1. The Tribunal has referred the following question under Section 256(1) of the Act :
'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 higher development rebate at 35% under Section 33(1)(b)(B)(i) ?'
2. The assessee is engaged in the business of purchasing rough castings and supplying the same to the manufacturers of pump-sets, tractors, etc., after machining and polishing them in its factory. It claimed beforethe ITO development rebate of Rs. 42,146 for the assessment year 1970-71 and Rs. 6,038 for the assessment year 1971-72, which are the years under reference, on the basis of allowance of 35% having to be made on the cost of machinery. This claim for allowance of 35% as development rebate was made on the ground that the assessee was a priority industry which came within the scope of the entries in the Fifth Schedule to the Act. The assessee relied on item (9) read with item (24) of the Act as being applicable to its case. The ITO, however, held that the assessee could be granted development rebate only at the general rate of 20% as in his opinion the assessee's case did not come under item (24)
3. The AAC on appeal took the view that the assessee's case would fall under item (5) read with item (24) of the Fifth Schedule and, therefore, directed development rebate at the rate of 35%. The Revenue went on appeal to the Tribunal. The Tribunal held that item (5) read with item (24) would apply to the assessee's case and, therefore, it confirmed the allowance of development rebate at 35% as granted by the AAC. The Tribunal's order has given rise to the reference of the above question.
4. Item (5) of the Fifth Schedule runs as follows :
'Boilers and steam generating plants, steam engines and turbines and internal combustion engines.'
5. Item (24) runs as follows :
'Component parts of the articles mentioned in items Nos. (4), (5), (7) and (9), that is to say, such parts as are essential for the working of the machinery referred to in the items aforesaid and have been given for that purpose some special shape or quality which would not be essential for their use for any other purpose and are in complete finished form and ready for fitment.'
6. The assessee does not manufacture any internal combustion engines. Parts with which we are now concerned are claimed to be components of such internal combustion engines. The higher rate is applicable as provided in Section 33(1)(b)(B)(i), where the machinery or plant is 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. The short question is whether the machinery 'which produced the items with which we are now concerned has been installed for the purpose of construction or manufacture of the components of item No. (5).
7. In the present case, one of the contentions taken by the learned counsel for the Revenue was that there was no manufacture as such, because, the assessee bought rough castings and then only polished them, such polishing not being equivalent to manufacture. We are unable to agree with this submission. The word 'manufacture' has to be understood in a wide sense.
8. In CIT v. M. R. Gopal : 58ITR598(Mad) , the question whether there was manufacture arose in a case where boulders were converted into small stones with the aid of machinery. This court held that the process employed in the conversion of boulders into small stones was a manufacturing process and that the undertaking was an industrial undertaking. The word 'manufacture' was found to mean, as given in Webster's Dictionary 'anything made from raw materials by the hand, by machinery, or by art, as cloths, iron utensils, shoes, machinery, etc.' It was observed at p. 599 :
'It seems to us to be unarguable having regard to the meaning of manufacture that the process employed in converting boulders into small chips of stones with the aid of labour and machinery is not a manufacturing process. Surely labour is employed and something is converted into something else, a product which is of value and is used, and in that sense the chips are a new production as a result of a manufacturing process.'
9. Applying the same reasoning, after the rough castings are polished, the product is a new product which is utilised as component in internal combustion engines. The Tribunal has found that component parts are essential parts for internal combustion engines. We do not have any evidence to show that this conclusion of the Tribunal is in any manner unwarranted. We have, therefore, to answer the reference in the affirmative and in favour of the assessee. As the assessee is not represented, there will be no order as to costs.