1. Dispute over eligibility for development rebate under Section 33 of the Income-tax Act where machinery is used for both listed and non-listed items. (Para 1 , 2 )
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1997 Supreme(SC) 1071
1997(7) Supreme 577
SUPREME COURT OF INDIA
B.N. Kirpal & K.T. Thomas, JJ.
Commissioner of Income Tax -Appellant
versus
M/s. Rambal Private Ltd. etc. -Respondents
Civil Appeal Nos. 4003-4004 of 1984
With
Civil Appeal Nos. 1286 of 1982 and 5637 of 1995
Decided on 6-8-1997
Counsel for the Parties :
For the Appellant : Ranbir Chandra, B. Krishna Prasad and Ms. Lakshmi Iyengar, Advocates.
For the Respondents : Ms. Janki Ramachandran, Advocate.
Important Points
IMPORTANT POINT
Machinery which was being used for manufacture of same of items mentioned in Fifth Schedule of Income Tax Act would be entitled to development rebate at rate of 35% and if need not necessarily have been used exclusively for manufacture of those items alone.
Machinery which was being used for manufacture of same of items mentioned in Fifth Schedule of Income Tax Act would be entitled to development rebate at rate of 35% and if need not necessarily have been used exclusively for manufacture of those items alone.
Subject
Taxation Law - Development Rebate
Act Referred
Headnote
Income Tax Act-Section 33(1)(a) and (b)-Development rebate allowance-Assessee must have used the machinery wholly for purpose of business carried on by him-If machinery was for manufacture or production of any one or more of articles specified in list in the Fifth Schedule, then development rebate was allowable at 35% of actual cost of machinery-Respondent assessee was rightly held entitled to rebate even if besides manufacturing articles specified in Fifth Schedule the assessee also manufactured some other goods with machinery. (Paras 4 & 5)
Legal Category Hierarchy
Table of Contents
2. Revenue contends that development rebate at 35% is unavailable if machinery is used for items other than those specified in the Fifth Schedule. (Para 3 )
3. The court observed that Section 33(1)(b) does not require machinery to be used exclusively for Fifth Schedule items, provided it is used for the business. (Para 4 , 5 )
4. Machinery installed for manufacturing Fifth Schedule items is eligible for the higher development rebate regardless of whether it is also used for other business products. (Para 4 , 5 )
5. Appeals dismissed and the High Court's decision affirming the assessee's entitlement to the 35% development rebate is upheld. (Para 6 , 7 )
6. Does machinery have to be used exclusively for Fifth Schedule items to qualify for the 35% development rebate under Section 33?
No. Section 33(1)(b) does not state that machinery installed for the manufacture of articles specified in the Fifth Schedule must be used solely or exclusively for those items. As long as it manufactures any listed articles, the rebate is allowable even if other goods are also produced. (Para 4 , 5 )
7. What is the condition regarding the use of machinery for the business under Section 33(1)(a)?
Under Section 33(1)(a), the development rebate is allowable if the machinery or plant is owned by the assessee and is wholly used for the purposes of the business carried on by him. (Para 3 )
8. How does the court interpret the logic of allowing rebates for machinery used for multiple purposes?
The court reasoned that it would be illogical to allow a rebate for machinery that remains idle after producing listed items but deny it to machinery that is used productively for other business items in addition to listed ones. (Para 4 )
ORDER
Civil Appeal No.1286 of 1982
The assessee-respondent manufacturers nuts, bolts and screws for automobiles which fall under Item No. 20 in the Fifth Schedule being automobile ancillaries . According to the appellant the machinery which was installed was being used not only for the manufacture of items falling in the Fifth Schedule but also for the manufacture of some other items. Whereas the respondent had claimed allowance on development rebate in respect of assessment year 1969-70 at the rate of 35%, the Income-tax Officer held that inasmuch as the machinery was also being used for the manufacture of some other items not falling under the Fifth Schedule, therefore, the rate of development rebate should be restricted to 20% only.
2. Being aggrieved the respondent succeeded in the appeal filed before the Appellate Assistant Commissioner. The department filed an appeal to the Income Tax Appellate Tribunal which, however, upheld the assessee s contention. At the instance of the department the Tribunal referred the following question of law to the High Court.
Whether, in the assessment for the assessment year 1969-70, the assessee could be allowed development rebate at 35% on Rs. 2,30,840 being the cost of the machinery installed during the relevant previous year, despite the fact that they were used not merely for the manufacture of nuts, bolts and screws for automobiles, but also for the manufacture of such articles for other machinery?
The High Court answered the question of law in favour of the respondent by observing that the machinery which was installed was used wholly for the purpose of business of the assessee. This is a fact which had been found by the Tribunal. The High Court, further observed that the machinery installed for the purpose of manufacture of one of the items mentioned in the Fifth Schedule need not necessarily be used exclusively for the manufacture of those items or any of the items in the Fifth Schedule. It accordingly answered the question of law in favour of the Respondent.
3. It is contended by the learned counsel for the appellant, in this appeal by special leave, that the respondent used the machinery for the manufacture of items other than automobile ancillaries in addition to nuts, bolts and screws and, therefore, the respondent was not entitled to claim development rebate at the rate of 35% Section 33(1)(a) and (b) with which we are concerned read as follows:
"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 provision of this section and of section 34, be allowed 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 up 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).
(b) The sum referred to in clause (a) shall be-
(A) In the case of a ship, forty per cent of the actual cost thereof the actual cost thereof to the assessee;
(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 and
(b) twenty five per cent of such cost, where it is installed after the 31st day of March, 1970.
According to Section 33(1)(a) development rebate is allowable if the assessee uses the machinery wholly for the purpose of business carried on by him. It is not in dispute that
