Commissioner of Income Tax vs Western Mechanical Industries P. Ltd.

B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961 ("the Act"), the Income Tax Appellate Tribunal (the "Tribunal") has referred the following question of law for the opinion of this court at the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to a higher development rebate at the rate of 25 per cent. as the machineries installed for manufacturing heavy duty cranes were covered by the provision of Section 33(1)(b)(B)(i) of the Income Tax Act, 1961 ?"

We have heard Mr. R. V. Desai, for the Revenue, who submits that the controversy in this case is covered by the ratio of the decision of this court in the case of the assessee itself in Commissioner of Income Tax Vs. Western Mechanical Industries Pvt. Ltd., .

We have perused the above decision. In that case, the controversy was whether the assessee-company which was engaged in the activity of manufacturing of heavy duty cranes could be regarded as a priority industry within the meaning of the Sixth Schedule of the Act for the purpose of entitling them to deduction u/s 80-I of the Act. "Priority industry" was defined in Section 80B(7) of the Act as then in force, to mean, inter alia, "the business of..... manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule . . . ." The Sixth Schedule, as then in force, had the following entry as entry No. (4) :

"(4) Industrial machinery specified under the heading ''8-Industrial machinery'', sub-heading ''A-Major items of specialised equipment used in specific industries'', of the First Schedule to the Industries (Development and Regulation) Ac;, 1951 (65 of 1951)."

The First Schedule to the Industries (Development and Regulation) Act, 1951, is as follows :

"Any industry engaged in the manufacture or production of any of the articles mentioned under each of the following headings or sub-headings, namely :--

Industrial machinery : A Major items of specialised equipment used in specific industries:

(1) Textile machinery (such as spinning frames, carding machines, power-looms and the like) including textile accessories,

(2) Jute machinery,

(3) Rayon machinery,

(4) Sugar machinery,

(5) Tea machinery,

(6) Mining machinery,

(7) Metallurgical machinery,

(8) Cement machinery,

(9) Chemical machinery,

(10) Pharmaceutical machinery,

(11) Paper machinery.

B. General items of machinery used in several industries, such as the equipment required for various "unit processes" :--

(2) Conveying equipment--bucket elevators, skip hoists, cranes, derricks and the like ..."

In the light of the above provisions, this High Court enquired whether heavy duty cranes of the kind manufactured by the assessee were specialised equipment which could be classified under item No. 8-A and not general items of machinery which were required to be classified under item No. 8-B. On consideration of the facts of the case, it was observed : (page 270) :

"From the material which has been accepted by the Appellate Assistant Commissioner and the Tribunal for the assessment year 1972-73, it appears that the cranes manufactured by the assessee are made to specifications and are designed to suit not merely the requirements of a specified industry, but even to suit the requirements of each and every plant. These cranes have been specifically designed for the industries which are enumerated in item No. 8-A and have been supplied either directly to the plants of such industries or to the manufacturers of such plants. These cranes satisfy all the three tests laid down in item No. 8-A, namely :--

(i) they are a major item of equipment ;

(ii) these cranes are specialised equipment designed for the plant in question and specially manufactured to carry out various functions which may be required in that plant ; and

(iii) these cranes are used in specific industries set out in sub-items (1) to (11) of item No. 8-A."

This court, therefore, held that the business of manufacture of heavy duty cranes was a priority industry as defined in Section 80B(7) of the Act and the assessee was entitled to relief u/s 80I of the Act.

The controversy in the present case is in regard to the entitlement of the assessee to higher development rebate in respect of machinery installed for manufacturing of heavy duty cranes under the provisions of Section 33 of the Act. Section 33 of the Act, so far as relevant, at the material time, stood as below :

"33. Development rebate.--(1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of Section 34, be allowed a deduction in respect of the previous year in which the ship was acquired or 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).

(b) The sum referred to in Clause (a) shall be--. .

(B) in the case of machinery or plant,--

(i) 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,-

(a) 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

(b) twenty-five per cent. of such cost, where it is installed after the 31st day of March, 1970."

There is no dispute in this case about the fulfilment of criteria regarding ownership, user for the purpose of business, etc. The only dispute is whether the heavy duty cranes manufactured by the assessee meet the description of "machinery" in Clause (b)(B)(i) of Section 33(1) of the Act.

For that purpose, we are to examine whether it is installed for the purposes of manufacture or production of any one or more of the articles specified in the list in the Fifth Schedule. According to the assessee, it is covered by item No. (4) of the said Schedule. Item No. (4) is in the following terms :

"Industrial machinery specified under the heading ''8-Industrial machinery'', sub-heading ''A-Major items of specialised equipment used in specific industries'', of the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951)."

This item is identical to item No. (4) of the Sixth Schedule referred to in the decision of this court in Commissioner of Income Tax Vs. Western Mechanical Industries Pvt. Ltd., . The ratio of the said decision, therefore, squarely applies to this case. Hence, following the same, we are of the clear opinion that the assessee was entitled to a higher development rebate at the rate of 25 per cent. as the machineries installed for the manufacturing of heavy duty cranes were covered by the provisions of Section 33(1)(b)(B)(i) of the Act. We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.

Reference is disposed of accordingly with no order as to costs.