1. This is an appeal by the revenue objecting to the order of the Commissioner (Appeals) annulling the order passed by the ITO under Section 154 of the Income-tax Act, 1961 ("the Act"), on 21-11-1979.
2. The assessee is a limited company carrying on business in the manufacture of industrial gas at its factory at Nagpur. It also deals in iron and steel at its head office at New Delhi. In its assessment for 1976-77, for the previous year ended 30-6-1975, the assessee had claimed a loss of Rs. 1,91,759 in respect of its Nagpur plant which was commissioned during the relevant previous year. The assessee had claimed development rebate of Rs. 12,94,254 in respect of its plant and machinery, cost of cylinders and electrical installations, the cost of which amounted to Rs. 86,28,359. The ITO allowed a development rebate of Rs. 11,90,194, with the following words as stated in the assessment order dated 27-8-1979 : Development rebate - In its revised return the company has claimed development rebate, amounting to Rs. 12,94,254. The details in respect of the above claim have been furnished as under :- As the accounting period of the assessee-company is 1-7-1974 to 30-6-1975 and the development rebate was not allowable in respect of the plant and machinery installed after 31-5-1975, subject to further condition in which development rebate was allowable in respect of the machinery and plant installed by the assessee between 1-6-1974 to 30-5-1975. The assessee-company was required to furnish details with regard to the conditions laid down in this respect to the effect that machinery and plant had been purchased before 1-12-1973 or the company had entered into contract for the purchase of such machinery or plant with the manufacturer or owner of such machinery or plant or by way of such machinery or plant had been manufactured by itself, had taken steps for the manufacture of such machinery or plant. The assessee-company, accordingly, filed details in respect of the machinery in respect of which development rebate has been claimed vide letter dated 22-2-1979 and along with this letter the company has furnished a photostat copy of the order placed by it indicating the date of order, etc. These details also give information regarding expenses claimed for the purchase of the machinery. According to the details, the following items will not be entitled to the development rebate as the same are not covered by the conditions mentioned above with regard to their purchase, etc. :i. Lathe machines 6,462ii. Cranes 64,767iii. Cylinders for which order was placed on 16-1-1975 4,65,706iv. Elect, installations for which no evidence or details have been furnished with regard to its admissibility or development rebate 1,55,790 ------------ The balance amount of Rs. 79,34,635 is entitled for development rebate at 15 per cent, which comes to Rs. 11,90,194.
3. Subsequently, the ITO issued a show cause notice for rectification of certain mistakes in the said assessment order with regard to allowability of development rebate on cylinders, etc., inasmuch as the same was inadvertently allowed on some of the plant and machinery purchased beyond the date till it was allowable under Section 33 of the Act. According to the ITO, the assessee would be entitled to development rebate on the cost of cylinders as per cylinder account filed by it and installed up to 30-5-1975, amounting to Rs. 19,98,471 only. But that, however, actually development rebate was allowed on an amount of Rs. 36,16,676. The ITO, therefore, held that excessive development rebate was allowed on the cost of cylinders, amounting to Rs. 16,18,206, which were installed after 30-5-1975 and that such excessive development rebate allowed at 15 per cent on the abovementioned amount of Rs. 16,18,206, amounted to Rs. 2,42,730.
Therefore, he called upon the assessee to show cause against the rectification of this mistake.
4. The assessee filed its objections in its letter dated 12-9-1979. It stated that it had placed its order for all cylinders in August 1973 ; that while 2,000 cylinders were received in the factory before 31-5-1975, the remaining cylinders had also been paid for on 3-4-1975 and had, thus, become the property of the company before 31-5-1975. The assessee-company, therefore, contended that there was no mistake apparent from the record which could be rectified tinder Section 154.
The ITO rejected the assessee's submission and held that the assessee could not be entitled to development rebate only by placing an order or by making payments for such assets but that it would be entitled to such development rebate only when the machines or plants were actually installed before 31-5-1975. He held that the provision of law in this regard was amply clear and no further consideration was called for. He, therefore, rectified the said mistake by withdrawing the excessive development rebate of Rs. 2,42,730 allowed in the original assessment in respect of cylinders.
5. The assessee appealed to the Commissioner (Appeals) objecting to this order and contended that though the cylinders in question were actually received in the factory of the assessee at Nagpur on 10-6-1975 and 12-6-1975, the requirements of law were duly fulfilled as the said cylinders were taken delivery of at Bombay docks on 2-5-1975. It was argued that the time between 2nd and 12th June was taken in transporting the cylinders from Bombay to the factory premises at Nagpur. It was argued that once delivery of the cylinders were taken they were fit to be used and were installed in the eyes of law. It was, therefore, pleaded that the ITO should not have withdrawn the development rebate on the value of cylinders, which were taken delivery of on 2-5-1975 at Bombay docks but due to the transport difficulties could reach the factory of the assessee only by 10-6-1975 and 12-6-1975. It was also contended in the alternative that the provisions of Section 154 would not be applicable where the mistake needed to be established by elaborate arguments and debate. In support of these pleas a number of decisions were relied on before the Commissioner (Appeals).
6. The Commissioner (Appeals) held that he was inclined to agree with the assessee that the rectification carried out by the ITO under Section 154 was not that of a mistake apparent on the record. He was of the view that the factual position and the legal position had to be established by an elaborate enquiry and assembling of facts and figures and discussion to establish a mistake and to come to the conclusion that excessive development rebate had been allowed in the original assessment. He was of the view that the various decisions relied on by the assessee supported this conclusion of his. He, therefore, annulled the order passed by the ITO under Section 154. Aggrieved by this order of the Commissioner, the revenue has filed the present appeal to the Tribunal raising the following grounds : On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) is not justified in annulling the order under Section 154 dated 21-11-1979 of the Income-tax Officer, Coy.
Cir. VIII, New Delhi, withdrawing development rebate amounting to Rs. 2,49,730, @15 per cent on Rs. 16,18,206, representing plant and machinery installed after 31-5-1975.
7. Shri S.D. Kapila, the learned departmental representative, contended that the order of the Commissioner (Appeals) annulling the rectification order passed by the ITO was unsustainable both in law and on facts. He contended that on the facts as found by the Commissioner (Appeals) there could hardly be any dispute, debate or discussion about the admissibility or otherwise of development rebate to the assessee.
He pointed out that out of 3,785 gas cylinders imported by the assessee 1,785 gas cylinders had reached the assessee's factory premises only on 10-6-1975 and 12-6-1975 which was beyond the time limit of 31-5-1975 specified in Section 16(c) of the Finance Act, 1971. Shri Kapila submitted that though the other conditions specified in this provision might have been fulfilled by the assessee, the most important condition, namely, the installation of the machinery or plant by the assessee after 31-5-1974 but before 1-6-1975 was not fulfilled. Shri Kapila argued that it could not be stated that the 1,785 cylinders, which were lying in Bombay docks or in the process of transport from Bombay to Nagpur, were installed within the meaning of this provision of law. In support of this plea, Shri Kapila relied on the decision of the Supreme Court in CIT v. Mir Mohammad AH [1964] 53 ITR 165. He, therefore, argued that this was a clear case of a mistake apparent from record which was due to an inadvertent error on the part of the departmental authorities while making the original assessment and that, therefore, the rectification made by the ITO was perfectly in order and that the same should have been upheld by the Commissioner (Appeals), both on facts and in law.
8. On behalf of the assessee, Shri Harnam Shankar, the learned counsel, relied on the Commissioner (Appeals)'s order and submitted that there was no mistake apparent from the record which could be rectified under Section 154. He pointed out that the matter required elaborate enquiry into facts, debate and discussion and that, therefore, this could not be the subject-matter of rectification proceedings. He further argued that the assessee had taken delivery of the cylinders in question on 2-5-1975 and that the delay in transporting them from Bombay to Nagpur was due to strike by the transporters. He further submitted that for installing the cylinders there was nothing further to be done by the asses-see as it had to simply fill up the cylinders with the gas manufactured by it, which could have been done even at Bombay. It was pointed outby Shri Harnam Shankar that in a subsequent year, i.e., year ending 30-6-1978, the assessee had purchased and sold dissolved acetylene gas from other manufacturers, since the assessee itself started commercial production of the dissolved acetylene gas in its plant only from 5 (sic). He, therefore, submitted that for installing the gas cylinders which were either lying in the Bombay docks or in the process of transit from Bombay to Nagpur there was nothing more to be done by the assessee and that since they had come into the ownership and possession of the assessee before the relevant due date, namely, 31-5-1975, these cylinders should be regarded as having been installed in the assessee's business to be eligible for allowance of development rebate under Section 33. He also relied on the various decisions cited by him and referred to by the Commissioner (Appeals) in his order. He, therefore, submitted that the order of the Commissioner was right and that the same should be upheld.9. We have carefully considered the submissions urged on both sides and looked into the materials placed before us. There is no dispute that the assessee's claim for allowance of development rebate is based on Section 16(c) of the Finance Act, 1974, which is quoted below : 16. Continuance of development rebate in certain cases.-The notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. SO 2167, dated the 28th day of May, 1971, issued under Sub-section (5) of Section 33 of the Income-tax Act shall not apply in respect of- (c) any machinery or plant [not being machinery or plant referred to in Clause (b)] installed by any assessee after the 31st day of May, 1974, but before the 1st day of June, 1975, if the assessee furnishes evidence to the satisfaction of the Income-tax Officer that before the 1st day of December, 1973, he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant ; and accordingly the provisions of the Income-tax Act shall have effect in relation to such ship, machinery or plant, subject to the conditions specified in Clauses (a), (b) and (c).
There is also no dispute that the controversy in the present proceedings relates to the development rebate allowance of Rs. 2,42,730, which was originally allowed in respect of the cost of 1,785 cylinders amounting to Rs. 16,18,206. It is common ground that the assessee had placed the order for the purchase of these cylinders prior to 1-12-1973 and that the assessee went into commercial production of oxygen gas on 11-4-1975 in its factory at Nagpur. The order of the Commissioner (Appeals) clearly shows that it was admitted before him that these 1,785 cylinders, which were imported by the assessee from abroad, were actually received in the assessee's factory premises at Nagpur on 10-6-1975 and 12-6-1975. It is the assessee's claim that it had taken delivery of these cylinders from its shipping agents as early as 2-5-1975 and on account of difficulty in transporting the same from Bombay to Nagpur due to the transporters' strike, there was delay in receipt of these cylinders at the assessee's factory premises before 31-5-1975. According to the assessee, these cylinders which had come into its ownership and possession should be considered to have been "installed" within the meaning of Section 16(c) of the Finance Act, 1974, within the prescribed period of 1-6-1974 to 31-5-1975 specified in that section. Thus, the controversy in this appeal narrows down to the exact meaning of the word "installed" used in Section 16(c). This word has already been construed by the Supreme Court in Mir Mohd. Ali's case (supra) at page 172 of the report in the following words : ... As observed by the Bombay High Court in the case of CIT v. Saraspur Mills Ltd. [1959] 36 ITR 580, the expression 'installed' did not necessarily mean 'fixed in position' but was also used in the sense of 'inducted or introduced' ; or to use the language of the Madras High Court in the case of CIT v. Shri Rama Vilas Service (P.) Ltd. [1960] 38 ITR 25, 'installed' would certainly mean to place an apparatus in position for service or use.
In view of this authoritative pronouncement of the Supreme Court on the meaning of the word "installed", we find ourselves unable to agree with the learned counsel for the assessee that 1,785 cylinders in question, which were lying at Bombay docks, should be considered as having been installed within the meaning of Section 16(c) of the Finance Act, 1974.
Till these cylinders reached the factory premises of the assessee at Nagpur they could not be regarded as having been inducted or introduced or to have been placed in a position for service or use in the business of the assessee before 31-5-1975 in order to be eligible for the benefit of development rebate under Section 16(c) of the Finance Act, 1974, read with Section 33 of the Act. By no stretch of imagination it is possible to hold that these cylinders which were nearly 600 miles away from the assessee's factory premises were installed in the assesee's business the moment the assessee took delivery of these cylinders at the Bombay docks on 2-5-1975. Unless and until these cylinders were actually received in the assessee's factory premises at Nagpur, they could not be held to have been available for service or use or inducted or introduced in the business of the assessee. This event actually happened only on 10-6-1975 and 12-6-1975, when these cylinders were received at the assessee's factory premises, as admitted by the assessee before the Commissioner (Appeals). It, therefore, follows that the assessee is not entitled to the allowance of development rebate in respect of these 1,785 cylinders and that the ITO had wrongly allowed such development rebate in the original assessment.
10. We are also unable to accept the contention of the learned counsel that there was nothing more to be done for installation of these cylinders in the assessee's business, as the assessee could have used them for filling up gas at Bombay itself and as it had done in a later year when it purchased and sold acetylene gas. It is not the assessee's case that it had so utilised these cylinders for filling of gas at Bombay or any other place during the period from 2-5-1975 to 10-6-1975 and 12-6-1975. On the contrary, it was the assessee's case that due to difficulties created by the strike of truck owners at this time, the assessee could not transport these 1,785 empty cylinders from Bombay to Nagpur and that it actually received these cylinders at its factory premises only on 10-6-1975 and 12-6-1975. Hence, we find ourselves unable to accept this argument of the assessee. The reference to dealing in acetylene gas in a later year is totally irrelevant.
11. After the decision of the Supreme Court in Mir Mohd. Ali's case (supra), there can hardly be any dispute about the interpretation of the word "installed" in Section 16(c) of the Finance Act. Obviously when the ITO allowed the assessee's claim for development rebate in the original assessment he had committed an inadvertent error. This the ITO is entitled to rectify under Section 154 as this is a mistake of law.
It does not require any further enquiry or investigation into facts nor involve any debate or discussion as the position is well settled in law. The Commissioner (Appeals) was not justified in his conclusion that this was not a mistake apparent from record. Apparently, he has overlooked the ratio of the decision of the Supreme Court in T.S.Balram, ITO v. Volkart Brothers [1971] 82 ITR 50, referred to by him in paragraph 3 of his order, which would be directly applicable to the facts of the present case. We, therefore, reverse the order of the Commissioner (Appeals), annulling the order passed by the ITO, and restore the order of rectification passed by the ITO under Section 154 dated 21-11-1979, withdrawing the development rebate of Rs. 2,42,730.