Holding

Machinery need not be used exclusively for Fifth Schedule items; if it is used for the manufacture of any such item, a 35% development rebate is permissible.

Summary

M/s RamBal Private Ltd., a manufacturer of nuts, bolts and screws for automobiles (item 20 of the Fifth Schedule), claimed a 35% development rebate under Section 33(1)(b)(i)(A) of the Income Tax Act, 1961 for machinery installed before 1‑April‑1970. The Income‑Tax Officer allowed only a 20% rebate, contending that the machinery was also used to produce other non‑schedule items. The assessee appealed, and the Appellate Assistant Commissioner, the Income Tax Appellate Tribunal and the Madras High Court all held that the rebate of 35% was permissible because the machinery was used for the manufacture of at least one schedule item, and exclusive use was not a requirement. The Revenue appealed to the Supreme Court, which examined whether Section 33(1)(b) mandates exclusive use of the machinery for schedule items. The Court affirmed that the language of the provision does not impose such a condition and upheld the High Court’s decision, dismissing the appeal with costs. Consequently, the 35% development rebate was allowed.

Issues considered

Whether machinery installed before 1‑April‑1970, used for the manufacture of both Fifth Schedule items and other goods, qualifies for a 35% development rebate under Section 33(1)(b)(i)(A) of the Income Tax Act, 1961.

Legislation cited

Income Tax Act, 1961s. 33(1)(a), s. 33(1)(b)

Subjects

development rebateSection 33Fifth Schedulemachineryincome taxexclusive usemanufacturingautomobile ancillaries

Judgment

A COMMISSIONER OF INCOME TAX, MADRAS
v.
M/S. RAMBAL PRIVATE LTD. ETC.

AUGUST 6, 1997

B [B.N. KIRPAL AND K.T. THOMAS, JJ.]

Income Tax Act, 1961 :

Section 33(J)(a), Fifth Schedule, Item No. 20--Machinery installed
C before 1-4-1970 for manufacturing 'automobile ancillaries'-Development
Rebate-Assessee claiming rebate at the rate of 35o/o-Revenue allowing the
rebate only 20% on the ground that the machinery which was installed was
being used not only for the manufacture of items falling in the Fifth Schedule
but also for the manufacture.of some other items-Held, High Court was right
in holding that the machinery which was being used for the manufacture of
D some of the items mentioned in the Fifth Schedule, would be entitled to
development in the Fifth Schedule, would be entitled to development rebate
lit the rate of 35% and it need not necessarily have been used exclusively for
the manufacture of those items alone.

E CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4003-
4004 of 1984 Etc.

From the Judgment and Order dated 18.10.83 of the Madras High
Court in T.C. Nos. 1555-56 of 1977.

F Ranbir Chandra, B. Krishna Prasad and Ms. Lakshmi Iyengar for the
Appellant.

Ms. Janki Ramachandran for the Respondents.

The following Order of the Court was delivered :
G
Civil Appeal No. 1286 of 1982

The assessee-respondent manufactures nuts, bolts and screws for
automobiles which fall under item No. 20 in the Fifth Schedule being
'automobile ancillaries'. According to the appellant the machinery which
H was installed was being used not only for the manufacture of items falling
366
C.I.T. MADRAS v. RAMBAL PVT.LTD. 367

in the Fifth Schedule but also for the manufacture of some other items. A
Whereas _the respondent had claimed allowance on development rebate in
respect 0L9ssessment year 1969-70 at the rate of 35%, the Income-tax
Officer held that inasmuch as the machinery was also being used for the
manufacture of some other items not falling under the Fifth Schedule,
therefore, the rate of development rebate should be restricted to 20% only. B

Being aggrieved the respondent succeeded in the appeal filed before
the Appellate Assistant Commissioner. The department filed an appeal to
the Income Tax Appellate Tribunal which, however, upheld the assessee's
contention. At the instance of the department the Tribunal referred the
following question of law to the High Court. C

"Whether, in the assessment for the assessment year 1969-70, the
assessee could be allowed development rebate at 35% on Rs.
2,30,840 being the cost of the machinery installed during the
relevant previous year, despite the fact that they were used not
merely for the manufacture of nuts, bolts and screws for D
automobiles, but also for the manufacture of such articles for other
machinery?"

The High Court answered the question of law in favour of the
respondent by observing that the machinery which was installed was used E
wholly for the purpose of business of the assessee. This is a fact which had
been found by the Tribunal. The High Court, further observed that the
machinery installed for the purpose of manufacture of one of the items
mentioned in the Fifth Schecjule need not necessarily be used exclusively
for the manufacture of those items or any of the items in the Fifth Schedule.
It accordingly answered the question of law in favour of the Respondent. F

It is contended by the learned Counsel for the appellant, in this
appeal by special leave, that the respondent used the machinery for the
manufacture of items other than 'automobile ancillaries' in addition to nuts,
bolts and screws and, therefore, the respondent was not entitled to claim G
development rebate at the rate of35%. Section 33(l)(a) and (b) with which
we are concerned read as follows :
..,
"33(1)(a) : In respect of a new ship or new machinery or plant
(other than office appliances or road transport vehicles) which is
owned by the assessee and is wholly used for the purpose of the H
A
368 SUPREME COURT REPORTS (1997] SUPP. 3 S.C.R.

business carried on by him, there shall, in accordance with and
subject to the provision of this section and of section 34, be allowed
a deduction, in respect of the previous year in which ; the ship was
l
acquired or the machinery or plant was installed or, if the ship,
machinery or plant is first put up to use in the immediately
succeeding previous year, then, in respect of that previous year, a
B sum by way of development rebate as specified in clause (b).

(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
the actual cost thereof to the assessee;
c
(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
D rriore of the articles or things specified in the list in the Fifth
Schedule -

(a) thirty five percent of the actual cost of the machinery or plant;
to the assessee, where it is installed before the 1st day of April,
1970 and
E
(b) twenty five per cent of such cost, where it is installed after the
31st day of March, 1970.

According to Section 33(1)(a) development rebate is allowable if the
assessee uses the machinery wholly for the purpose of business carried on
F by him. It is not in dispute that in the present case, and as has been found
by the Tribunal, the items which are manufactured by the respondent are
wholly for the purpose of his business. Therefore, one of the conditions
stipulated by sub-section l(a) of Section 33 stands satisfied.

Sub-clause (b) deals with the rate at which the development rebate
G is to be allowed. It, inter alia, provides that in the case of machinery or
plant which is installed for the purposes of ~anufacturer or production of
any one or more of the articles specified in the list in the Fifth Schedule
and that machinery has been installed before 1st day of April, 1970, then
the development rebate will be allowed at the rate of 35% of the actual
H cost of the machinery. In the instant case the machinery was installed
..,,
C.I.T. MADRAS v. RAMBAL PVT.LID. 369

before 1st day of April, 1970. It cannot be disputed that it was installed for A
the purpose of manufacture of nuts, bolts and screws for automobiles
falling under Item 20 in the Fifth Schedule being 'automobile ancilliaries'.
These items were in fact manufactured. Section 33(1) (b) does not state
that the machinery which has been installed for the manufacture or produc-
tion of one or more of the articles specified in the Fifth_ Schedule should B ,
be used solely or exclusively for the manufacture of th~Vthose article/ar-
ticles. As long as the machinery, which is installed, manufactures any of the
articles specified in the Fifth Schedule, the assessee would be entitled to
claim development rebate at the rate of 35%, if the machinery is installed
before 1st day of April, 1970, notwithstanding the fact that in addition to
the manufacture of the listed items, the assessee also manufactures some C
other goods with the help of that machinery. If the contention of the
department is accepted, the effect would be that if the machinery is used
-for manufacture of one of the items listed in the fifth Schedule for few
hours a day and lies idle thereafter for the rest of the day, the assessee
would be entitled to claim development rebate at the rate of 35%; but if D
the machinery instead of remaining idle is used for the manufacture of
, some other items also for the assessee's business, then _he would not be
entitled to development rebate at the rate of 35%. We do not see any logic
in this contention and nor does the language of Section 33 warrant such a
conclusion.
E
We are in agreement with the decision of the High Court that the
machinery, which was being used for the manufacture of some of the items
· mentioned in the Fifth Schedule, would be entitled to development rebate
at the rate of 3.5% and it need not necessarily have been used exclusively
for the manufacture of those items alone.
F
For the aforesaid reason, we hold that the High Court has rightly
answered the question of law in the affirmative. This appeal is accordingly
dismissed with costs.

Civil Appeal No. 4003-4004 of 1984 and Civil No. 5637 of 1995
G
For the reason referred to in Civil Appeal No. 1286 of 1982, these
appeals are dismissed and the decision of the High Court is affirmed.
There will be no order as to costs.

R.P. Appeals dismissed.