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Commissioner of Income-tax, Poona Vs. Khosla Plastics Pvt. Ltd - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 159 of 1972
Judge
Reported in(1982)27CTR(Bom)202; [1982]138ITR455(Bom)
ActsIncome Tax Act, 1961 - Sections 33, 33(1), 80E, 80-I, 143(3) and 263
AppellantCommissioner of Income-tax, Poona
RespondentKhosla Plastics Pvt. Ltd
Excerpt:
.....lamp holders, appliances, connectors, ceiling roses, pin plug tops, pin holders, adapters etc. - articles manufactured by assessee cannot remotely considered to be equipment for transmission of electricity or part thereof or its accessory - tribunal's order holding articles manufactured by assessee were equipments for transmission of electricity cannot be sustained - assessee not entitled to benefit of deduction under section 80 e or section 80 i or to higher development rebate under relevant part of section 33. - - 80-i as well as development rebate at a higher rate under s. the commissioner, as well as the additional commissioner, however, did not accept the said contention of the assessee. the switches, pin plugs and other accessories manufactured by the assessee-company are..........of the case, and having regard to the nature of the electrical accessories manufactured by the assessee-company, the tribunal was justified in law in holding that the assessee-company was entitled to the deduction under section 80e of the income-tax act, 1961, for the assessment years 1966-67 and 1967-68 ? (2) whether, on the facts and in the circumstances of the case and having regard to the nature of the electrical accessories manufactured by the assessee-company, the tribunal was justified in holding that the assessee-company was entitled to higher rate of development rebate prescribed under section 33(1)(iii)(c)(a)(a) of the income-tax act, 1961, for the assessment years 1966-67 and 1967-68 ?' assessment years 1968-69 and 1969-70 : '(1) whether, on the facts and in the.....
Judgment:

Rege, J.

1. This is a reference by the Income-tax Appellate Tribunal, Poona Bench, Poona, under s. 256(1) of the I.T. Act, 1961, at the instance of the Commissioner of Income-tax, Poona, referring to us the following questions for our opinion :

Assessment years 1966-67 and 1967-68 :

'(1) Whether, on the facts and in the circumstances of the case, and having regard to the nature of the electrical accessories manufactured by the assessee-company, the Tribunal was justified in law in holding that the assessee-company was entitled to the deduction under section 80E of the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68 ?

(2) Whether, on the facts and in the circumstances of the case and having regard to the nature of the electrical accessories manufactured by the assessee-company, the Tribunal was justified in holding that the assessee-company was entitled to higher rate of development rebate prescribed under section 33(1)(iii)(c)(A)(a) of the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68 ?'

Assessment years 1968-69 and 1969-70 :

'(1) Whether, on the facts and in the circumstances of the case, and having regard to the nature of the electrical accessories manufactured by the assessee-company, the Tribunal was justified in law in holding that the assessee-company was entitled to deduction under section 80-I for the assessment years 1968-69 and 1969-70 ?

(2) Whether, on the facts and in the circumstances of the case, and having regard to the nature of the electrical accessories manufactured by the assessee-company, the Tribunal was justified in law in holding that the assessee-company was entitled to the higher rate of development rebate, prescribed under section 33(1)(b)(B)(i)(a), for the assessment year 1968-69 and 1969-70 ?'

2. The assessee-company is engaged in the manufacture of electrical accessories such as switches, sockets, bell pushes, lamp holders, appliances, connectors, ceiling roses, pin plug tops, pin holder adapters, etc., under the licence issued to it by the Government.

3. For the assessment year 1966-67, the ITO had allowed deductions to the assessee under s. 80E, as it then stood, to the extent of Rs. 23,644 at the rate of 8% of the profits of the company and the development rebate at the rate of 35% of the profits of the company under s. 33(1)(ii)(c)(A)(a) of the I.T. Act, 1961, instead of nominal rate of 20% of the value of the machinery of Rs. 27,460 installed after April 1, 1965.

4. For the assessment year 1967-68, the ITO passed an order under s. 154 (rectifying his original assessment order under s. 143(3) under which he granted a deduction under s. 80E amounting to Rs. 31,779 (at 8% of the profits of the company) and development rebate at 35% under s. 33(1)(iii)(c)(A)(a) (now section 33(1)(b)(B)(i)(a)) instead of at the normal rate of 20% of the value of the machinery of Rs.59,227 installed after April 1, 1965.

5. For the assessment year 1968-69, the ITO had allowed the deductions under s. 80-I of the Act, as it then stood, to the extent of Rs. 35,504 at the rate of 8% of the profits of the assessee as also development rebate at 35% under s. 33(1)(b)(B)(i)(a) instead of at the normal rate of 20% of the value of the machinery of Rs. 24,816.

6. According to the Commissioner for the assessment years 1966-67 and 1967-68, and the Additional Commissioner for the assessment year 1968-69, the ITO's orders were prejudicial to the Revenue and the allowance of development rebate at the enhanced rate for the said years was not properly granted inasmuch as articles manufactured by the assessee were such as were used for consumption of electricity rather than its transmission. Therefore, acting under s. 263 of the I.T. Act, they issued notices to the assessee to submit objection as to why the ITO should not be directed to withdraw deduction granted to it under s. 80E or s. 80-I as well as development rebate at a higher rate under s. 33(1)(b)(B)(i)(a) as applicable to each assessment.

7. The managing director of the assessee, who appeared before the Commissioner, relying on the dictionary meaning of the word 'transmission', viz., an act of sending from one place to another, or an act of transference or passing through any body as of light through glass, contended that the articles manufactured by the assessee were meant for transmission of electricity and, therefore, would fall within the expression 'equipment for transmission of electricity' under item No.7 of Sch. V. The Commissioner, as well as the Additional Commissioner, however, did not accept the said contention of the assessee. According to them, in short, the articles manufactured by the assessee did not fall within the class of articles described in item No.7 of Sch. V., viz., equipment for the generation and transmission of electricity including transformers, cables and transmission towers, to entitle it to get the benefit under s. 80E or s. 80-I or a higher rebate under the relevant part of s. 33. Therefore, the Commissioner by his order dated October 22, 1969, for the assessment year 1966-67 and by his order dated January 21,1970, for the assessment year 1967-68, and the Additional Commissioner by his order dated June 3, 1970, for the assessment year 1968-69, held that the orders of the ITO were erroneous and prejudicial to the interest of the Revenue and directed the ITO to amend the assessment order by withdrawing the said benefit and recompute the total income and the taxes of the assessee.

8. In the appeal to the Tribunal by the assessee against the said orders of the Commissioner and the Additional Commissioner, the representative of the assessee raised the same contentions, as were raised before. The Tribunal set aside the said orders observing :

'A narrow interpretation given to the word 'transmission' by the Revenue authorities could not be accepted. The switches, pin plugs and other accessories manufactured by the assessee-company are clearly used for regulation of transmission of electricity. It is true that in the absence of these accessories electric power could still be transmitted but then this would lead to certain hazards and for prevention of those hazards, it is necessary to regulate the flow of electricity from one point to another. The equipment manufactured by the assessee-company cannot be said to be only for use of consumption of electricity as electricity is consumed by appliances which are used for domestic purposes such as irons, hot plate, fans, etc. These items manufactured by the assessee-company as rightly described are accessories for transmission of electricity and not for consumption of electricity.'

9. The Tribunal, therefore, held that the assessee was entitled to the benefit of the deductions under s. 80E or s. 80-I for the relevant assessment years, as well as to the benefit of a higher development rebate under the relevant provisions of s. 33 and passed orders accordingly.

10. The said findings of the Tribunal have given rise to the above-mentioned four questions in respect of the different assessment years, referred to us for our opinion.

11. In this case, admittedly, the assessee-firm though registered, with the Govt. of India as a scheduled industry under Item No. 19 (sic), manufacturing of equipments for transmission and distribution of Electricity (Ex. C to the Statement of Case), manufactures only switches, sockets, bell pushes, lamp holders, appliances, connectors, ceiling roses, pin plug tops, pin-holders, adapters, etc.

12. Section 80E provided, inter alia, for a deduction from the profits attributable to the business of generation of electricity or production of any one or more of the articles or things specified in the list in Sch. V.

13. Section 80-I which replaced s. 80E which was introduced by the Finance Act of 1966 with effect from April 1, 1966 (which had also been deleted by the Finance (No.2) Act, 1967, from April 1, 1968), provided, inter alia, for deductions from profits attributable to a 'Priority industry'.

''Priority industry' means 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 said definition of 'priority industry' has been omitted by Finance Act, 1972, with effect from 1-4-73).

So also ss. 33(1)(b)(B)(i)(a) or 33(1)(iii)(c)(A)(a) in respect of the relevant assessment years provided for certain higher development rebate in cases of machinery or plant installed for the purpose 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.

14. We are concerned here with item No. 7 of the said Sch. V which is :

Equipment for generation and transmission of electricity including transformers, cables and transmission towers meant for transmission of electricity.'

15. The question is whether the articles manufactured by the assessee could be considered to fall within the said item No. 7 of Sch. V so as to be entitled to the benefit under s. 80E or s. 80-I or under the aforementioned part of s. 33.

16. The said item No. 7, inter alia, speaks about the manufacture of 'equipment for transmission of electricity'. Therefore, articles manufactured by the assessee to fall under item No. 7, must not only by its nature be capable of transmitting electricity but it must also be an equipment for such transmission. The equipment for transmission connotes some machinery relating to or involving the carrying or transfer of electricity from its source of generation to the area of consumption. By its very nature, therefore, the equipment must be such as to be capable of transmitting electricity from one place to another. The inclusion of specific item such as transformers, cables and transmission towers under the said general item of 'equipment for generation and transmission' also would indicate, though it may not be conclusive, the nature of the expression 'equipment for transmission'. The said articles, viz., transformers, cables and transmission towers are such, as, by their very nature, they are capable of transmitting electricity.

17. The articles manufactured by the assessee are ordinary commonplace articles used as accessories mainly for controlling the flow of electricity in its consumption at the ultimate end and not for the transmission of electricity. In this case, the dictionary meaning of the word 'transmission' connoting 'an act of sending from one place to another or transference or a passing through any body as of light through glass' cannot help us to understand the real connotation of the word 'equipment for transmission'. However, even if one were to have resort to the same, the articles manufactured by the assessee cannot be considered to be capable by its very nature, of transferring electricity so as to be termed as an equipment for transmission of electricity. Further, basically the said benefits of deduction or higher rebate were intended for priority industries of which generation and transmission of electricity was one. The industry of the assessee manufacturing the said articles which are ordinary commonplace electrical accessories can hardly be termed as a 'priority industry'. In our view, therefore, the articles manufactured by the assessee-company cannot be termed as 'equipment for transmission of electricity' so as to fall within item No. 7 of Sch. V.

18. The Tribunal held that the articles manufactured by the assessee-company were clearly used for regulation of transmission of electricity. While conceding that in the absence of those accessories electrical power could still be transmitted, the Tribunal reasoned that this would lead to certain hazards and for the prevention of those hazards it was necessary to regulate the flow of electricity from one point to another. This reasoning of the Tribunal, particularly the consideration of hazards, was quite irrelevant for determining the nature of the articles manufactured by the assessee as being equipment for the transmission of electricity. If, however, according to the Tribunal, the articles manufactured by the assessee-company were accessories meant to regulate the flow or transmission of electricity, it is difficult to see then how could they be considered as 'equipment for transmission of electricity'. It is, therefore, difficult to sustain the view taken by the Tribunal.

19. We may now refer to two decisions relied upon by the learned counsel for the assessee in support of his contention. The first one was of the Allahabad High Court in the case of R.S.G. Conduits and Tubes (P.) Ltd. v. CIT : [1981]127ITR83(All) . In that case, the court held that the conduit pipes used for holding the cables for transmission of electricity fell within the said item No. 7. Under the said item No. 7, cables are specifically included as being equipment for the transmission of electricity and, therefore, since the conduit pipes through which the cables passed and which were meant to hold the cables, were so closely and intimately connected with the cables so as to be part thereof, the court considered the same to be covered by item No. 7.

20. The facts of that case cannot be equated with the facts of the present case. In this case the articles manufactured by the assessee-company, viz., switches, sockets, bell pushes, lamp holders, appliances, connectors, ceiling roses, pin plug tops, pin holders, adapters, etc., cannot be considered, even remotely to be an equipment for the transmission of electricity or part thereof or its accessory. The said decision, therefore, has no application to the facts of the case and cannot help the learned counsel for the assessee in his contention.

21. The other decision relied upon by the learned counsel for the assessee was of the Calcutta High Court in the case of CIT v. Hindusthan Motors Ltd. : [1981]127ITR210(Cal) . In that case the court held that the assessee was entitled to the higher rebate of 35% on its profit and gains attributable to the manufacture or production of even those automobile ancillaries which were utilised by it in cars manufactured by itself. The facts of that case were quite different from the facts here. 'Automobile ancillaries' was one of the items in Sch. V, item No. 20, for the manufacture of which the benefit under s. 80E or s. 33 was available. The question there was whether the manufacture of the said automobile ancillaries would cease to be so, merely because they were used in the cars manufactured by the assessee itself. The court held in the negative. The said decision also can have no application to this case.

22. In our view, therefore, the Tribunal's order holding that the articles manufactured by the assessee were equipments for the transmission of electricity so as to entitle the assessee to the benefit of the deduction under s. 80E or s. 80-I or to the higher development rebate under the relevant part of s. 33, cannot be sustained.

23. In the result, we answer the questions as follows :

Assessment years 1966-67 and 1967-68 :

Question No.1 : In the negative and against the assessee.

Question No.2 : In the negative and against the assessee.

Assessment years 1968-69 and 1969-70 :

Question No.1 : In the negative and against the assessee.

Question No.2 : In the negative and against the assessee.

Assessee to pay costs of the reference.


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