The Commissioner Of Income Tax, Patiala v. M/S Groz Beckert Saboo Ltd, Chandigarh

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R No. 95 of 1990 Date of decision : September 17, 2008 The Commissioner of Income Tax, Patiala ...... Petitioner through Ms.Urvashi Dhugga, Advocate v. M/S Groz Beckert Saboo Ltd, Chandigarh ...... Respondent through Ms. Radhika Suri, Advocate CORAM : HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY TEWARI *** 1. Whether Reporters of Local Newspapers may be allowed to see the judgment ? judgment ? 2. To be referred to the Reporters or not ? 3. Whether the judgment should be reported in the Digest ? *** AJAY TEWARI, J This is a reference made by the Tribunal on the followingquestions of law :- “1.Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right in law incancelling the order of the Commissioner of Income-taxpassed under section 263 ? 2.Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right in law inallowing the Investment allowance of Rs.4,06,822/- andinterest of Rs.18,575/-.” The assessee claimed investment allowance under Section 32A I.T.R No. 95 of 1990 (2) of the Income Tax Act, 1961 (for short “the Act”) for the year 1977-78.The Assessing Officer came to the conclusion that the assessee was entitledto the said investment allowance. On 12.3.1979 the Inspecting AssistantCommissioner of Income-tax (Assessment) issued a notice under Section154 of the Act stating that the aforesaid benefit of investment allowancebeing inadmissible, he was proposing to file a rectification application. Theresponse of the assessee was considered satisfactory since no application forrectification was made. Thereafter the Commissioner of Income-tax, actingunder Section 263 of the Act, issued a notice again questioning theeligibility of the petitioner for grant of investment allowance. In consequentproceedings, the Commissioner of Income-tax held that the said benefitwas wrongly allowed to the petitioner by recording the following :- “...... It is no doubt true that in the Fifth Schedule whilereferring to Industrial machinery, there is reference toFirst Schedule of the Industries (Development andRegulation) Act, 1951 but in the Ninth Schedule which isthe relevant Schedule for investment allowance forassessment year 1977-78, there is no reference toIndustries (Development & Regulation) Act, 1951. Thuswe are to consider whether the manufacture of needlescan be considered as manufacture of industrial andagricultural machinery as referred to in the NinthSchedule.” In second appeal, the Tribunal reversed the finding of theCommissioner as well as the assumption of jurisdiction for action underSection 263 of the Act. On a direction made by this Court, the above mentioned questions have been referred. Learned counsel for the assessee contended that Section 32A(b) In second appeal, the Tribunal reversed the finding of theCommissioner as well as the assumption of jurisdiction for action underSection 263 of the Act. On a direction made by this Court, the above mentioned questions have been referred. Learned counsel for the assessee contended that Section 32A(b) (ii) of the Act speaks of investment allowance with regard to the business ofconstruction, manufacture or production of any one or more of the articlesor things specified in the list in the Ninth Schedule to the Act. Shesubmitted that item No.8 in the Ninth Schedule is `industrial andagricultural machinery'. She further contended that `industrial andagricultural machinery' has not been defined in the Act. Therefore, one hasto take in aid the provisions in the other relevant Acts and if that be done,the First Schedule to the Industries (Development and Regulation) Act,1951 becomes relevant and of assistance. In item 8 the First Schedule to theIndustries (Development and Regulation) Act, 1951 it is provided thattextile machinery (such as spinning frames, carding machines, power-loomsand the like) including textile accessories are major items of specialisedequipment used in specific industries. In view of these provisions, shesubmitted that the decision arrived at by the Income-tax Officer at the timeof original assessment after going into all aspects of the matter as stated inhis order was correct on the facts of the case and relevant provisions of law.There was no mistake apparent from record or a mistake which can be saidto be leading to an order which is erroneous or prejudicial to the interest ofrevenue so as to invest the Commissioner of Income-tax with the lawfuljurisdiction to intermeddle with the assessment. Learned counsel for the assessee further contended thatinvestment allowance is allowable to the assessee company under theprovisions of section 32A(2) and this section was amended by Finance(No.2) Act, 1977 with effect from 1.4.1978 relevant to the assessment year I.T.R No. 95 of 1990 1978-79 for enlarging the scope of the section by excluding only thosearticles or things as given in the Eleventh Schedule which was substituted inplace of Ninth Schedule. She further argued that the assessee company wasmanufacturing needles which are used in the textile machinery as itsaccessories and, therefore, taking into consideration the provisions referredto by it in its submissions made earlier, the assessee was entitled toinvestment allowance and when on such facts the Income-tax Officer cameto the conclusion that the allowance was properly claimed and allowed it, hewas acting in accordance with law. Learned counsel for the assessee also referred to the speech ofthe Finance Minister, dated 15.3.1976 wherein he introduced the investmentallowance in place of the `development rebate' in the following terms :- “ .... I have, therefore, decided to introduce a scheme ofinvestment allowance for certain priority industries. Thepresent scheme of initial depreciation allowance will bereplaced by a system of investment allowance. Theinvestment allowance will be allowed at the rate of 25per cent of the cost of acquisition of new machinery andplant installed after 31[st] March, 1976, in industriescurrently qualifying for initial depreciation. I alsopropose to extend the list of qualifying industries byincluding eight other priority or export-orientedindustries, namely, carbon and graphite products;inorganic heavy chemicals; organic heavy chemicals;synthetic rubber and rubber chemicals, including carbonblack; industrial explosives; basic drugs; industrial sewing machines and finished leather and leather goods,including footwear made wholly or substantially ofleather....” sewing machines and finished leather and leather goods,including footwear made wholly or substantially ofleather....” In Commissioner of Income-Tax, Madrasv. Mir MohammadAli, reported as (1964) 53 ITR 165, the Hon'ble Supreme Court quoted thefollowing passage from the decision of Privy Council in Corporation ofCalcutta v. Chairman, Cossipore and Chitpore Municipality, (1922) I.L.R49 :- “The word `machinery' when used in ordinary languageprima facie means some mechanical contrivances which,by themselves or in combination with one or more othermechanical contrivances, by the combined movementand inter-dependent operation of their respective partsgenerate power, or evoke, modify, apply or direct naturalforces with the object in each case of effecting so definiteand specific a result”. A Division Bench of the Gujarat High Court in Aruna Mills Ltdv. Commissioner of Income-Tax Ahmedabadreported as (1966) 59 ITR507, relying on the above quoted decision, held as follows :- “..... The spindles in respect of which the aforesaidexpenditure was incurred and for which the developmentrebate was claimed by the assessee are clearly machineryand, when installed in the ring-frames, would constitute aself-contained unit for spinning. Though, therefore, theyby themselves may not be said to be a self-contained unit,they must be held to be “machinery” and the spindles must also be held to have been installed for the purposesof the second paragraph of clause (vi) and clause (via)and, consequently, the expenditure incurred in theirpurchase and in substituting them for the old spindleswould be entitled to development rebate....” Learned counsel for the revenue relied on a Division Benchjudgment of Karnataka High Court in Assistant Commissioner ofCommercial Taxes-cum-Entry Tax (Assessment-1) Bangalore and anothervs Mysore Industrial Suppliesreported as 106 STC 585, wherein it was heldas follows :- “Ball-bearings may be used as parts or accessories ofindustrial machinery also, but they are used in every typeof machinery, toys and even in other contrivances. Incommon parlance, ball-bearings are not understood asparts or accessories of industrial machinery, though, nodoubt, they may be a part or accessory of machinery.The mere use of ball-bearings in industrial machinery byitself cannot bring them within the ambit of entry 7 of theSchedule to the Act. Even by virtue of Explanation III tothe entry it cannot be said that ball-bearings are industrialmachinery nor can it be said that, they are accessories toindustrial machinery...” In our view, the present reference has to be answered in favourof the assessee. The judgments in Commissioner of Income-Tax, Madrasv.Mir Mohammad Ali(supra) and Aruna Mills Ltdv. Commissioner ofIncome-Tax Ahmedabad(supra) clearly cover the point. The judgment of the Karnatka High Court is distinguishable; firstly because there can be nodispute that ball-bearings as such can be used even for non-industrialmachinery, for instance cycles; and secondly that the said judgment wasrendered against the back drop of their exigibility to entry tax under aparticular schedule to the Karnataka Tax On Entry of Goods into local areasfor consumption, use or sale therein Act, 1979. Since we have answered the question in favour of the assesseeby holding that the investment allowance was rightly allowed to theassessee, and since no question has been framed on the other findings of theTribunal reversing those of the Commissioner, we also decide the firstquestion in favour of the assessee and against the revenue. The reference isanswered accordingly. ( AJAY TEWARI ) JUDGE September 17, 2008'kk' ( ADARSH KUMAR GOEL ) JUDGE