(Civil Appeal No.1286 of 1982 was by special leave from the judgment and order datedJanuary 30, 1978, of the Madras High Court in T.C. No.384 of 1974).

(Civil Appeals Nos. 4003 and 4004 of 1984 were by certificate from the judgment and order dated October 18, 1983, of the Madras High Court in T.Cs. Nos. 1555 and 1556 of 1977).

Income-tax---

----Development rebate---Machinery installed for manufacture of items listed in Sched. V---Need not be exclusively used for manufacture of such items---Use of machinery for manufacture of other items also---Would not disentitle assessee to grant of development rebate at the higher rate of 35 per cent.---Indian Income Tax Act, 1961, S.33(1)(b); Sched. V, item No.(20).

The respondent assessee manufactured nuts, bolts and screws for automobile, which fell under item No.(20) in the Fifth Schedule to Income Tax Act, 1961, being "automobile ancillaries". The respondent claimed allowance of development rebate in respect of the assessment year 1969-70 at the rate of 35 per cent. as prescribed under section 33(1)(b)(B)(i)(a) of the income Tax Act, 1961. The Income-tax Officer found 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 and, therefore, restricted the development rebate on the machinery to 25 per cent. as prescribed under section 33(1)(b)(B)(i)(b). On appeal, the Appellate Assistant Commissioner allowed the claim of the respondent. On further appeal by the Revenue, the Tribunal upheld the assessee's contention. On a reference at the instance of the Revenue, the High Court held that the machinery which was installed was used wholly for the purpose of the business of the assessee. The High Court further held that the machinery which was installed for the purpose of manufacture of one of the items mentioned in the Fifth Schedule need not necessarily be used exclusively for the manufacture of those items or any of the items in the Fifth Schedule. The High Court, therefore, answered the question in favour of the respondent. On appeal to the Supreme Court:

Held, affirming the decision of the High Court, that the items which were manufactured by the respondent-assessee were used wholly for the purpose of its business, that the machinery had been installed before the 1st day of April, 1970, for the manufacture of nuts, bolts and screws for automobiles falling under item No.(20) in the Fifth Schedule being "automobile ancillaries" and that the items were actually manufactured by the respondent as prescribed under section 33(1)(b). Section 33(1)(b) did not state that the machinery which had been installed for the manufacture or production of one or more of the articles specified in the Fifth Schedule should be used solely or exclusively for the manufacture of that/those article/articles. 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 per cent., if the machinery was installed before the 1st day of April, 1970, notwithstanding the fact that in addition to the manufacture of the listed items, the assessee also manufactures some other goods with the help of that machinery. Therefore, the High Court was right in holding that the machinery installed by the respondent 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 35 per cent. and it need not necessarily have been used exclusively for the manufacture of those items alone.

Addl. CIT v. Rambal (P.) Ltd. (1980) 123 ITR 130 and CIT v. Rambal (Pvt.) Ltd. (1988) 169 ITR 50 affirmed.

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

Mrs. Janaki Ramachandran, Advocate for Respondents.

JUDGMENT

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 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. Whereas the respondent had claimed allowance of development rebate in respect of the assessment year 1969-70 at the rate of 35 per cent 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 per cent only.

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 (see (1980) 123 ITR 130):

Whether, in the assessment for the assessment year. 1969-70 the assessee could be allowed development rebate at 35 per cent. 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 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 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 Schedule 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.

It is contended by 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 development rebate at the rate of 35 per cent. Section 33(l)(a) and (b) with which we are concerned read as follows:

"31(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 purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a 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 immediately succeeding previous year, then, in respect of that previous year, a 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 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 31^st 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 the business carried on 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 its business. Therefore, one of the conditions stipulated by subsection (1)(a) of section 33 stands satisfied.

Clause (b) deals with the rate at which the development rebate is to be allowed. It, inter alia, provides that in the case of machinery or plant which is installed for the purposes of manufacture 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 April 1, 1970, then the development rebate will be allowed at the rate of 35 per cent. of the actual cost of the machinery. In the instant case, the machinery was installed before April 1, 1970. It cannot be disputed that it was installed for the purpose of manufacture of nuts, bolts and screws for automobiles falling under item No.(20) in the Fifth Schedule being "automobile ancillaries". These items were in fact manufactured. Section 33(1)(b) does not state that the machinery which has been installed for the manufacture or production of one or more of the articles specified in the Fifth Schedule should be used solely or exclusively for the manufacture of that/those article/articles. 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 per cent. if the machinery is installed before April 1, 1970, notwithstanding the fact that in addition to the manufacture of the listed items, the assessee also manufactures some 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 the manufacture of one of the items listed in the Fifth Schedule for a 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 per cent. but if 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 per cent. We do not see any logic in this contention nor does the language of section 33 warrant such a conclusion.

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 35 per cent. and it need not necessarily have been used exclusively for the manufacture of those items alone.

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 Appeals Nos.4003-4004 of 1984 and Civil Appeal No.5637 of 1995:

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 no order as to costs.

M.B.A/1495/FCOrder accordingly.