators, the development rebate would be admissible at the rate of 15 per cent. THE CIT(A) in an appeal preferred by the assessment against the orders of the reassessment held that the development rebate is admissible at the rate of 25 per cent on the actual cost of the generators, trolley and diesel tanks. THE view of the CIT(A) was confirmed by the Tribunal on the ground that those items of machineries were used in the manufacture or production of articles specified in the Fifth Schedule to the Act. THE Revenue has sought for a reference and on its failure to get a reference, this Court in T.C.P. Nos. 489 and 490 of 1983, dt. 16th April, 1984, directed the Tribunal to state a case and the Tribunal has referred the following question of law for our opinion :

(2.) MR. C. V. Rajan, learned counsel for the Revenue submitted that the Tribunal was not correct in holding that the assessee would be entitled to depreciation (sic-development rebate) in respect of generators. He also submitted that the development rebate is not admissible for the diesel tanks as well as for the trolley.

(3.) WITH this background, we have to examine the facts of the case. Insofar as the generators are concerned, it is a common knowledge that generators are used as stand-by in the case of power failure and they are installed to ensure that there is a continuous and uninterrupted supply of power for the manufacture of the goods. Therefore, the generators cannot be regarded as not eligible for higher development rebate, merely on the ground that the occasion for the use of generators will arise in the case of power failure. The assessee has installed the generators with a view to ensure that there is no stoppage in the production of the goods by continuous power supply and when that is the object behind the installation of the generators, we are of the view that the assessee is entitled to higher development rebate. The machineries used are spinning machineries and the assessee is, admittedly, a manufacturer of yarn, and during the course of manufacture of yarn, if the power supply is disrupted for any reason, the entire production will come to a grinding halt and the assessee may not achieve the target of production. It is a common knowledge that a continuous supply of power is essential and necessary for the manufacture of any article, particularly yarn and, therefore, the view of the officer that the assessee is not entitled to higher development rebate on the generators is not justifiable one. Further, the generators are used for the manufacture or the production of yarn and the expression, 'machinery or plant' installed for the purpose of business of manufacture of articles or things specified in the Fifth Schedule cannot be confined to textile machinery alone, but, extends to the machineries needed and employed for the manufacture or production of the things or articles specified. The view of the officer that it should be confined to the textile machinery alone is not warranted and if such a restricted meaning is given, it will affect the very object behind the grant of development rebate under s. 33 of the Act.