1. This appeal for the assessment year 1975-76 is by the revenue. The only point raised in this appeal is regarding the question whether the assessee is entitled to development rebate on the machinery and plant in the manufacturing unit at Nagercoil. The assessee is engaged in the manufacture and export of coir products. Earlier the assessee had a factory at Alleppey and manufacture of coir products was done manually.
In the previous year for this assessment year, the assessee established a factory at Nagercoil for the manufacture of coir products. This factory has produced the products with the aid of the machinery installed in the factory. The assessment for this year was originally made on 26-4-1976. As a result of the assessment two issues arose for consideration in the appeal proceedings. The first issue was whether the interest paid on borrowings for the purpose of establishing a separate unit at Nagercoil was a business expenditure at all which is allowable from the business income of the assessee for this assessment year. The second issue was whether development rebate under Section 33 of the Income-tax Act, 1961 ('the Act') could be allowed in respect of the machinery in the Nagercoil unit. According to the assessee, the machinery had already been installed during the year, while according to the department, they were installed long after the close of the previous year. In appeal, the AAC upheld the contentions of the assessee, but the Tribunal set aside that order and remitted the matter back to the ITO for determining, firstly, whether the assessee's two units, the old unit at Alleppey and the new one at Nagercoil, constitute the same business in the light of the Supreme Court decision in B.R. Ltd. v. V.P. Gupta, CIT  113 ITR 647 and deciding, secondly, the issue regarding the development rebate taking into account the decision on the first issue. The present appeal emanates from the assessment so made by the ITO on the basis of the direction contained in the order of the Tribunal.
2. The ITO, in the assessment so mads, has considered the first point raised in the Tribunal's order in paras 2 and 3. Before him, the assessee had pointed out certain facts contending that the two lines of businesses are, in fact, the same business. The two units at Alleppey and Nagercoil manufacture coir products. They are managed by the same board of directors and managing director. The working funds are sanctioned by the Central Bank of India, Alleppey, to the company as a whole. All the administrative matters are looked after at the registered office at Alleppey. All sales and purchases are effected from the head office at Alleppey. There are no restrictions for transferring the raw material from the Nagercoil unit to the Alleppey unit or vice versa. There are no restrictions in bringing the finished goods from Nagercoil to Kerala. The ITO on an appraisal of these facts came to the finding that both the units were controlled from Alleppey, commonly managed and administered, that the fact that sales and purchases are effected only from the head office at Alleppey strongly indicated unity of control and that, therefore, there is dovetailing or interlacing between the businesses of mechanised production of coir (at Nagercoil) and manual production (at. Alleppey). It is clear from these findings that the ITO come to the conclusion that the new factory at Nagercoil forms part of the sole business in Alleppey. The ITO has specifically stated this in para 4 of his order.
3. The Tribunal had observed in the appellate order regarding the claim of the assessee for development rebate as follows: While we may agree that trial run may not show the real installation of the machinery for the purposes of granting development rebate, we do not want to prejudge the issue since more fundamental matter that it belongs to the same business or not is to be gone into once again by the Income-tax Officer.
The ITO took note of these observations. He found that the Nagercoil unit had, admittedly, worked only for the last two months during the year ended 31-12-1975, namely, the subsequent accounting year. The first contingent of workers was recruited in December 1974. The coir yarn purchased in 1974 for this unit was only 3,000 kgs. whereas the annual purchase of yarn on the regular functioning of the factory exceeded 4 lakh kgs. On these facts, he came to the inference that the installation was complete only during the previous year relevant to the assessment year 1976-77, namely, the subsequent assessment year. He has pointed out that in view of the decision of the Gujarat High Court in CIT v. Saurashtra Wire-Healds Mfg. Co. (P.) Ltd.  67 ITR 524, the relevant year for the grant of development rebate is the year in which the installation is completed. He considered that the decision of the Kerala High Court in CWT v. Travancore Cements Ltd.  54 ITR 583 and of the Supreme Court in CIT v. Mir Mohammad Ali  53 ITR 165 do not help the assessee. On this basis he denied the allowance of development rebate to the assessee for this assessment year. The assessee raised the issue regarding the denial of development rebate before the Commissioner (Appeals). The Commissioner (Appeals) took note of the submissions made by the assessee and also the relevant part of the directors' report regarding the installation of the machinery at Nagercoil. This portion as extracted by the Commissioner (Appeals) in his order reads as under: As reported last year, the company has ventured into an expansion programme of a mechanised unit for the manufacture of floor coverings in Kanyakumari District in Tamil Nadu. The project is nearing completion and the machines have already been installed in temporary sheds and trial runs taken. The construction of the buildings has since completed and it is expected that the factory can go into production in full swing by the second half of 1975.
It will be noticed that the directors have reported that the machines have been installed in temporary sheds and trial runs have been taken.
Relying on this, the representative of the assessee had contended before the Commissioner (Appeals) that the very fact that the trial production had been started indicates that the machinery had been installed. The representative of the assessee further referred to the interpretation of the term 'installed' as found in Mir Mohammad Ali's case (supra) and submitted that the machinery had been installed according to the meaning given to this term in this decision. The representative also submitted that the assessee-company had commenced trial production this year and the productions obtained were sent as samples. On receipt of the orders from foreign countries, the company had started full production in the succeeding year. On these submissions, the assessee contended that installation of the machinery had been completed. The Commissioner (Appeals) accepted these submissions and came to the finding that installation of the machinery has been completed for the purpose of granting development rebate. He directed the ITO to allow development rebate.
4. In the appeal before us, it is contended on behalf of the revenue that the Commissioner (Appeals) has erred in not deciding the appeal in accordance with the specific directions of the Tribunal in their order setting aside the earlier assessment order and restoring the appeal to him for fresh determination. This is ground No. 2 in the grounds of appeal. The departmental representative submitted that this refers to the observations taken by the ITO in para 4 of his order (which we have also quoted). It is submitted that even according to the report of the directors, there was only a trial run and the Tribunal was already of the opinion that the trial run may not show the real installation of the machinery for the purpose of grant of development rebate. It is submitted that since there was only a trial production, it cannot be said that the machinery in question has been used in the business of the assessee. Tt is pointed out that Section 33 allows development rebate in respect of the machinery installed and wholly used for the purpose of the business of the assessee. The conditions laid down both in respect of installation and in respect of user cannot be said to be satisfied by the assessee. It is pointed out that the assessee has not claimed depreciation on this machinery for this assessment year obviously on the basis that the machinery has not been used during the year. It is further pointed out that even according to the directors' report, the machinery in question has been placed in thatched sheds.
This fact together with the further fact that only trial runs were made would not amount to installation of the machinery for the purpose of grant of development rebate.
5. On behalf of the assessee, it is submitted that the directors have in their report clearly stated that the machinery has been installed even though such installation is in temporary sheds. The ITO has himself found that workers were recruited in December 1974. The point about the trial run has already been clarified before the Commissioner (Appeals). The assessee is an exporter of coir products and the factory at Nagercoil is export-oriented. The machines as installed during the previous year for this assessment year were capable of producing the finished products, namely, coir products. The trial run during the previous year was not for the purpose of deciding whether the machinery as installed was working properly but for the purpose of manufacture of samples of various coir products to be placed before the purchasers in the foreign market for approval and, consequently, for obtaining orders for manufacturing the products. It is submitted that the use of the word 'trial' in the context of the assessee's case is only for the production of coir products to be distributed as samples for export purposes/ Since the unit at Nagercoil is export-oriented, the production of the finished products can be made only on obtaining firm orders from the foreign buyers and till such orders are obtained, the products cannot be manufactured. The trial runs referred to by the directors in the report are only for the production of these products.
For this purpose, the machinery was installed as it can produce the finished products as required by the assessee. But the nature of the finished products would depend upon the orders for export to be obtained by the assessee. It is submitted that in the facts of this case, the machinery must be taken to have been installed in terms of the interpretation given to this term in Mir Mohammed Ali's case (supra). It is pointed out that the assessee has produced three tons of coir products during the previous year for this assessment year. The machinery has therefore, been,installed and they have also been used.
The question of the user of the machinery has not been disputed by the lower authorities. The claim of the assessee that the machinery has been used cannot be denied on the ground that the assessee has not claimed depreciation. We are unable to understand the first point that has been raised by the revenue in its grounds of appeal, namely, ground No. 2. The Tribunal earlier had restored the matter to the ITO v/ith certain directions. The direction was mainly for ascertainment of a factual position, viz., whether the units at Alleppey and Nagercoil form one business or two separate businesses. The ITO had been directed to determine this question and consider the second question, namely, the allowance of development rebate in the light of his determination of the first question. The matter has not been restored to the Commissioner (Appeals) as has been made out in ground No. 2.
6. Certain observations of the Tribunal have also been relied upon in this connection. These observations have been quoted by the ITO in the assessment order. We have also reproduced these observations earlier.
It is clear that these observations do not amount to a direction of the Tribunal. It is a guarded remark of the Tribunal that the trial runs may not show the real installation of the machinery for the purpose of granting development rebate. There are no findings or directions contained in this remark and the order of the Commissioner (Appeals) cannot be assailed on this ground.
7. The departmental representative has contended vehemently that there has been no installation and no user. The departmental representative has also emphasised the fact that there has been only trial production.
Ground No. 3 in the memorandum of appeal emphasises the fact that the machinery has been installed in thatched sheds. He has also brought to our notice that the assessee had not claimed depreciation. We do not think that these facts would stand in the way of the assessee's entitlement to development rebate. The directors' report is categorical as to the question whether the machinery has been installed. The term 'installed' has been interpreted by the Supreme Court in the case of Mir Mohammad AH (supra) to mean placing an apparatus in position for service or use. Applying this test, it cannot be said that the machinery has not been installed. The fact that three tons of coir products have been manufactured during the previous year would show that the machinery has been placed in position for service or use. The description of the operation in this factory during the close of the previous year as trial production by the directors in their report seems to have inspired the revenue that the machinery has not in fact been installed or used. The nature of the trial production is, no doubt, of a limited quantity and much below the capacity for production by this machinery. But the production of a limited quantity undertaken by the assessee during the previous year was not for the purpose of deciding whether the machinery has been properly installed and whether the machinery is working as it is required to do. The production of the limited quantity is only to produce samples. The distribution of such samples to the foreign buyers was a step that the assessee had necessarily to take to obtain firm orders for export. The production has been described as a trial production only in this sense and not in the other sense. Such production of coir products during the previous year was in the course of the business of the assessee and for the duration of the production, the machinery must be considered to have been used. There is no dispute that workers have been recruited for this factory in December 1974. We would hold in the light of these facts that the assessee had installed its machinery and had also used such machinery.
8. The departmental representative has brought to our notice the decision of the Gujarat High Court in the case of Saurashtra Wire-Healds Mfg. Co. (P.) Ltd. (supra). The Gujarat High Court has interpreted the words 'which is wholly used for the purposes of the business carried on by the assessee' as appearing in Section 10(2)(vib) of the Indian Income-tax Act, 1922, corresponding to Section 33 of the 1961 Act. These words also find a place in Section 33. The Gujarat High Court has held that these words are used because it is in respect of the business carried on by the assessee that the development rebate can be claimed. On the facts as narrated by us earlier, it cannot be said that the machinery had not been wholly used for the purposes of the business of the assessee, who is a manufacturer of coir products. The ITO has come to the finding that the manufacturing units at Alleppey and Nagercoil constitute one business and the machinery in the new unit has been used during the previous year for the production of three tons of coir products. We, therefore, do not see any reason to interfere with the order of the Commissioner (Appeals).