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income-tax Officer Vs. Jindal Aluminium Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1984)9ITD772(Bang.)
Appellantincome-tax Officer
RespondentJindal Aluminium Ltd.
Excerpt:
.....read with section 263 of the act. in this order he held that the concession envisaged in the fifth schedule of the act or any other provisions of the act has to be strictly construed. he held that the assessee is not entitled for higher development rebate. he also held that the assessee is not entitled for initial depreciation. he disallowed the claim of the assessee. in appeal, the commissioner (appeals) held that the assessee is within the scope of item no. 2 of the fifth schedule and within item no. 2 of the ninth schedule of the act. thus, the assessee is entitled for higher development rebate as well as initial depreciation. he also held that the assessee's production to the extent of 70 per cent is seamless tubes which were clearly within the scope of item no. 21 of the fifth.....
Judgment:
1. In the original assessment the development rebate at higher rate and initial depreciation were allowed. The Commissioner invoked the provisions of Section 263 of the Income-tax Act, 1961 ('the Act'), set aside the assessment and directed the ITO to redo the same. Against that order of the Commissioner, the matter had come up before the Tribunal. The Tribunal by its order dated 11-4-1980 held that the Commissioner was justified in invoking his jurisdiction under Section 263. In this order, the Tribunal held that the assessee can raise all the points before the ITO or in further proceedings in appeal against the assessment which may be made pursuant to the order under Section 263. The ITO made a fresh assessment under Section 143(3) read with Section 263 of the Act. In this order he held that the concession envisaged in the Fifth Schedule of the Act or any other provisions of the Act has to be strictly construed. He held that the assessee is not entitled for higher development rebate. He also held that the assessee is not entitled for initial depreciation. He disallowed the claim of the assessee. In appeal, the Commissioner (Appeals) held that the assessee is within the scope of item No. 2 of the Fifth Schedule and within item No. 2 of the Ninth Schedule of the Act. Thus, the assessee is entitled for higher development rebate as well as initial depreciation. He also held that the assessee's production to the extent of 70 per cent is seamless tubes which were clearly within the scope of item No. 21 of the Fifth Schedule and it cannot be said that the assessee's activities are not within the scope of the Fifth Schedule.

Against the same, the revenue has come up in appeal.

2. The learned departmental representative submitted that the assessee neither comes under item No. 2 of the Fifth Schedule nor under item No.2 of the Ninth Schedule. Hence, the Commissioner (Appeals) was wrong in allowing higher development rebate and initial depreciation. He further submitted that the assessee is not engaged wholly and exclusively in the manufacture of the particular item, for the purpose of higher development rebate only, which is only 70 per cent and which is not entitled for higher development rebate. He also submitted that for the purpose of Section 33 of the Act, the machinery and plant should be used wholly unlike under Section 32 of the Act. He relied upon a decision in Indian Steel & Wire Products Ltd. v. CIT [1977] 108 ITR 802 (Cal.). The learned Counsel for the assessee supported the order of the Commissioner (Appeals). He urged that the assessee falls under item No.2 of the Fifth Schedule and item No. 2 of the Ninth Schedule and so, the Commissioner (Appeals) has rightly allowed the higher development rebate and initial depreciation. He also submitted that the assessee falls under item No. (21) of the Fifth Schedule as the assessee's production to the extent of 70 per cent is seamless tube which falls within the scope of the Fifth Schedule. He placed reliance on various decisions referred to in the order of the Commissioner (Appeals).

3. We have considered the rival submissions. The assessee claims that it falls under item No. 2 of the Fifth Schedule which reads as under : This is for claiming higher development rebate. The assessee also claims that for allowance of initial depreciation, it falls under item No. 2 of the Ninth Schedule which reads as under : Item No. 1 of the Fifth Schedule and item No. 1 of the Ninth Schedule came up for consideration before the Courts. Item No. 1 of the Fifth Schedule reads as under : In CIT v. West India Steel Co. Ltd. [1977] 108 ITR 601 (Ker.)(FB) item No. 1 of the Fifth Schedule came up for consideration. There also the assessee claimed higher rate of development rebate. In that case it was contended on behalf of the revenue that the article, M.S. rods and steel sections, produced by the assessee cannot be termed 'iron and steel (metal)'. The Full Bench of the Kerala High Court held that M.S.rods and steel sections are basically 'iron and steel (metal)' within the meaning of item No. 1 in the Fifth Schedule. Their Lordships relied upon the decision of the Supreme Court in the case of State of Madhya Bharat v. Hiralal AIR 1966 SC 1546. In West India Steel Co. Ltd.'s case (supra) it was observed as under : It was contended by the counsel for the revenue that the entry in the notification that was interpreted by the Supreme Court did not contain the word 'metal'. According to the counsel, 'iron and steel' mentioned in the entry in the notification are quite different from 'iron and steel (metal)' mentioned in item 1 in the Fifth Schedule to the Act. We are unable to accept this contention ; in fact, we are unable to understand 'iron and steel' as anything different from metal. By the addition of the word 'metal' in the Fifth Schedule to the Act, we do not think that anything more or less is meant than using the expression 'iron and steel'. The word 'metal' has perhaps been added to clarify that the commodity produced or manufactured must be still 'iron and steel' and that it should not have lost the characteristics of iron and steel.

If iron and steel bars or other raw material has been used for making an article, which is known and accepted in common parlance or in the commercial world as a specific article different from iron and steel and that article can no more be treated or understood basically as iron and steel, that article cannot be termed 'iron and steel (metal)'. To illustrate, if iron is used for manufacture of shovels, or pickaxes no one would understand, treat or name the shovels or pickaxes as iron and steel. So the question is whether the finished article can be said to be something basically different from iron and steel. We are fortified in our view that M.S. rods and steel sections are not anything different from 'iron and steel (metal)' by the high authority of the Supreme Court in State of Madhya Bharat v. Hiralal AIR 1966 SC 1546. We hold that the resulting article produced by the manufacturing process [that it is manufacturing process is clear from the decision in Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 STC 430 (SC) which we have already referred to] is 'iron and steel', and item (1) of the Fifth Schedule is, therefore, attracted.

This decision was followed by the Madras High Court in Addl. CIT v.Tricky Steel Rolling Mills Ltd. [1979] 118 ITR 39. In this decision, the decision of the Calcutta High Court in Indian Steel & Wire Products Ltd.'s case (supra) taking a contrary view was also considered. It was observed as under : It is clear from the decision of the Supreme Court from the passage that had been extracted by the Kerala High Court which we have extracted here, that the 'iron and steel' in the shape of bars, flats and plates are iron and steel exempted under the notification.

On the reasoning therein we come to the conclusion that M.S. rods will also be iron and steel. The only question is whether the addition of the word 'metal' after the term 'iron and steel' in Schedule V would make any difference. The real distinction is what has been pointed put by the Supreme Court and which has been noticed by the Calcutta High Court in the passage which we have extracted above and that is, whether, by the process of change resulting from the manufacturing process, an article different from iron and steel had come into existence or not. The Kerala High Court has referred to this aspect and has held that by producing M.S. rods from iron and steel in a raw material form, the iron does not cease to be iron and steel does not cease to be steel and naturally they continue in metal form. The word 'metal' is used to emphasise that the change should not be such as to alter the character of the iron and steel used from iron and steel into any other specified finished article.

If there is no such change, iron and steel will continue as iron and steel (metal). With respect we follow the decisions of the Kerala High Court above cited and answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department ....

Similar view was taken by the Allahabad High Court in Singh Engg. Works (P.) Ltd. v. CIT [1979] 119 ITR 891 and also by the Punjab High Court in CIT v. Krishna Copper & Steel Rolling Mills [1979] 119 ITR 256. In fact, in the latter decision in Krishna Copper & Steel Rolling Mills' case (supra) a reference was made to the decision of the Board interpreting item No. 2 of Fifth Schedule. After extracting the decision of the Board, their Lordships held that it is quite clear that the Board itself was of the opinion that for the purpose of allowing the higher rate of development rebate, item No. 2 of the Fifth Schedule would include the manufacture of aluminium (metal) both from bauxite as well as from aluminium scrap and the same interpretation should be given to item No. 1 of the Fifth Schedule. In our view, the ratio laid down in the above decisions squarely applies to the instant case. Thus, the assessee falls within item No. 2 of the Fifth Schedule and so it is entitled for higher rate of development rebate. The above reasoning holds good even in respect of item No. 2 of the Ninth Schedule.

Applying the ratio laid down in the above cases, we hold that the assessee falls within item No. 2 of the Ninth Schedule and is entitled for initial depreciation. In view of the majority decisions referred to above which are in favour of the assessee, we are unable to follow the decision of the Calcutta High Court in Indian Steel & Wire Pro ducts Ltd.'s case (supra). Since we have held that the assessee falls under item No. 2 of the Fifth Schedule and item No. 2 of the Ninth Schedule and is entitled for higher development rebate and initial depreciation, it is unnecessary to consider ground Nos. 4 and 5 raised by the revenue. In the circumstances, we are not considering the other grounds raised in the appeal. Thus, we uphold the order of the Commissioner (Appeals) in allowing higher development rebate and initial depreciation to the assessee.


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