Full Judgment Text
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PETITIONER:
HINDUSTAN WIRES PRODUCTS LIMITED
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, PATIALA
DATE OF JUDGMENT07/08/1986
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION:
1987 AIR 566 1986 SCR (3) 478
1986 SCC (3) 689 JT 1986 75
1986 SCALE (2)160
CITATOR INFO :
E&D 1992 SC 422 (4)
ACT:
Income Tax Act, 1961, ss 33(i)(iii)(C)(A),33(I)(b)(B)
(i), 80E, 80-I and items 7, 17 and 24 of the Fifth Schedule
- Manufacture of insulated copper wires-Grant of development
rebate & deduction in respect of profits and gains-
Permissibility of.
HEADNOTE:
Section 33 of the Income Tax Act, 1961 provides for the
grant of development rebate. The appellant-assessee, who
carried on the business of manufacture and sale of insulated
copper wires, claimed for the assessment years 1966-67 to
1971-72 that it was entitled to the benefits conferred by
ss. 33(i)(iii) (c)(A) and 80E read with items 7, 17 and 24
of the Fifth Schedule and ss. 33(i)(b)(B)(i) and 80-I read
with items 7, 17 and 24 of the Fifth or the Sixth Schedule,
as the case may be, for the aforesaid assessment years as a
"priority industry". It contended before the Income Tax
officer that the wires manufactured by it were covered by
the word "cables" employed in the articles and things
specified in items 7, 17 and 24 of the Fifth Schedule for
the assessment years 1966-67, 1967-68 and 1968-69 and items
7, 17 and 24 of the Sixth Schedule of the Income Tax Act for
the assessment years 1969-70 to 1971-72. The Income Tax
officer rejected the claim made by the appellant. The matter
ultimately went before the High Court in a reference. The
High Court answered the question in favour of the Revenue
and against the appellant-assessee on the ground that the
wires were not meant for the generation and transmission of
electricity and they would fall within item 7 only if they
were meant solely for that purpose and not otherwise.
Dismissing the appeal,
^
HELD: 1. Item 7 of the Fifth Schedule speaks of
equipment for the generation and transmission of electricity
and such equipment includes transformers, cables and
transmission towers. To appreciate what is comprehended in
item 7, it is permissible to refer to a related
479
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entry, item 24, which refers to component parts of the
articles mentioned, inter alia in item 7. When item 24 is
read in its entirety, it is apparent that the component
parts mentioned therein are component parts of what can be
described as machinery. Then reading item 7 in conjunction
with item 24, the conclusion is inescapable that when item 7
speaks of equipment, reference is intended to machinery
needed tor the generation and transmission of electricity.
The item envisages complete self-contained units of
equipment, units which, on being put together or connected
together, constitute the apparatus for the generation and
transmission of electricity. Viewed in that context, the
reference in item 7 to cables must mean cables identifiable
as a complete self-contained unit in themselves as a
distinct unit of equipment when employed in the generation
and transmission of electricity. A cable does not fall
within item 7 if it is merely a component, or part of a
component, of a unit of equipment or machinery.[485F-H;
486A-C]
Commissioner of Income Tax, Tamil Nadu-V v.
Dhandayuthapani Foundry (Private) Ltd., [1980] 123ITR 709,
inapplicable.
In the instant case, the sales accounts of the asessee
showed that the assessee had sold winding wires used in the
manufacture of different types of electricity. These are
winding wires, employed in coils, winding of armatures, etc.
and cannot be identified at all as cables in the sense in
which item 7 conceives of cables. [486D-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos 597-599
(NT) of 1985
From the Judgment and order dated 3.5.1983 of the
Punjab & Haryana High Court in Income Tax Reference Nos. 61,
63 and 64 of 1977
Dr. Devi Pal, V.S. Desai, O.C. Mathur, Ms A K. Verma,
Ms. Meera Verma and S. Sukumaran for the Appellant.
S.C. Manchanda and Ms. A Subhashini for the Respondent
The Judgment of the Court was delivered by
PATHAK, J. These appeals by special leave are directed
against the judgment of the High Court of Punjab and Haryana
holding that the sale of insulated copper wires manufactured
by the appellant-
480
assessee does not entitle it to the benefits conferred by
ss. 33(1)(iii) (c)(A) and 80E of the Income Tax Act, 1961
for the assessment years 1966-67 and 1967-68 and the
benefits conferred by ss. 33(1)(b)(B)(i) and 80I of the
Income-tax Act, 1961 for the assessment years 1968-69 to
1971-72
Section 33 of the Income Tax Act, 1961 provides for the
grant of development rebate. Prior to April 1, 1968, s.
33(1)(iii)(c)(A) of the Income Tax Act, 1961 provided:
"(1) In respect of a new ship acquired or new
machinery or plant (other than office appliances
or road transport vehicles) installed after the
31st day of March, 1954, which is owned by the
assessee and is wholly used for the purposes of
the business carried on by him, a sum by way of
development rebate, equivalent to-
(i) ..............................................
(ii) .............................................
(iii) in the case of machinery or plant installed
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after the 31st day of March, 1961-
(a) .........................................
(b) .........................................
(c) where the machinery or plant is installed
after the 31st day of March, 1965-
(A) 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 assesee, where it is
installed before the 1st day of
April, 1970. and
(b) twenty-five per cent, of such
cost, where
481
it is installed after the 31st day
of March, 1970.
(B) ...............................
shall, subject to the provisions of s. 34, be
allowed as a deduction in respect of the previous
year in which the ship was acquired or the
machinery or plant was installed or, if the ship,
machinery or plant is first put to use in the
immediately succeeding previous year, then, in
respect of that previous year."
This provision was substituted, with effect from April 1,
1968, by the present provision which reads:
"33(1)(a) In respect of a new ship or new
machinery or plant (other than office appliances
or road transport vehicles) which is owned by the
assessee and is wholly used for the purposes of
the business carried on by him, there shall, in
accordance with and subject to the provisions of
this section and of section 34, be allowed a
deduction in respect of a previous year in which
the ship was acquired or the machinery or plant
was installed or, if the ship, machinery or plant
is first put to use in the immediately succeeding
previous year, then, in respect of that previous
year, a sum by way of development rebate as
specified in clause (b).
(A) ..............................................
(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 in stalled before
the 1st day of April, 1970, and
(b) twenty-five per cent of such cost,
where it is installed after the 31st day
of March, 1970.
482
These provisions relate to development rebate.
A deduction was also available to an assessee in
respect of profits and gains from specified industries in
the case of certain companies prior to April 1, 1968.
Section 80E provided:
"80E (1) In the case of a company to which this
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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 pro fits and gains of an amount equal to
eight per cent. thereof in computing the total
income of the company."
Section 80E was deleted with effect from April 1, 1968
and was substituted by s. 80-I which provides:
"80-I(1) In the case of a company to which this
section ap plies, 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."
It is not disputed between the parties that the assessee is
a company to which the provisions of s. 80E and subsequently
of s. 80I will apply. Section 80I, it may be noted, was
deleted by the Finance Act, 1972 with effect from April 1,
1973. With effect from April 1, 1968 the expression
’priority industry’ was 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 Fifth Schedule or the business of any
hotel where such business is carried on by an
Indian company and the hotel is for the time being
approved in this behalf by the Central
Government."
483
The word ’Sixth’ was substituted for ’Fifth’ by the Finance
Act 1968 A with effect from April 1, 1969.
With effect from April 1, 1964 the Fifth Schedule set
forth a list of articles and things and items 7, 17 and 24
which possess some relevance to this case read as follows:
"(7) Equipment for the generation and transmission
of electricity including transformers, cables and
transmission towers,
(17) Electronic equipment, namely, radar
equipment, computers, electronic accounting and
business machines, electronic communication
equipment, electronic control instruments and
basic components, such as valves, transistors,
resisters, condensors, coils, magnetic materials
and microwave components,
(24) 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 comp-
lete finished form and ready for fitment."
The Sixth Schedule which replaced the Fifth Schedule with
effect from April 1, 1969 contained identical items 7,17 and
24.
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These appeals relate to the assessment years 1966-67 to
1971-72. The assessee carries on the business of manufacture
and sale of insulated copper wires. Before the Income Tax
officer, it claimed that it constituted a priority industry
for the purposes of the provisions of ss. 33(1)(iii)(c)(A)
and 80E read with items 7, 17 and 24 of the Fifth Schedule
of the Income Tax Act, 1961 for the first two years and
sections 33(1)(b)(B)(i) and 80-1 read with items 7, 17 and
24 of the Fifth or the Sixth Schedule, as the case may be,
of the Income Tax Act, 1961 for the latter four years. The
assessee claimed that it was entitled to the benefits
conferred by those provisions for the aforesaid assessment
years as a ’priority industry’. It asserted that the wires
manufactured by it were covered by the word ’cables’
employed in the articles and things specified in items 7, 17
and 24 of the Fifth Schedule
484
for the assessment years 1966-67, 1967-68 and 1968-69 and
items 7, 17 and 24 of the Sixth Schedule of the Income Tax
Act for the assessment years 1969-70 to 1971-72. It produced
expert evidence in support of its claim. The Income Tax
officer rejected the claim made by the assessee. An appeal
to the Appellate Assistant Commissioner was dismissed. The
assessee then appealed to the Income Tax Appellate Tribunal.
The Appellate Tribunal allowed the six appeals and held
that the assessee was entitled to the benefits claimed by it
as a ’prority industry’. It noted that although the assessee
had based its claim on items 7, 17 and 24 of the Schedules,
the claim was emphatically pressed in the hearing before it
under item 7 alone. The question before it then was limited
to the point whether the wires manufactured by the asses see
fell within item 7. In disposing of the appeals, the
Appellate Tribunal adverted to its finding in the appeals
for the two immediately preceding assessment years 1964-65
and 1965-66. In its appellate order for the assessment year
1964-65 it found that the assessee manufactured aluminium
cables which were used in the transmission of electricity
and held that, therefore, it was entitled to the benefit of
the Fifth Schedule relevant for those two assessment years.
In the appeal pertaining to the assessment year 1965-66 it
considered the matter again and upheld the claim in view of
its order for the preceding assessment year. It noted that
the Revenue had accepted the orders and had not questioned
them in reference. It found from a perusal of the Industrial
Licences on the basis of which the assessee was operating
that there was no change in the nature or type of the goods
manufactured by it during the six assessment years before it
in appeal. It observed that when it referred to aluminium
cables in its earlier orders it should have described them
as copper and aluminium cables. Having regard to the
material before it, the Appellate Tribunal found no reason
to change its opinion from the view taken in the preceding
assessment years that the manufacture of the cables
attracted the benefits claimed by the assessee.
Thereafter, at the instance of the Revenue, the
Appellate Tribunal made a reference for the six assessment
years to the High Court of Punjab and Haryana for its
opinion on the following two questions:
"Whether, on the facts and in the circumstances of
the case, the assessee-company was entitled to the
benefits conferred by the provisions of sections
33(1)(iii)(c)(a) and 80E of the Income Tax Act,
1961?
485
2. Whether on the facts and in the circumstances
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of the case, the assessee-company was entitled to
the benefits conferred by the provisions of
sections 33(1)(b)(B)(i) and 80-I of the Income Tax
Act, 1961?"
The High Court answered those questions in favour of the
Revenue and against the assessee. The High Court differed
from the Appellate Tribunal and took the view that in the
cases for the assessment years under consideration the
Income Tax officer had come into possession of fresh facts
indicating that the assessee was manufacturing copper wires
of a particular type known as winding wires which were
exclusively used in the manufacture of different types of
gadgets and not for the purpose of generation and
transmission of electricity. It observed that the wires were
not meant for the generation and transmission of
electricity, and they would fall within item 7 only if they
were meant solely for that purpose and not otherwise.
In these appeals it is contended on behalf of the
assessee that the High Court has misconstrued the facts
found by the Appellate Tribunal and has, therefore,
erroneously held that the cables manufactured by the
assessee do not fall within the scope of item 7. It is urged
also that the true test for determining whether the cables
could be used in the generation and transmission of
electricity was that laid down by the Madras High Court in
Commissioner of Income-Tax, Tamil Nadu-V v. Dhandayuthapani
Foundry (Private) Ltd., [1980] 123 l.T.R. 709 where in
considering the question whether an implement could be
described as an agricultural implement it was observed that
the real test was not whether it was exclusively used for
agricultural purposes but whether it was commonly so used
and whether it was intimately and directly connected with
agricultural operations.
The point before us is whether the cables manufactured
by the assessee qualify for inclusion in item 7 of the Fifth
Schedule or the Sixth Schedule, as the case may be having
regard to the relevant assessment year. Item 7 speaks of
equipment for the generation and transmission of
electricity, and such equipment includes transformers,
cables and trans- mission towers. To appreciate what is
comprehended in item 7, it is permissible to refer to a
related entry, item 24, which refers to component parts of
the articles mentioned, inter alia, in item 7. When item 24
is read in its entirety, it is apparent that the component
parts mentioned therein are component parts of what can be
described as machinery. Then reading item 7 in conjunction
with item 24, the con-
486
clusion is inescapable that when item 7 speaks of equipment,
reference is intended to machinery needed for the generation
and transmission of electricity. The item envisages complete
self-contained units of equipment, units which on being put
together or connected together constitute the apparatus for
the generation and transmission of electricity. Viewed in
that context, the reference in item 7 to cables must mean
cables identifiable as a complete self-contained unit in
themselves as a distinct unit of equipment when employed in
the generation and transmission of electricity. A cable does
not fall within item 7 if it is merely a component, or part
of a component, of a unit of equipment or machinery.
The High Court is right in our opinion, in holding that
the Appellate Tribunal erred in ignoring the fresh evidence
gathered by the Income Tax officer and considered by the
Appellate Assistant Commissioner in the assessment
proceedings under consideration. The sales accounts of the
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assessee showed that the assessee had sold winding wires
used in the manufacture of different types of electrical
gadgets and for the purpose of transmission of electricity.
These are winding wires, employed in coils, winding of
armatures, etc. and can not be identified at all as cables
in the sense in which item 7 conceives of cables. That being
so, the test propounded in Commissioner of Income-Tax, Tamil
Nadu-V v. Dhandayuthapani Foundry (Private) Ltd. (supra)
does not call for consideration.
In the circumstances, the questions referred to the
High Court for its opinion were rightly answered in the
negative, in favour of the Revenue and against the assessee.
In the result, the appeals are dismissed with costs.
M.L.A. Appeals dismissed.
487