Commissioner of Income-tax Vs. Kay Charan Pvt. Ltd. - Court Judgment

Excerpt:
- - in our opinion, therefore, the 'iron and steel (metal)' refers to iron and steel in their original form and shape like billets, ingots, slabs, etc. 815) :iron and steel can be treated up to a certain stage as raw material which can take many shapes and forms like billets, slabs, ingots, etc. (2) of the fifth schedule include 'the manufacture of aluminium (metal) both from bauxite as well as from aluminium scrap'.the court held that what is said about item no. (2) holds good equally with respect to item no.b.p. jeevan reddy, c.j.1. the income-tax appellate tribunal has stated the following question under section 256(1) of the income-tax act, 1961 :'whether, on the facts and in the circumstances of the case, the appellate tribunal is legally justified in holding that the assessee produces iron and steel (metal) and, therefore, it was entitled for a higher development rebate as provided under section 33(1)(b) of the act ?'2. the assessee is a private limited company engaged in manufacture and sale of mild-steel rods (m. s. rods). (the record before us does not set out or clarify the actual process of manufacturing the said article. all that it shows is that the company manufactures m. s. rods). for the assessment year 1973-74, the assessee claimed development rebate at 25% on extension or addition of plant and machinery made in the previous year relevant to the said assessment year, under section 33(1)(b)(b)(i)(b) of the income-tax act. the income-tax officer did not accept the said claim and allowed development rebate at the ordinary rate of 15% as provided in section 33(1)(b)(b)(iv)(b). the income-tax officer was of the view that the assessee was manufacturing m. s. rods, and not 'iron and steel (metal)'. on appeal however, the appellate assistant commissioner agreed with the assessee and allowed development rebate at 25%. the matter was carried by the department in further appeal to the tribunal which agreed with the appellate assistant commissioner. the question is whether the assessee is entitled to the rebate at the higher rate, as claimed by it, or at the ordinary rate allowed by the income-tax officer.3. section 33 of the act provides for development rebate. clause (a) of sub-section (1) provides that in respect of new machinery or plant owned by the assessee and wholly used for the purposes of the business carried on by him, he shall be allowed a deduction in respect of the previous year in which the machinery or plant was installed, a sum specified in clause (b) by way of development rebate. clause (b) prescribes different rates of rebate in different situations. clause (b) has again two sub-clauses (a) and (b). we are concerned herein only with sub-clause (b). sub-clause (b) has again four sub-divisions (i), (ii), (iii) and (iv). it would be appropriate to set out sub-division (i) and sub-division (iv) of sub-clause (b) of clause (b) of sub-section (1) of section 33 :'(b) the sum, referred to in clause (a) shall be ... (b) in the case of machinery or plant,-- (i) where the machinery or plant is installed for the purpose 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 .... (iv) in any other case,-- (a) twenty 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) fifteen per cent of such cost, where it is installed after the31st day of march, 1970.' 4. the fifth schedule to the act referred to in section 33(1)(b)(b)(i) contains as many as 33 items of articles and things. item no. (1) reads as follows :--'(i) iron and steel (metal), ferro-alloys and special steels.' item (ii) of the said schedule reads : (ii) steel castings and forgings and malleable iron and steel castings.' 5. the assessee claims that m. s. rods manufactured by it fall within item no. (1) of the fifth schedule and, because the machinery in question was installed after march 31, 1970, it is entitled to development rebate at the rate of 25% under section 33(1)(b)(b)(i)(b), whereas the income-tax officer says that m. s. rods do not fall under item no. (1) of the fifth schedule and, therefore, the assessee is entitled only to the ordinary rebate at the rate of 15% as provided in section 33(1)(b)(b)(iv)(b). the assessee's contention which has been accepted by the tribunal is that m. s. rods manufactured by the assessee fall within the expression 'iron and steel (metal)'. we find it difficult to agree with the tribunal. m. s. rods manufactured by the assessee are, undoubtedly, made of steel. but the question is whether they can be called 'iron and steel (metal)'. the item does not read 'iron and steel', it reads 'iron and steel (metal)'. the use of the qualifying word 'metal' cannot be without a meaning. it means iron and steel in its metal form, i.e., in its primary shape. it cannot include articles or things made of iron or steel. if all the products of steel are included within the said words, then item no. (ii) of the fifth schedule would become unnecessary and meaningless. item no. (ii), as already set out hereinbefore, refers to 'steel castings and forgings and malleable iron and steel castings'. steel castings and forgings would naturally be included within the expression 'iron and steel (metal)', according to the assessee's contention. if it were so, the legislature would not have put them under a separate heading. in our opinion, therefore, the 'iron and steel (metal)' refers to iron and steel in their original form and shape like billets, ingots, slabs, etc. this is the view taken by the calcutta high court in indian steel and wire products ltd. v. cit : [1977]108itr802(cal) . it has been rightly pointed out by the said court, following the decision of the supremecourt in state of madhya bharat v. hiralal : [1966]2scr752 and the decision of the gujarat high court in vaiswaner trading co. v. state of gujarat [1964] 15 stc 586 (guj), that (at p. 815) :'iron and steel can be treated up to a certain stage as raw material which can take many shapes and forms like billets, slabs, ingots, etc. but there comes a stage when by further processing or manufacture it ceases to be a raw material and enters into the category of a finished product. the items in question have to be construed from this point of view. the asses-see after obtaining iron and steel in the form of raw material or metal is manufacturing wire rods. it is the raw material or metal which comes under item i and not the finished product. the heading of the schedule is 'list of articles and things'. therefore, item 1 iron and steel (metal) is to be considered separately as a thing or an article but articles made or produced from such a 'thing' or an 'article' ought not to come within the same item.' 6. the court also contrasted the language used in item no. (1) with that used in item no. (ii) of the fifth schedule and pointed out that wire rods (concerned in that case) are commercial products made out of iron and steel and in their popular or commercial sense, they must be treated as articles different from 'iron and steel (metal)'. a large number of cases are referred to in the said decision in support of this conclusion. we agree with this view.7. we may, in this connection, refer to a decision of the supreme court in hindustan aluminium corporation ltd. v. state of u. p. : 1983(13)elt1656(sc) . it was a case arising under the u. p. sales tax act and the question before the court was whether aluminium rolled products and extrusions are 'metals' within the meaning of the notification dated may 30, 1975, issued by the state of u. p. under section 3a(2) of the sales tax act item no. 1 of the schedule appended thereto, which prescribed a lower rate of tax, read 'all kinds of minerals, ores, metals and alloys except those included in any other notification issued under the act'. the assessee's contention was that the goods manufactured by it (aluminium rolled products and, extrusions) fell within the expression 'metals' and are, therefore, entitled to the benefit of lower rate of tax. dealing with the said contention, the supreme court observed (p. 1651 of air 1981 sc) :'section 3a of the u. p. sales tax act empowers the state government to prescribe, by notification, the rate and the point, at which the tax may be imposed on the sale of a commodity. a consideration of the notification issued from time to time will show that the expression 'metal' has been generally employed to refer to the metal in its primary sense. the reference is to the metal in the form in which it is marketable as a primarycommodity. subsequent forms evolved from the primary form and constituting distinct commodities marketable as such must be regarded as new commercial commodities. the notification no. st-2631/x-902(64)-50 of november 21, 1952, for example, sets forth two clauses : (a) copper, tin, nickel, or zinc or any alloy, containing any of these metals only, and (b) scrap, meant for melting, and sheets including circles meant for making brassware, and containing only any or all of the said metals, viz., copper, tin, nickel and zinc. it is clear that while clause (a) makes specific reference to certain metals, clause (b) separately sets forth the products which emerge as a result of processing the original metal. clause (b) speaks of sheets, including circles meant for making brassware and containing only any or all of the metals specified in clause (a). a sheet of copper only or tin only or nickel only or zinc only is regarded as belonging to a distinct entry in the notification from copper, tin, nickel or zinc in its unfabricated form.' 8. though the said case arose under the sales tax act, we are of the opinion that the reasoning behind the said observations is relevant to the question arising before us. as we have pointed out hereinabove, parliament has treated 'iron and steel (metal)' mentioned in item no. (1) of the fifth schedule to the income-tax act, as different articles or things from 'steel castings and forgings' mentioned in item no. (ii) of the said schedule.9. it is, however, brought to our notice that certain high courts have taken a contrary view. a division bench of the kerala high court in cit v. mittal steel re-rolling and allied industries (p.) ltd. : [1977]108itr207(ker) and a full bench of that high court in cit v. west india steel co. ltd. : [1977]108itr601(ker) have held that 'm. s. rods and steel sections' manufactured by the assessee concerned therein fall within the expression 'iron and steel (metal)' occurring in item no. (1) of the fifth schedule. the full bench took the view that 'm. s. rods and steel sections are not anything different from iron and steel.' for this proposition, it relied upon the decision of the supreme court in state of madhya bharat v. hiralal [1966] 17 stc 313, but that was not a case arising under the income-tax act and much less dealing with entries of the nature abovementioned in the fifth schedule to the act. the question posed by the full bench was in the following terms :'so the question is whether the finished article can be said to be something basically different from iron and steel.'and was answered by it by saying, 'they are not'. these decisions were followed by the madras high court in addl. cit v. tricky steel rolling mills ltd. : [1979]118itr39(mad) , where it expressly differed from the viewtaken by the calcutta high court aforementioned. the punjab and haryana high court in cit v. krishna copper and steel rolling mills also took the view that iron rods manufactured from out of scrap metal fall within item no. (1) of the fifth schedule. in this decision, however, there is no reference to any other decision of the high court or the supreme court. the said conclusion was arrived at mainly influenced by a letter of the central board of direct taxes addressed to the secretary, bharat chamber of commerce, calcutta, opining that the words 'aluminium, copper, lead and zinc (metals)' mentioned in item no. (2) of the fifth schedule include 'the manufacture of aluminium (metal) both from bauxite as well as from aluminium scrap'. the court held that what is said about item no. (2) holds good equally with respect to item no. (1). for the reasons given above, we respectfully disagree with the view taken by the kerala, madras and punjab and haryana high courts.10. in the result, the question referred is answered in the negative, i.e., in favour of revenue and against the assessee.