HINDUSTAN WIRES PRODUCTS LIMITED ~- v. COMMISSIONER OF INCOME-TAX, PATIALA

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- H

p. 480

A assessee does not entitle it to the benefits conferred by ss. 33( !)(iii) -(- (c)(A) and SOE 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 SOI of the Income-tax Act, 1961 for the assessment years 1968-69 to 1971-72. B Section 33 of the Income Tax Act, 1961 provides for the·grant of

.- development rebate. Prior to April l, 1968, s. 33(1)(iii)(c)(A) of the t- 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 vehi- c des) installed after the 31st day of March, 1954, which is owned by the assessee and is wholly used for the purposes of the bµsiness carried on by him, a sum by way of develop- • ment rebate, eqnivalent to- -.,,\

D (i) ................................................. (ii) . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . (iii) in the case of machinery or plant installed after the 31st day of March, 1961- E (a) ........................................... .

(b)

(c) where the machinery or plant is installed after the \; ' F 31st day of March, 1965-

(A) for the purposes of businss of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule- G (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

H (b) twenty-five per cent, of such cost, where

HINDUSTAN WIRE PRODUCTS v. C.l.T. [PATHAK. J.] 481

it is installed after the 31st day of March, A -} 1970,

(B) .................................... .

shall, subject to the provisions of s. 34, be allowed as a B 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 im- mediately succeeding previous year, then, in respect of that

- previous year."

This provision was substituted, with effect from April 1, 1968, by the c 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 vehi- cles) which is owned by the assessee and is wholly used for D the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this sec- tion and of section 34, be allowed a deduction in respect of a previous year in which the ship was acquired or the machin- ery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous ,E 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,- F (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, - G (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. H

p. 482

A These provisions relate to development rebate.

A deduction was ab\) 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 SOE provided: B "SOE ( 1) Jn the case of a company to which this section applies, where the total income (as computed in accord- ance 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 c 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."

D Section 80E was deleted with effect from April I. 1968 and was substituted bys. 80-1 which provides:

"80-1(1) In the case of a company to which this section ap- plies, where the gross total income includes any profits and E 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."

F It is not disputed between the parties that the assessee is a company to which the provisions of s. SOE and subsequently of s. SOI will apply. Section 801, it may be noted, was deleted by the Finance Act, 1972 with effect from April 1, 1973. With effect from April 1, 196S the expression 'priority industry' was defined ins. SOB(7) as meaning:

"the business of generation or distribution of electricity or any other form of power or of construction, manufacture or ;>roduction 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 ancHhe hotel is for the time being approved in this behalf by the Central Government."

HINDUSTAN WIRE PRODUCTS v. C.I.T. [PATHAK, J.] 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 rele- vance to this case read as follows: B "(7) Equipment for the generation and transmissio!' of electricity including transformers, cables and transmission towers,

(17) Electronic equipment, namely, radar equipment, computers, electronic accounting and business machi- c nes, electronic communication equipment, electronic con- trol instruments and basic components, such as valves, transistors, resisters, condensors, coils, magnetic materials and microwave components, D (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 1he items aforesaid and have been given for that purpose some special shape or quality which would not be essen- tial for their use for any other purpose and are in comp- E 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 . ( These appeals relate to the assessment years 1966-67 to 1971-72. F The assessee carries on the business of manufacture and sale of in- sulated 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 SOE 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-I read with items 7, 17 and 24 of the G 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 assess- ment years as a 'priority industry'. It asserted that the wires manu- factured 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 H

p. 484

A 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. B .The Appellate Tribunal allowed the six appeals and held that the assessee was entitled to the benefits claimed by it as a 'prority in- dustry'. 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 c was limited to the point whether the wires manufactured by the asses- see fell within item 7. In disposing of the appeals, the Appellate Tri- bunal 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 assessement ~ear 1964-65 it found that the assessee manu- factured 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 operat- ing that there was no change in the nature or type of the goods manu- factured 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 be- ¥- nefits claimed by the assessec.

Thereafter, at the instance of the Revenue, the Appellate Tri- bunal made a reference for the six assessment years to the High Court G 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 H 80EoftheincomeTaxAct, 1961?

HINDUSTAN WIRE PRODUCTS v. C.l.T. (PATHAK, J.} 485

2. Whether on the facts and in the circumstances of the A 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 B 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 exclu-

r sively used in the manufacture of different types of gadgets and not for the purpose of generation and transmission of electricity. It observed c 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 D High Court has misconstrued the facts found by the Appellate Tri- bunal and has, therefore, erroneously held that the cables manu- factured 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 E Nadu-V v. Dhandayuthapani Foundry (Private) Ltd., [!980] 123 I.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. F 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- G mission towers. To appreciate what is comprehended in item 7, it is permissible to refer to a related entry, item 24, which refers to compo- nent 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 men- tioned therein are component parts of what can be described as machinery. Then reading item 7 in conjunction with item 24, the con- H

p. 486

A 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 transmision of electri- B city. Viewed in that context, the reference in item 7 to cables must mean cables identifiable as a complete self-contained unit in them- selves 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 t- is merely a component, or part of a component, of a unit of equipment or machinery. '( c The High Court is right in our opm10n, in holding that the Appellate Tribunal erred in ignoring the fresh evidence gathered by the Income Tax Officer and considered by the Appellate Assistant 1 Commissioner in the assessment proceedings under consideration. The sales accounts of the assessee showed that the assessee had sold D 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) E Ltd. (supra) does not call for consideration.

In the circumstances, the questions referred to the High Court

F 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. +