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PETITIONER: HINDUSTAN WIRES PRODUCTS LIMITED

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, PATIALA

DATE OF JUDGMENT07/08/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1987 AIR  566            1986 SCR  (3) 478  1986 SCC  (3) 689        JT 1986    75  1986 SCALE  (2)160  CITATOR INFO :  E&D        1992 SC 422  (4)

ACT:      Income Tax  Act, 1961,  ss 33(i)(iii)(C)(A),33(I)(b)(B) (i),  80E, 80-I and items 7, 17 and 24 of the Fifth Schedule - Manufacture of insulated copper wires-Grant of development rebate  &   deduction  in  respect  of  profits  and  gains- Permissibility of.

HEADNOTE:      Section 33 of the Income Tax Act, 1961 provides for the grant of  development rebate.  The  appellant-assessee,  who carried on the business of manufacture and sale of insulated copper wires,  claimed for  the assessment  years 1966-67 to 1971-72 that  it was  entitled to  the benefits conferred by ss. 33(i)(iii)  (c)(A) and  80E read with items 7, 17 and 24 of the  Fifth Schedule  and ss. 33(i)(b)(B)(i) and 80-I read with items  7, 17 and 24 of the Fifth or the Sixth Schedule, as the  case may be, for the aforesaid assessment years as a "priority industry".  It contended  before  the  Income  Tax officer that  the wires  manufactured 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 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.  The  Income  Tax officer rejected the claim made by the appellant. The matter ultimately went  before the  High Court  in a reference. The High Court  answered the  question in  favour of the Revenue and against  the appellant-assessee  on the  ground 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.      Dismissing the appeal, ^      HELD: 1.  Item  7  of  the  Fifth  Schedule  speaks  of equipment for the generation and transmission of electricity and  such   equipment  includes   transformers,  cables  and transmission towers.  To appreciate  what is comprehended in item 7, it is permissible to refer to a related 479

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entry, item  24, which  refers to  component  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 mentioned  therein are  component parts of what can be described as  machinery. Then  reading item 7 in conjunction with item 24, the conclusion is inescapable that when item 7 speaks of  equipment, reference  is  intended  to  machinery needed tor  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 transmission of  electricity. Viewed  in that  context,  the reference in  item 7 to cables must mean cables identifiable as  a  complete  self-contained  unit  in  themselves  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 is  merely a  component, or  part of a component, of  a unit  of  equipment  or  machinery.[485F-H; 486A-C]      Commissioner   of   Income   Tax,   Tamil   Nadu-V   v. Dhandayuthapani Foundry  (Private) Ltd.,  [1980] 123ITR 709, inapplicable.      In the  instant case, the sales accounts of the asessee showed that  the assessee had sold winding wires used in the manufacture of  different types  of electricity.  These  are winding wires, employed in coils, winding of armatures, etc. and cannot  be identified  at all  as cables in the sense in which item 7 conceives of cables. [486D-E]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal Nos 597-599 (NT) of 1985      From the  Judgment and  order  dated  3.5.1983  of  the Punjab & Haryana High Court in Income Tax Reference Nos. 61, 63 and 64 of 1977      Dr. Devi  Pal, V.S.  Desai, O.C. Mathur, Ms A K. Verma, Ms. Meera Verma and S. Sukumaran for the Appellant.      S.C. Manchanda and Ms. A Subhashini for the Respondent      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- 480 assessee does  not entitle  it to  the benefits conferred by ss. 33(1)(iii)  (c)(A) and  80E 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  80I  of  the Income-tax Act,  1961 for  the assessment  years 1968-69  to 1971-72      Section 33 of the Income Tax Act, 1961 provides for the grant of  development rebate.  Prior to  April 1,  1968,  s. 33(1)(iii)(c)(A) of the 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 vehicles)  installed after  the           31st day  of March,  1954, which  is owned  by the           assessee and  is wholly  used for  the purposes of           the business  carried on  by him,  a sum by way of           development rebate, equivalent to-           (i) ..............................................           (ii) .............................................           (iii) in  the case of machinery or plant installed

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         after the 31st day of March, 1961-                (a) .........................................                (b) .........................................                (c) where the machinery or plant is installed                after the 31st day of March, 1965-                     (A) 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 assesee,  where it is                          installed before  the  1st  day  of                          April, 1970. and                          (b) twenty-five  per cent,  of such                          cost, where 481                          it is  installed after the 31st day                          of March, 1970.                          (B) ...............................           shall, subject  to the  provisions of  s.  34,  be           allowed as  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." This provision  was substituted,  with effect  from April 1, 1968, by the 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 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  a 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).           (A) ..............................................           (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 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. 482 These provisions relate to development rebate.      A deduction  was  also  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 80E provided:           "80E (1)  In the  case of  a company to which this

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         section  applies,   where  the  total  income  (as           computed in  accordance 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 (- 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."      Section 80E  was deleted with effect from April 1, 1968 and was substituted by s. 80-I which provides:           "80-I(1) In  the case  of a  company to which this           section ap  plies, where  the gross  total  income           includes any profits and 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." It is  not disputed between the parties that the assessee is a company to which the provisions of s. 80E and subsequently of s.  80I will  apply. Section  80I, it  may be  noted, was deleted by  the Finance  Act, 1972 with effect from April 1, 1973.  With   effect  from  April  1,  1968  the  expression ’priority industry’ was defined in s. 80B(7) as meaning:           "the business  of generation  or  distribution  of           electricity or  any other  form  of  power  or  of           construction, manufacture or production 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 and the hotel is for the time being           approved   in   this   behalf   by   the   Central           Government." 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 relevance to this case read as follows:           "(7) Equipment for the generation and transmission           of electricity  including transformers, cables and           transmission towers,           (17)   Electronic    equipment,   namely,    radar           equipment, computers,  electronic  accounting  and           business   machines,    electronic   communication           equipment,  electronic   control  instruments  and           basic components,  such  as  valves,  transistors,           resisters, condensors,  coils, magnetic  materials           and microwave components,           (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  the items aforesaid and           have been  given for  that  purpose  some  special           shape or  quality which would not be essential for           their use  for any  other purpose and are in comp-           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.

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    These appeals relate to the assessment years 1966-67 to 1971-72. The assessee carries on the business of manufacture and sale  of insulated  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 80E  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 80-1  read with items 7, 17 and 24 of  the 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 assessment years as  a ’priority  industry’. It asserted that the wires manufactured  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 484 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.      The Appellate Tribunal allowed the six appeals and held that the assessee was entitled to the benefits claimed by it as a ’prority industry’. 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 was limited to the point whether the wires manufactured by the asses see fell within  item  7.  In  disposing  of  the  appeals,  the Appellate Tribunal  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 assessment year 1964-65 it  found that  the assessee  manufactured 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 operating that there  was no change in the nature or type of the goods manufactured 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 benefits claimed by the assessee.      Thereafter,  at   the  instance  of  the  Revenue,  the Appellate Tribunal  made a  reference for the six assessment years to  the High  Court 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  80E of  the Income  Tax Act,           1961? 485           2. Whether  on the  facts and in the circumstances

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         of the  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 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 exclusively used  in the  manufacture of  different types of gadgets  and   not  for   the  purpose   of  generation  and transmission of electricity. It observed 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 High  Court has  misconstrued  the  facts found  by   the  Appellate   Tribunal  and  has,  therefore, erroneously  held   that  the  cables  manufactured  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 Nadu-V v. Dhandayuthapani Foundry (Private)  Ltd., [1980]  123  l.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.      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- mission  towers. To  appreciate  what  is comprehended in  item 7,  it is  permissible to  refer to  a related entry,  item 24,  which refers to component 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 mentioned  therein are  component parts of what can be described as  machinery. Then  reading item 7 in conjunction with item 24, the con- 486 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 transmission  of electricity.  Viewed in that context,  the reference  in item  7 to cables must mean cables identifiable  as a  complete self-contained  unit  in themselves 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 is merely a component, or part of a component, of a unit of equipment or machinery.      The High Court is right in our opinion, in holding that the Appellate  Tribunal erred in ignoring the fresh evidence gathered by  the Income  Tax officer  and considered  by the Appellate   Assistant   Commissioner   in   the   assessment proceedings under  consideration. The  sales accounts of the

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assessee showed  that the  assessee had  sold 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)  Ltd.  (supra) does not call for consideration.      In the  circumstances, the  questions referred  to  the High Court  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. 487