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Commissioner of Income-tax, Central Vs. Hindusthan Motors Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 339 of 1977
Judge
Reported in[1981]127ITR210(Cal)
ActsIncome Tax Act, 1961 - Section 33(1) and 80E; ;Finance Act, 1965
AppellantCommissioner of Income-tax, Central
RespondentHindusthan Motors Ltd.
Appellant AdvocateBalai Pal and ;N. Bhattacharjee, Advs.
Respondent AdvocateR.N. Bajoria, ;Chakraborty and ;A.K. Dey, Advs.
Cases ReferredTata Iron and Steel Co. Ltd. v. State of Bihar
Excerpt:
- .....the i.t. act, 1961, in respect of its profits and gains attributable to the manufacture of motor cars and manufacture of automobile ancillaries. it also claimed higher development rebate under section 33(1)(iii)(c)(a)(a) of the i.t. act, 1961, on new machineries installed for the manufacture of automobile ancillaries. the ito allowed the claim for deduction under section 80e only in so far as that claim related to the profits and gains arisingout of the automobile ancillaries by the assessee and rejected the claim in so far as it related to profits and gains relatable to the manufacture of cars and manufacture of automobile ancillaries used by the assessee in its own manufacture of cars. further, the ito did not allow the higher development rebate of 35% claimed by the assessee under.....
Judgment:

Sabyasachi Mukharji, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, we have been referred two questions for two different years which are as follows :

For the assessment year 1965-66 :

'Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions contained in Para. F read with items (10) and (21) of Part III of the First Schedule to the Finance Act, 1965, the Tribunal was right in holding that the assessee is entitled to rebate of tax at the higher rate of 35% on its profits and gains attributable to the manufacture or production of all the automobile ancillaries including those utilised by it in its own manufacture of cars for the assessment year 1965-66 ?'

For the assessment year 1966-67 :

'1. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 80E read with items (10) and (20) of the Fifth Schedule to the Income-tax Act, 1961, the Tribunal is right in holding that the assessee is entitled to deduction under the said Section 80E in respect of its profits and gains attributable to its manufacture or production of all the automobile ancillaries including those utilised by it in its own manufacture of cars ?

2. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions of Section 33(1)(iii)(c)(A)(a) of the Income-tax Act, 1961, the Appellate Tribunal is justified in holding that the assessee is entitled to development rebate at 35% on the cost of the machineries newly installed for the manufacture of automobile ancillaries, irrespective of whether the ancillaries so manufactured were sold by the assessee to outside parties or were utilised by it in its own manufacture of cars ?'

2. The assessee is M/s. Hindusthan Motors Ltd. and is engaged, inter alia, in the manufacture of motor cars. The assessment years involved are 1965-66 and 1966-67. In order to determine the questions involved for the assessment year 1965-66, it has to be borne in mind that the assessment was governed by the Finance Act, 1965. According to Para. F of the First Schedule to the said Finance Act, a company was entitled to a higher rebate of 35% of the tax on so much of its profits and gains as could be attributed to the manufacture or production of any one or more of the articles or things specified in the list in Part III of the First Schedule to the said Finance Act. The articles and things specified in item (10) in the said Part were 'motor trucks and buses' while the articles and things specified in item (21) thereof were 'automobile ancillaries', In the assessment for the assessment year 1965-66, the assessee claimed the higher development rebate of 35% under the aforesaid provisions of the Finance Act, 1965, in respect of its profits and gains attributable to its manufacture of production of automobile ancillaries. The ITO disallowed the assessee's claim for higher rebate of 35% in so far as the claim related to the profits and gains attributable to the manufacture of motor cars and to the manufacture of automobile ancillaries utilised by the assessee in its manufacture of new cars on the ground that the manufacture of cars was not one of the articles enumerated in Part III of the First Schedule to the Finance Act, 1965. He, however, allowed the rebate at the lower rate as prescribed in Para. F of the First Schedule to the said Finance Act.

3. In the next assessment year 1966-67, the assessee's claim for deduction fell to be considered under Section 80E of the I.T. Act, 1961, which was almost similar to the provisions contained in the aforementioned Act, the only difference being that Section 80E of the I.T. Act, 1961, provides for deduction in the computation of the total income whereas Para. F of the First Schedule to the Finance Act, 1965, provided for rebate of tax at a certain percentage. The relief under Section 80E of the I.T. Act, 1961, was to be given in respect of the profits and gains of a priority industry, i.e., one engaged in the manufacture of the articles and things specified in the Fifth Schedule to the said Act. The articles and things specified in item (20) of the said Fifth Schedule are 'motor trucks and buses' while the articles and things specified in item (21) of the same Schedule are 'automobile ancillaries'. For the assessment year 1966-67, the assessee claimed deduction under Section 80E of the I.T. Act, 1961, in respect of its profits and gains attributable to the manufacture of motor cars and manufacture of automobile ancillaries. It also claimed higher development rebate under Section 33(1)(iii)(c)(A)(a) of the I.T. Act, 1961, on new machineries installed for the manufacture of automobile ancillaries. The ITO allowed the claim for deduction under Section 80E only in so far as that claim related to the profits and gains arisingout of the automobile ancillaries by the assessee and rejected the claim in so far as it related to profits and gains relatable to the manufacture of cars and manufacture of automobile ancillaries used by the assessee in its own manufacture of cars. Further, the ITO did not allow the higher development rebate of 35% claimed by the assessee under Section 33(1)(iii)(c)(A)(a) of the I.T. Act, 1961, on the cost of the machineries newly installed for the manufacture of automobile ancillaries.

4. The assessee preferred appeals before the AAC against the assessments for the assessment years 1965-66 and 1966-67. The AAC disposed of the appeals for two assessment years 1963-64 and 1964-65, by a common order. He held so far as these grounds are concerned, inter alia, as follows:

'Motor car has not been included in the list of priority industries and since motor trucks and buses have been included, the obvious intention of the Legislature was to exclude motor cars from the list of priority industries. Since motor cars' spare parts were being manufactured by the company only in the process of manufacture of cars and manufacture of component parts was not the company's business, the ITO was fully justified in disallowing the appellant's claim for rebate of income-tax at 35% for the assessment year 1965-66 and deduction under Section 80E and allowance of development rebate at 35% for the assessment year 1966-67. The appellant's contentions are, therefore, rejected.'

5. The assessee preferred appeals before the Tribunal against the consolidated order of the AAC in so far as it related to the assessment years 1964-65 to 1966-67. The Tribunal disposed of all those appeals by a consolidated order dated 9th May, 1975. The claim of the assessee for rebate of tax at the higher rate of 35% under Para. F of the First Schedule to the Finance Act, 1965, for the assessment year 1965-66 and its claim for deduction in the computation of its total income under Section 80E of the I.T. Act. 1961, for the assessment year 1966-67, were dealt with by the Tribunal. After setting out the relevant facts, the Tribunal observed, inter alia, as follows :

'We have considered the submissions placed before us. In our opinion, there is force in the contentions of the learned counsel. It cannot be denied that the assessee was the manufacturer of automobile ancillaries. That fact is also supported from the rebate granted by the Income-tax Officer himself for those ancillaries which were sold to outside parties. He merely limited the disallowance of rebate to such ancillaries which were utilised by the assessee in the manufacture of its own cars only on the ground that the manufacture of cars was not provided as a separate item, either under the Finance Act, 1965, or in the Fifth Schedule to the Act. In our opinion, that is not the correct approach. It is immaterial whether the assessee utilized the ancillaries in its own manufacture or sold them outside for the purpose of granting the higher rebate. This position has already been made clear in the two cases cited above though in somewhat different context. The Act does not lay down any prohibition on allowance of higher rebate on those ancillaries which are utilised by the assessee in its own manufacture. Supposing the assessee would have limited its activities only to the manufacture of ancillaries and would have transferred all the products to another company which would have solely devoted itself to the assembling of cars, then it would have been entitled to the higher rebate ; we do not think that the Legislature would have left such a big loophole in the I.T. Act. That being the position we are of the considered opinion that the assessee is entitled to a higher rebate on all its automobile ancillaries including those utilised by it in the assembling of its own cars.

The last contention for the assessment year 1966-67 relates to the claim of higher development rebate on new machineries installed for the manufacture of automobile ancillaries. This issue is intimately related to the claim of higher rebate as discussed above. The Appellate Assistant Commissioner has also dealt with this point along with the first issue. The Income-tax Officer did not allow the higher rebate of 35% as laid down in Section 33(1)(iii)(c)(A)(a) as he was of the opinion that the machinery or plant on which the claim was made was installed for the purposes of business of manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule to the Act. Besides placing its case on the same line as that of higher rebate on income, the learned counsel for the assessee also submitted that the development rebate could not be disallowed merely because the machinery or plant besides producing those automobile ancillaries on which higher rebate was allowable also produced such ancillaries which, according to the Income-tax Officer, were not entitled to such rebate. He submitted that the development rebate could not be bifurcated in such a manner. The arguments of the learned departmental representative were the same as those for the disallowance of higher rebate on income.

Since we have already upheld the assessee's claim of higher rebate on income we also accept its claim for higher development rebate. We also accept the second contention of the learned counsel for the assessee that there is no provision in the Act for disallowing development rebate only because a particular machinery was also utilised for producing such goods which were not entitled for higher rebate of tax. That being the position we direct the Income-tax Officer to allow the development rebate of 35% even on those new machineries which were installed for the manufacture of automobile ancillaries, whether such ancillaries were sold to outside parties or were utilised by the assessee for the assembling of its new cars.'

6. Thereupon the aforesaid questions have been referred to this court.

7. In order to appreciate the questions involved it is necessary to refer to Para. F of the First Schedule, Part I, of the Finance Act, 1965. Column 1 deals with types of companies in which rebates are allowed. The relevant portions of Para. F with which we are strictly concerned herewith are as follows :

Column 1

' II. In the case of a company which-

(a) satisfies condition (a) of item I hereinabove, and

(b) is not such a company as is referred to in Section 108 of the Income-tax Act,--

(i) 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.

Column 2

Income on which rebate is to be allowed

(a) on so much of the total 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 Part III of this Schedule-

(i) on so much of the profits and gains aforesaid as do not exceed Rs. 10 lakhs.

(ii) on the balance of the profits and gains aforesaid.

Column 3

Rate of rebate

(i) 35 per cent.

(ii) 26 per cent.

Similarly, Section 80E provides 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 Fifth 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.

(2) This section applies to-

(a) an Indian company ; or

(b) any other company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India,

but does not apply to any Indian company referred to in Clause (a), or to any other company referred to in Clause (b), if such Indian or other company is a company referred to in Section 108 and its total income as computed before applying the provisions of Sub-section (1) does not exceed twenty-five thousand rupees.'

8. In the Fifth Schedule the list of articles or things are mentioned under Section 33(1)(iii)(c)(A)(a). We have already set out the item (10) which read motor trucks and buses and item (20) which provide for automobile ancillaries. It has to be borne in mind that the assessee manufactures automobiles. It is true that motor car has not been specifically included as emphasised by the AAC in these provisions while motor trucks and buses have been mentioned. Therefore, motor trucks and buses have been separately treated from motor cars. But automobile ancillaries have been mentioned in its full amplitude, that is to say, ancillaries which are used for all types of automobiles including automobiles, motor cars, trucks, buses and other types, if there be. The second aspect that has to be borne in mind is that though on profits and gains certain reliefs and rebates were allowed, the rebates and reliefs are allowed not in respect of the profits and gains made mainly or solely or exclusively from certain types of operations. The profits and gains had to be attributable and not derived from the operation contemplated by the Schedule, but the distinction is important because as emphasised by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) , at page 93, where the Supreme Court expressed the view that the expression attributable had a wider amplitude than the expression derived from, thereby intending to cover receipts from sources other than the actual conduct of the business of the specified industry. Therefore, whatever the total profits the assessee-company was making was certainly attributable to one of the types of transaction contemplated by the Schedule. Here, the assessee was carrying on the operation of assembly and also manufacture. As such the profits and gains of any operation is entitled to relief or rebate as contemplated under the section. The assessee is also carrying on the operation or the manufacture of automobile ancillaries and the total profits and gains of the assessee were attributable to some of the operations being carried out in production and manufacture of automobile ancillaries. If that is the position, then, the very fact that the assessee was using part of the automobile ancillaries produced by it and used for itself and not for sale to the market separately would not deprive the assessee of the relief granted on the plea that one could not trade with oneself or earn any profit in respect of transaction with oneself. Learned advocate for the revenue drew our attention to the various authorities which held that one could not trade with oneself and as such contended that any part which was attributable out of the transaction of the assessee should not be entitled to relief. We are unable to accept this position. It is not a question whether the assessee carries on trade with itself. The assessee is carrying on business of earning the profit and one of the operations the assessee is carrying on is the production and the manufacture of automobile ancillaries. If a portion of which is attributale to the automobile ancillaries as provided in the relief granted under the section as we have mentioned before, then the assessee should not be deprived of the same as we have mentioned in Para. F of Part I of the First Schedule of the Finance Act, 1965, and similar is the position under Section 80E of the I.T. Act, 1961. Column A provides the type of company. It does not require that the company must be exclusively or wholly or mainly involved in the production of ancillaries, but if it is so, then under column B the rebate is allowed on so much of its articles which are in manufacture or production of any one of the articles mentioned in Part III of the Schedule and any one of the articles includes one of the articles--automobile ancillaries. Therefore, it does not become disentitled to such relief simply because part of those automobile ancillaries is consumed or utilised by the assessee for itself. It is true that the relief provisions must be srtictly construed. But in construing the provisions of the relief, if the logical conclusion is, in some context, the assessee might be entitled to relief in respect of part of the units which is utilised for its production, it does not become disentitled to it, is now fairly well settled. Reference in this connection may be made to the observations of the Supreme Court in the case of Tata Iron and Steel Co. Ltd. v. State of Bihar : [1963]48ITR123(SC) , in the case of CIT v. Orient Paper Mills Ltd. : [1974]94ITR73(Cal) , in the case of CIT v. Hindustan Motors Ltd. : [1977]107ITR164(Cal) as well as in the decision of the Supreme Court in the case of Textile Machinery Corporation Ltd. v. CIT : [1977]107ITR195(SC) . In the aforesaid view of the matter, we are of the opinion that the Tribunal was right in its conclusion and the questions referred to us are answered as follows :

For the assessment year 1965-66, the answer is in the affirmative and in favour of the assessee. For the assessment year 1966-67, question No. 1 is answered in the affirmative and in favour of the assessee and, similarly, question No. 2 is answered in the affirmative and in favour of the assessee.

9. In the facts and circumstances of this case, there will be no order as to costs.

Sudhindra Mohan Guha, J.

10. I agree.


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