Shree Products vs Commissioner of Income Tax

S.H. Kapadia, J.—At the instance of the assessee, the Income Tax Appellate Tribunal ("the Tribunal") has referred the following question for the opinion of this court :

"Whether, on the facts of the applicant''s case and the law applicable to them, and in particular, on a proper interpretation of items Nos. 27 and 28 of the Eleventh Schedule to the Income Tax Act, 1961, the Tribunal was correct in law in rejecting the applicant''s claim for investment allowance in relation to the plant and machinery used by the applicant for manufacturing its finished product on the ground that the items manufactured by it fell under item No. 27 of the said Eleventh Schedule ?"

The assessee-company is engaged in the manufacture and sale of rubber stoppers. It claimed investment allowance of Rs. 3,06,870 for the assessment year 1978-79 and similar amount for the assessment year 1979-80. This was with reference to new machinery items installed by the assessee and used in the business for the accounting year ending December 31, 1977, and December 31, 1978, respectively. The cost of the machinery was Rs. 12,27,479. The assessee-company had credited investment allowance of Rs. 2,31,000 in the accounts. The Income Tax Officer took the view that the assessee-company was not entitled to investment allowance as it was engaged in the manufacture of articles mentioned in the Eleventh Schedule to the Income Tax Act, 1961 ("the Act"), Entries Nos. 27 and 28 of the said Schedule reads as follows :

"27. Crown corks, or other fittings of cork, rubber, polyethylene or any other material.

Pilfer-proof caps for packaging or other fittings of cork, rubber, polyethylene or any other material."

The Income Tax Officer did not clearly lay down as to under which of the above two mentioned entries the rubber stoppers stood covered. Being aggrieved by the order of the Income Tax Officer, the matter was carried in appeal before the Commissioner of Income Tax (Appeals). However, the Commissioner of Income Tax (Appeals) agreed with the view taken by the Income Tax Officer and confirmed his order. The dispute was proceeded with before the Tribunal. The Tribunal found that the assessee was engaged in the manufacture of rubber stoppers as its finished products, The Tribunal held that the subject product manufactured by the assessee fell under item No. 27 of the Eleventh Schedule and, accordingly, the Tribunal rejected the assessee''s claim for investment allowance on the plant and machinery engaged in the manufacture of rubber stoppers. On the application for reference, the Tribunal has referred the above question to ''this court for opinion.

Heard learned counsel for the parties. The short point which arises for determination in the present case is whether the rubber stoppers used to cover glass bottles fall under items Nos. 27 and 28 of the Eleventh Schedule to the Act. It was urged on behalf of the Department that what the assessee manufactures can be equated with the cork as the function of cap. It was contended that the function of cork is to seal the bottle airtight and watertight. It was further contended that the assessee has admitted that the rubber caps manufactured by it perform the above functions. On the other hand, it was contended on behalf of the assessee that the crown cork is generally used to cover bottles containing beverages. Learned counsel for the assessee also showed to the court a sample of the bottle covered by rubber cap. It was contended on behalf of the assessee that this rubber cap can be easily removed. It was pointed out by learned counsel for the assessee that these rubber caps are not covered by a steel or metal casing. It was pointed out that there are certain bottles which are made watertight or airtight by caps which are insulated with a metal strip. In the present case, only the rubber cap is put on the bottle. In the circumstances, it was contended that entry No. 27 has no application.

Learned counsel for the Department, however, contended that in any event the subject product would come under entry No. 28 which deals with pilfer-proof caps for packing. He contended that in any event the subject product can also come under other fittings of cork, rubber, polyethylene or any other material as contemplated by entry No. 28. Regarding entry No. 28 it was urged on behalf of the assessee that in the present case the bottle is covered by a rubber cap which can easily be removed and that the rubber cap is not insulated by steel cover/strip. Hence it was argued on behalf of the assessee that the subject product is not a pilfer-proof cap. It was also urged that the subject product cannot fall under the expression "other fittings of cork, rubber, polyethylene or any other material" under entry No. 28 of the Eleventh Schedule to the Act. In the circumstances, it was contended on behalf of the assessee that the assessee was entitled to claim the benefit of investment allowance as the subject product did not fall under entry No. 27 and entry No. 28 of the Eleventh Schedule to the Act. Learned counsel for the assessee also invited our attention to similar entries under the Central Excise Tariff Act, 1985. Our attention was invited to items Nos. 41 and 42 of the Central Excise Tariff of India (1979) which are identical with entries Nos. 27 and 28 of the Eleventh Schedule to the Act. In this connection, learned counsel for the assessee relied upon a judgment of the Division Bench of the Gujarat High Court in the case of Captocaps Private Limited Vs. Union of India and Another, .

We find merit in the contention advanced on behalf of the assessee. In the present matter the Tribunal failed to consider how a manufacturer of pharmaceutical or other products would look at these rubber stoppers/ caps. Essentially, it is the concern of such manufacturers of pharmaceutical or other products who would like to see that their products go into the market without being in any" way tampered with or adulterated because if the contents are tampered with or adulterated ultimately their business reputation would suffer. To such manufacturer of pharmaceuticals and food stuffs, these caps manufactured by the assessee would be clearly the caps or stoppers which can be easily removed with a little skill and, therefore, such caps/stoppers can never be termed as pilfer-proof caps. Similarly, such caps/stoppers to a manufacturer of bottlers of beverages will never be understood as a crown cork or other fittings of cork, rubber, polyethylene or any other material. The expression "other fittings of cork, rubber, polyethylene or any other material" occurs in entry No. 27 as well as in entry No. 28. The said expression, however, is required to be seen in the context of crown corks or pilfer-proof caps. In the present matter the rubber stoppers/caps are not insulted with a steel strip or a case. The bottles are not made pilfer proof .The caps can be easily removed without any use of skill. The rubber stoppers cannot fall under the expression "other fittings" under entry No. 27 and entry No. 28. In the circumstances, the above two entries have no application to the subject product manufactured by teh assessee.

Accordingly, the above question is answered in the negative, i.e., in favour of the assessee.

Since a common question of law arises in the above two references, both the references have been disposed of by this common judgment. No order as to costs.