development rebate, equivalent to(i) ..............................................
(ii) .............................................
(iii) in the case of machinery or plant installed
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after the 31st day of March, 1961(a) .........................................
(b) .........................................
(c) where the machinery or plant is installed
after the 31st day of March, 1965(A) 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 assesee, 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.
(B) ...............................
shall, subject to the provisions of s. 34, be
allowed as 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."
This provision was substituted, with effect from April 1,
1968, by the present provision which reads:
"33(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 a 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).
(A) ..............................................
(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 in stalled 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.
These provisions relate to development rebate.
A deduction was also available to an assessee in
respect of profits and gains from specified industries in
the case of certain companies prior to April 1, 1968.
Section 80E provided:
"80E (1) In the case of a company to which this
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section applies,
where the total income (as
computed in accordance with the other provisions
of this Act) includes any profits and gains
attributable to the business of generation or
distribution of electricity or any other form of
power
or
of
construction,
manufacture
or
production of any one or (- more of the articles
or things specified in the list in the Fifth
Schedule, there shall be allowed a deduction from
such pro fits and gains of an amount equal to
eight per cent. thereof in computing the total
income of the company."
Section 80E was deleted with effect from April 1, 1968
and was substituted by s. 80-I which provides:
"80-I(1) In the case of a company to which this
section ap plies, where the gross total income
includes any profits and gains attributable to any
priority industry, there shall be allowed, in
accordance with and subject to the provisions of
this section, a deduction from such profits and
gains of an amount equal to eight per cent,
thereof, in computing the total income of the
company."
It is not disputed between the parties that the assessee is
a company to which the provisions of s. 80E and subsequently
of s. 80I will apply. Section 80I, it may be noted, was
deleted by the Finance Act, 1972 with effect from April 1,
1973. With
effect from April 1, 1968 the expression
’priority industry’ was defined in s. 80B(7) as meaning:
"the business of generation or distribution of
electricity or any other form of power or of
construction, manufacture or production of any one
or more of the articles or things specified in the
list in the Fifth Schedule or the business of any
hotel where such business is carried on by an
Indian company and the hotel is for the time being
approved
in
this
behalf
by
the
Central
Government."
The word ’Sixth’ was substituted for ’Fifth’ by the Finance
Act 1968 A with effect from April 1, 1969.
With effect from April 1, 1964 the Fifth Schedule set
forth a list of articles and things and items 7, 17 and 24
which possess some relevance to this case read as follows:
"(7) Equipment for the generation and transmission
of electricity including transformers, cables and
transmission towers,
(17)
Electronic
equipment,
namely,
radar
equipment, computers, electronic accounting and
business
machines,
electronic
communication
equipment, electronic
control instruments and
basic components, such as valves, transistors,
resisters, condensors, coils, magnetic materials
and microwave components,
(24) Component parts of the articles mentioned in
items Nos. (4), (5), (7) and (9), that is to say,
such parts as are essential for the working of the
machinery referred to in the items aforesaid and
have been given for that purpose some special
shape or quality which would not be essential for
their use for any other purpose and are in complete finished form and ready for fitment."
The Sixth Schedule which replaced the Fifth Schedule with
effect from April 1, 1969 contained identical items 7,17 and
24.
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These appeals relate to the assessment years 1966-67 to
1971-72. The assessee carries on the business of manufacture
and sale of insulated copper wires. Before the Income Tax
officer, it claimed that it constituted a priority industry
for the purposes of the provisions of ss. 33(1)(iii)(c)(A)
and 80E read with items 7, 17 and 24 of the Fifth Schedule
of the Income Tax Act, 1961 for the first two years and
sections 33(1)(b)(B)(i) and 80-1 read with items 7, 17 and
24 of the Fifth or the Sixth Schedule, as the case may be,
of the Income Tax Act, 1961 for the latter four years. The
assessee claimed that it was entitled to the benefits
conferred by those provisions for the aforesaid assessment
years as a ’priority industry’. It asserted that the wires
manufactured by it were covered by the word ’cables’
employed in the articles and things specified in items 7, 17
and 24 of the Fifth Schedule
for the assessment years 1966-67, 1967-68 and 1968-69 and
items 7, 17 and 24 of the Sixth Schedule of the Income Tax
Act for the assessment years 1969-70 to 1971-72. It produced
expert evidence in support of its claim. The Income Tax
officer rejected the claim made by the assessee. An appeal
to the Appellate Assistant Commissioner was dismissed. The
assessee then appealed to the Income Tax Appellate Tribunal.
The Appellate Tribunal allowed the six appeals and held
that the assessee was entitled to the benefits claimed by it
as a ’prority industry’. It noted that although the assessee
had based its claim on items 7, 17 and 24 of the Schedules,
the claim was emphatically pressed in the hearing before it
under item 7 alone. The question before it then was limited
to the point whether the wires manufactured by the asses see
fell within item 7. In disposing of the appeals, the
Appellate Tribunal adverted to its finding in the appeals
for the two immediately preceding assessment years 1964-65
and 1965-66. In its appellate order for the assessment year
1964-65 it found that the assessee manufactured aluminium
cables which were used in the transmission of electricity
and held that, therefore, it was entitled to the benefit of
the Fifth Schedule relevant for those two assessment years.
In the appeal pertaining to the assessment year 1965-66 it
considered the matter again and upheld the claim in view of
its order for the preceding assessment year. It noted that
the Revenue had accepted the orders and had not questioned
them in reference. It found from a perusal of the Industrial
Licences on the basis of which the assessee was operating
that there was no change in the nature or type of the goods
manufactured by it during the six assessment years before it
in appeal. It observed that when it referred to aluminium
cables in its earlier orders it should have described them
as copper and aluminium cables. Having regard to the
material before it, the Appellate Tribunal found no reason
to change its opinion from the view taken in the preceding
assessment years
that the
manufacture of the cables
attracted the benefits claimed by the assessee.
Thereafter, at
the instance of the Revenue, the
Appellate Tribunal made a reference for the six assessment
years to the High Court of Punjab and Haryana for its
opinion on the following two questions:
"Whether, on the facts and in the circumstances of
the case, the assessee-company was entitled to the
benefits conferred by the provisions of sections
33(1)(iii)(c)(a) and 80E of the Income Tax Act,
1961?