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Commissioner of Income-tax, Tamil Nadu-i Vs. Standard Motor Products of India Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 135 to 138 of 1976 (Reference Nos. 81 to 84 of 1976)
Judge
Reported in(1980)17CTR(Mad)317; [1981]131ITR300(Mad)
ActsIncome Tax Act, 1961 - Sections 80I
AppellantCommissioner of Income-tax, Tamil Nadu-i
RespondentStandard Motor Products of India Ltd.
Appellant AdvocateJ. Jayaramam, Adv.
Respondent AdvocateM. Utham Reddy, Adv.
Cases ReferredCommissioners of Taxation v. Kirk
Excerpt:
.....question answered in negative. (iv) positive income - whether assessee be allowed relief under section 80-i for 1969-70 since there was positive income - assessee had positive income of rs. 178556 - assessee eligible for relief under section 80-i on income attributable to manufacture items listed in schedule 6 - question answered in affirmative. - - the unit cost of the spare part produced and used can well be what it would cost if purchased from outside......year is concerned, from the assessment order itself, it is clear that the assessee had a positive income of rs. 1,78,556, which includes rs. 1,74,331 as business income. in the view that we have taken for the earlier years, the assessee would be eligible for the relief under s. 80i on the income attributable to the manufacture of the items listed in schedule vi. the quantum of relief would have to be worked out in the light of s. 80i. the fourth question is, accordingly, answered in the affirmative and in favour of the assessee. there will be no order as to costs.
Judgment:

Sethuraman, J.

1. The Appellate Tribunal has referred the following questions under s. 256(1) of the I.T. Act :

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to the rebate of 35% on the profits attributable to the manufacture and sale of the internal combustion engine, automobile ancillaries and gears for the assessment year 1965-66

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to the rebate under the provisions of section 80E/80I for the assessment years 1966-67, 1968-69 and 1969-70

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee should be allowed the relief under section 80I being worked out without setting off the brought forward loss from the earlier years for the assessment year 1968-69

4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee should be allowed the relief under section 80-I for the assessment year 1969-70, since there is a positive income ?'

2. The assessee is a company manufacturing motor cars. The first of the assessment years under consideration is 1965-66 for which the previous year is the calendar year. In that year, the assessee claimed the relief admissible to priority industry in accordance with the Finance Act, 1965. First Schedule, Pt. I, Para. F, read with Pt. III. The ITO rejected this claim for rebate at the rate of 35% on the ground that automobiles were not listed and that the manufacture of internal combustion engines, automobile ancillaries, gear and roller bearings were all part of manufactured automobiles so that such manufacture of automobiles did not fall within the relevant provisions. The AAC, on appeal, rejected this contention. In his view, if the assessee were to claim the relief admissible as a manufacturer of internal combustion engines, etc., it should manufacture and sell them as such, so as to get the rebate and that by using such engines as one of the parts of the automobile manufacture, the assessee could not get the benefit of that provision. The assessee appealed to the Tribunal. After referring to the relevant items in Pt. III of the First Schedule to the Finance Act, 1965, the Tribunal held that there was no warrant to limit the expressions in the list to the manufacturer of those items alone and that the benefit could be had by any undertaking which uses those items, to make up the finished products, e.g., the motor cars in this case.

3. For the assessment year 1966-67, the assessee claimed the same rebate under s. 80E, which was the provision in force in the relevant year. The ITO rejected this claim for the same reasons as those given for 1965-66. The AAC also confirmed the order of the ITO for the same reasons as in the earlier year. For the years 1968-69 and 1969-70, the provision under which the assessee claimed the relief was s. 80I and this claim was disallowed by the ITO and confirmed by the AAC, for the same reasons as in the earlier years.

4. The assessee appealed to the Tribunal. After referring to ss. 80E, and 80I, the Tribunal held that the sections required the relief to be granted where the total income included the profits or gains attributable to the business of manufacture or production of any one or more of the articles or things specified in the list in the relevant Schedule and that the assessee would be eligible for the allowance even though the relevant components came to be used in the automobiles manufactured. The first who questions as set out earlier arise out of these claims made by the assessee and allowed by the Appellate Tribunal. We may point out that in question No. 2, there is a reference to s. 80J, which it is common ground, is a mistake for s. 80E. We shall deal with the relevant provisions separately.

5. For the assessment year 1965-66, the question has to be considered in the light of the provisions of the Finance Act, 1965. In the case of every company, the rate of income-tax was 80 per cent. on the whole of the total income. The rebates were, however, given on the basis of the provisions of Para. F. In the case of a company, which is wholly or mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining, graded rebates are given. For instance, rebate is given on so much of the income as consists of profits and gains attributable to the business of generation or distribution of electricity or of construction, manufacture or production of any one or more of the articles or things specified in the list in Pt. III to the First Schedule to the Finance Act. The rate of 35 per cent. is applicable to so much of the profits or gains attributable to the manufacture of one or more of the articles specified in Pt. III as did exceed Rs. 10 lakhs. If the income exceeded Rs. 10 lakhs, then the rebate was reduced to 26 per cent. Part III of the Finance Act contains several entries. We are concerned with entries Nos. 5, 21, and 23, which run as follows :

'5. Boilers and steam generating plaints, steam engines and turbines and internal combustion engines.

21. Automobile ancillaries.

23. Gears.'

6. The claim of the assessee is that the articles manufactured by it fall under one or the other of these items, the internal combustion engines falling within item 5 and the other articles under item 21 or 23.

7. The learned counsel for the Commissioner disputed this claim of the assessee by raising two contentions. The first was, that unless the assessee manufactured these particular items and sold them as such, without using them in the automobiles, it would not be eligible for the exemption. We do not find that there is any such limitation in the provision, on the grant of rebate in the manner suggested by the learned counsel for the Commissioner. Whether the internal combustion engines were sold as such or were used in the automobiles produced by the assessee, still its manufacture falls within Part III. There is no reason why Parliament should encourage its manufacture and sale as such, and should discourage the use of the article by the assessee himself in producing other articles. We do not find any logical basis for encouraging the sale by the assessee and possible use by another manufacturer in producing automobile while discouraging their use by the assessee himself, for the same purpose. The relevant provision of the Finance Act provides for the rebate of 35% on so much of the total income as consists of profits and gains attributable to the business of the manufacture or production of any one or more of the listed articles or things. The expression 'attributable to' is a significant expression. It envisages an assessee producing or dealing in other goods, the manufacture of the listed item forming only a part of the business. Thus, if an assessee can carry on business of manufacturing other goods and still be eligible for the relief, there is no reason why the assessee cannot use the listed item produced by him in making other goods. The taxing authorities are required to see whether the profits attributable to the manufacture of any one or more of the listed articles form part of the taxed income. If so, the assessee would be eligible for the rebate. The contention to the contrary by the learned counsel for the Commissioner has thus neither logic nor language to commend it.

8. Another aspect, on the basis of which the learned counsel contended that the assessee cannot have the relief in the present case, was that it would not be possible to find out the profits attributable to such manufacture, if the listed items are used in the manufacture of automobiles. the learned counsel for the assessee pointed out that if these engines are sold for a price, the profits attributable to the manufacture of the listed articles can be worked out. We consider that there is merit in this contention of the assessee. While making up the cost of the automobile, the assessee would be giving some unit price for each one of the items that go into its manufacture. Some parts may be produced by the assessee, as here, and some others may be purchased by it. With reference to the parts purchased, the price paid by the assessee would be its cost. As far as the other items are concerned, the assessee would be attributing some value to the spare parts used and that would furnish the basis for arriving at the profits attributable to the manufacture of the particular article. At any rate, by imagining some difficulties in accounting, the exemption granted by Parliament cannot be denied. The taxing authority cannot get out of its obligation to work out the statutory provisions by throwing up its hands in imaginary despair.

9. The expression 'attributable to' is not peculiar to this part of the law. The expression occurs in other sections also. For instance, the same expression found a place in s. 42 of the Indian I.T. Act, 1922, which corresponds to s. 9(1)(i), Expln. (a), of the 1961 Act. The profit-making activity may consist of several operations and, for each stage, profit is to be attributed. See CIT v. Ahmedbhai Umarbhai & Co. : [1950]18ITR472(SC) . It is on this basis that the income will have to be computed, for instance, for the purpose of s. 9(1) as in Commissioners of Taxation v. Kirk [1900] AC 588. The automobile industry all over the world is not a mere assembly line of spare parts purchased from others. Some are manufactured by the producers of the automobile. Parliament cannot be taken to have legislated in ignorance of this world-wide phenomenon. The unit cost of the spare part produced and used can well be what it would cost if purchased from outside. There is thus no difficulty in finding out the profit attributable to the listed items. The result is that question No. 1 is answered in the affirmative and in favour of the assessee.

10. For the other years, the provisions are different. The relevant provision applicable to 1966-67 runs as follows :

'80E. Deduction in respect of profits and gains from specified industries in the case of certain companies. - (1) In the case of a company to which this 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 Fifty Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent. thereof, in computing the total income of the company.'

12. The provision is more or less identical with the one in the Finance Act, 1965. The rebate is a straight deduction of 8% of the profits earned in the manufacture of the listed item, as against a deduction of a percentage from the gross tax. As substantially the provision is not different, the assessee would be eligible for the rebate for the year 1966-67 also.

13. For the assessment years 1968-69 and 1969-70, the provision to be applied is s. 80I, as it was then in force, which ran, to the extent relevant, as follows :

'In the case of a company to which this section applies, 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.'

14. For this year, the only additional feature to be introduced is the expression priority industry which is 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 Sixth Schedule. There is in substance no different, and for the same reason for the earlier years, the assessee is eligible for the benefit of the relief in respect of the profits attributable to the items falling within the relevant Schedule to the I.T. Act. Therefore, the second question is also answered in the affirmative and in favour of the assessee.

15. The third question arises on the following facts. In the assessment for the assessment year 1968-69, the assessee claimed in the relief under s. 80I on the basis of the profits attributable to the manufacture of the relevant items falling within the appropriate Schedule before adjustment of the brought forward loss. The ITO and the AAC did not accept the assessee's claim. However, when the matter came before the Tribunal, it found that there was a positive figure of total income for that year before the previous year's loss were adjusted and that, therefore, the assessee was entitled to the relief as claimed by it. The corrections of the Tribunal's conclusion with reference to this aspect is the subject-matter of the third question.

16. This point is now covered by a decision of this court in CIT v. English Electric Company (T.C. No. 277 of 1976) in the judgment dated December 13, 1979 (see p. 277 supra). Though the assessment year in that case is different and the relevant provision was s. 80E, it is not in dispute that s. 80I with which we are now concerned, is substantially similar to s. 80E. The learned counsel for the assessee reiterated the same contentions that were urged by him in the aforesaid decision and we have rejected his contentions. We do not think it necessary to cover the same grounds here and for the reasons stated therein, we answer the 3rd question in the negative and in favour of the revenue. However, the question of relief will have to be examined in the light of the appropriate figures and the assessee would be eligible for the relief under s. 80I, if there is any positive balance after adjustment of the earlier years' losses.

17. The last question also raises the point regarding the relief under s. 80I for the assessment year 1969-70. The ITO determined the total income to be Rs. 1,78,560. But he rejected the assessee's claim for the relief under s. 80I without practically any discussion. The AAC, on appeal, held that no relief was available to the assessee, as the manufacturing income was only a loss. The Tribunal, on further appeal, considered this question and held that the relief should be worked out on the positive income that was assessable in that year. As far as this year is concerned, from the assessment order itself, it is clear that the assessee had a positive income of Rs. 1,78,556, which includes Rs. 1,74,331 as business income. In the view that we have taken for the earlier years, the assessee would be eligible for the relief under s. 80I on the income attributable to the manufacture of the items listed in Schedule VI. The quantum of relief would have to be worked out in the light of s. 80I. The fourth question is, accordingly, answered in the affirmative and in favour of the assessee. There will be no order as to costs.


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