B. S. DHILLON J. - The following question of law has been referred to us by the Income-tax Appellate Tribunal, Chandigarh Bench, at the instance of the CIT, Patiala :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee was entitled to development rebate at the rate of 35% under section 33(1)(b)(B)(i) read with item No. (1) of the Fifth Schedule to the Income-tax Act, 196 ?'
It is not disputed that the assessee is manufacturing iron rods and girder out of the scrap metal. The only question which falls for determination with a view to answer this question is the interpretation of the provisions of s. 33(1)(b)(B)(i), which are as follows :
'(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 installed before the 1st day of April, 1970. .....'
Reference may also be made to the provisions of the Fifty Schedule attached with the Act.
'List of articles & things
(1) Iron and steel (metal), ferro-alloys and special steels.
(2) Aluminium, copper, lead and zinc (metals)......'
From the bare reading of this provision, it is obvious that if an assessee is engaged in construction, manufacture or production of any of the items mentioned in the Fifth Schedule, he is entitled to the rebate at the rate of 35 per cent. The Central Board of Direct Taxes was required to interpret the provisions of cl. (2) of the Fifth Schedule in response to a letter addressed by the Secretary, Bharat Chamber of Commerce, Calcutta. A copy of the said letter has been made available to us and the decision of the Board, which was communicated in this regard, is in the following terms :
'Section 33(1)(iii) of the Income-tax Act, 1961, as amended by Finance Act, 1965, provides for enhanced development rebate at the special rate of 35% in respect of plant and machinery installed after March 31, 1965, for the purpose of the business of construction, manufacture or production of any one or more of the articles and things specified in the list in the Fifth Schedule. Item (2) of the said list refers to 'Aluminium, copper, lead and zinc (metals). ' A question has been raised whether for the purpose of the allowance of the higher rate of development rebate, Aluminium (metals) should necessarily be manufactured from aluminium ores, namely, bauxite, or it may be manufactured even from aluminium scrap. The matter has been examined by the Board and it has been decided that for the purpose of allowing the higher rate of development rebate at 35%, item (2) of the Fifty Schedule would include the manufacture of aluminium (metal) both from bauxite as well as from aluminium scrap.'
From what has been stated in the reply by the Board, it is quite clear that the Board itself was of the opinion that for the purposes of allowing the higher rate of development rebate at 35 per cent., item (2) of the Fifth Schedule would include the manufacture of aluminium (metal) both from bauxite as well as from aluminium scrap. It is pertinent to note that in the letter of the Secretary, Bharat Chamber of Commerce, Calcutta, it has been pointed out that over 20 per cent. of such metals are made out of aluminium scrap just as a significant proportion of steel is made out of scraps.
In view of the interpretation given by the Board regarding item (2) of the Fifth Schedule, we are left with no option, but to give the same interpretation as the Board itself gave to item (2) while interpreting item (1) of the Fifth Schedule. It would thus be seen that rebate at 35 per cent. will be available to the assessee, who manufactures, produces or constructs iron and steel (metal) either from the original ore or from the scraps. In view of the fact that the assessee is producing iron bars and girders from the scraps, he will be entitled to the rebate at 35 per cent. The question is thus answered in favour of the assessee. There will be no order as to costs.
S. S. DEWAN J. - I agree