1980-VIL-730-KER-DT

Equivalent Citation: [1980] 126 ITR 382, 18 CTR 200, 4 TAXMANN 312

KERALA HIGH COURT

Date: 26.02.1980

COMMISSIONER OF INCOME-TAX, KERALA II

Vs

CASTLEROCK FISHERIES

BENCH

Judge(s)  : G. BALAGANGADHARAN NAIR., V. BALAKRISHNA ERADI

JUDGMENT

The judgment of the court was delivered by

BALAKRISHNA ERADI C.J.-Pursuant to the order passed by this court in O.P. Nos. 5316 of 1976, 5416 of 1976 and 494 of 1976, filed by the Commissioner of Income-tax, Ernakulam, the Income-tax Appellate Tribunal, Cochin Bench (hereinafter called " the Tribunal "), has stated a case and referred the following question to this court, under s. 256(2) of the I.T. Act, 1961 (hereinafter called " the Act "):

" Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that in respect of the freezing and storage plant let out by the assessee, the assessee can claim development rebate under section 33(1)(b)(B)(i)(a) of the Income-tax Act, 1961 ? "

The assessee is a registered firm dealing in sea foods with its head office in Cochin and branch at Bombay. The relevant assessment years concerned in these references are 1969-70 and 1970-71, for which the relative periods of account are the years that ended in March 31, 1969, and March 31, 1970, respectively.

During the accounting year relevant to the assessment year 1969-70, the assessee put up a freezing, cold storage and ice plant at their Bombay branch. But the said plant was temporarily let out by them to a sister concern and the income derived by such letting was treated and assessed as the business income of the assessee for the relevant accounting years. The assessee claimed that they were entitled to development rebate in respect of cold storage and ice plant at 35% as provided for in s. 33(1)(b)(B)(i)(a) of the Act. The ITO allowed development rebate only at 20% on the ground that the assessee had not been using the plant for processing goods, but had merely let it out. For the assessment year 1970-71, the assessee had claimed rebate in respect of the further addition to the freezing and storage plant put up in the Bombay branch, which also had been let out by the assessee to the same sister concern. Though the claim put forward by the assessee was for the grant of rebate at 35% it was allowed by the ITO only to the extent of 20% on the same reasoning as was adopted by him while finalising the assessment for the year 1969-70.

The assessee appealed to the AAC, contending that development rebate ought to have been allowed at the rate of 35%. The AAC held that the letting out of the plant and machinery not being the business of the assessee, the ITO was right in allowing development rebate at only 20%. In taking this view the AAC relied on the provision contained in sub-cl. (iv) of cl. (B) of s. 33(1)(b) of the Act. The assessee carried the matter in further appeal before the Tribunal. The appeal relating to the assessment year 1970-71 came up first before the Tribunal for hearing and disposal. The Tribunal held that inasmuch as the ITO himself had proceeded on the basis that in letting out the plant and machinery the assessee was still doing business and the hire charges received had been assessed as business income in the hands of the assessee and it allowed development rebate to the assessee, though at a lower rate, the determination of the rate applicable had necessarily to be made on the basis that the plant and machinery were being used by the assessee for the purpose of the business carried on by him. Proceeding on the basis of this reasoning, the Tribunal further held that the plant and machinery in respect of which the development rebate was claimed had been installed only for the purpose of processing frozen fish and fish products which is an article specified in entry 30 in the list in Schedule V, and the assessee is entitled to the grant of development rebate at 35%. The appeal filed by the assessee in respect of the assessment year 1970-71 was accordingly allowed by the Tribunal by its order dated 8th April, 1975. Subsequently, the appeal filed by the assessee against the assessment made for the year 1969-70 was taken up for disposal by the Tribunal and adopting the same reasoning as is, contained in its earlier order dated 8th April, 1975, the Tribunal held that the assessee is entitled to development rebate at 35% for the year 1969-70 and consequently allowed the assessee's appeal.

The motion made by the department before the Tribunal for making a reference under s. 256(1) having been rejected by the, Tribunal, the department came up to this court by filing O.P. Nos. 5316 of 1976, etc., and it is in consequence of the orders passed in those original petitions that these references have been made by the Tribunal under s. 256(2).

It is contended before us by counsel for the revenue that since the assessee had admittedly leased out the plant and machinery in question installed in its branch at Bombay, it cannot be said that the said machinery or plant is " wholly used for the purpose of the business carried on by him " as is mandatorily required under s. 33(1)(a) of the Act for the purpose of eligibility for the grant of development rebate and hence the Tribunal was not justified in holding that the assesses is entitled to the grant of development rebate at the rate of 35%. We see no substance in this contention. While making the assessments for both the years concerned, the ITO had proceeded on the explicit basis that despite the fact that the freezing plant, etc., in the Bombay branch of the assessee had been let out to sister concern, the said plant and machinery were none the less being used by the assessee for its business and had treated the income derived by the assessee by such letting as the business income of the assessee. He had also allowed the claim of the assessee for the grant of development rebate obviously only on the basis that the machinery and plant were being wholly used for the purposes of the business carried on by the assessee. Were it not being so used, no development rebate at all would be admissible under s. 33(1)(a). The AAC, before whom the matter was carried by the assessee with the contention that the ITO ought to have granted development rebate at the rate of 35% and not at 20%, as was done in the assessment orders, confirmed the orders of assessment made by the ITO, thereby impressing his stamp of approval on the view taken by the ITO that the assesses was entitled to the grant of development rebate under s. 33(1). If the department had a case that no development rebate at all was admissible on the facts and circumstances obtaining in this case, one should have expected it to take appropriate action to get the matter rectified either at the AAC's level or by suo motu revision at the hands of the Commissioner. Significantly, no such action was taken and the grant of development rebate for these two assessment years was allowed to become final.

Such was the factual and legal position that obtained when the matter was carried in appeal before the Tribunal. It is pertinent to note that in respect of the assessment year 1969-70 the department had also filed an appeal before the Tribunal, but there was no ground at all taken therein that development rebate ought not to have been granted to the assessee. In that appeal the point taken related only to the grant of some depreciation allowance in respect of a motor lorry. In respect of the assessment made for the year 1970-71 the Tribunal had before it only the appeal filed by the assessee, the contention taken therein as well as in the appeal filed by the assessee for the year 1969-70 being that the development rebate ought to have been allowed to it at the higher rate of 35%.

Section 33(1)(b)(B) is the provision relied on by the assessee for claiming development rebate at the rate of 35%. That provision reads:

"(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 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;

(ii) where the machinery or plant is installed after the 31 st day of March, 1967, by an assessee being an Indian company in premises used by it as a hotel and such hotel is for the time being approved in this behalf by the Central Government (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 Match, 1970;

(iii) where the machinery or plant is installed after the 31st day of March, 1967, being an asset representing expenditure of a capital nature on scientific research related to the business carried on by the assesses,

(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 the 31st day of March, 1970."

Admittedly, the machinery of plant with which we are concerned in this case had been installed by the assessee before the 1st day of April, 1970. It has also been found by the Tribunal that the said machinery or plant was installed for the purpose of the business of processing frozen fish and fish products, in other words, it is machinery or plant installed for the purpose of manufacture or production of " processed (including frozen) fish and fish products " which is the items specified as (30) of the list in the Fifth Schedule to the Act. Since the grant of development rebate to the assessee as per the orders passed by the ITO and the AAC has become final, it has necessarily to be assumed in respect of these two assessment years that the condition laid down in s. 33(1)(a) that the machinery or plant is wholly used for the purposes of the business carried on by the assessee is duly satisfied and it is on that basis that we have to proceed to determine the rate of rebate that is admissible in this case. Once it is found that such machinery or plant was installed before the 1st day of April, 1970, for the purposes of the manufacture or production of any one of the articles or things specified in the list in the Fifth Schedule, cl. (i)(a) of s. 33(1)(b)(B) gets attracted and the rate of rebate applicable is 35%. We have, therefore, no hesitation to uphold as correct the conclusion recorded by the Tribunal that the assessee is entitled to the grant of development rebate at the rate of 35%.

In the light of the foregoing discussion, we answer the question referred in the affirmative, that is, in favour of the assessee and against the department. The parties will bear their respective costs.

A copy of this judgment under the seal of the court and the signature of the Registrar will be forwarded to the Tribunal as required by law.

 

 

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