Gujarat High Court
Industrial Machinery Manufacturers ... vs Commissioner Of Income-Tax (No. 1) on 1 February, 1993
Equivalent citations: [1993]203ITR438(GUJ)
JUDGMENT G.T. Nanavati, J.
1. The Income-tax Appellate Tribunal has referred the following four questions to this court under section 256(1) of the Income-tax Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the humidifiers were not textile machinery or textile accessories ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant was not entitled to higher development rebate at the rate of 25 per cent. ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no appeal lies to the Appellate Assistant Commissioner from the order of the Income-tax Officer levying interest of Rs. 4,511 under section 139 of the Income-tax Act 1961 ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the Appellate Assistant Commissioner rejecting the claim of the assessee for allowance of surtax ?"
2. At the time of hearing of this reference, learned counsel appearing for the assessee stated that he is not pressing question No. 3. So far as question No. 4 is concerned, it is covered by the decision of this court in S. L. M. Maneklal Industries Ltd. v. CIT [1988] 172 ITR 176 and learned counsel for both the sides agree that the said question will have to be answered in the affirmative, i.e., against the assessee and in favour of the Revenue. Therefore, the facts necessary for appreciating questions Nos. 1 and 2 only need be stated.
3. The assessee is a private limited company manufacturing humidifiers and their spare parts. It had submitted a return of income for the assessment year 1973-74, showing income of Rs. 17,35,280. It had claimed development rebate at the rate of 25 per cent. on the ground that it was manufacturing textile machinery or textile accessories, an article specified in the sixth schedule to the Income-tax Act, 1961. The Income-tax Officer rejected the claim of the assessee that it was manufacturing articles specified in the Sixth Schedule and, therefore, allowed development rebate at the rate of 15 per cent. only. In appeal, the Appellate Assistant Commissioner also rejected the claim of the assessee. The assessee, therefore, preferred an appeal to the Tribunal. It was contended before the Tribunal that the humidifiers which the assessee was manufacturing were textile machinery and it was not necessary for it to show that they were textile machinery were in any case textile accessories and it was sufficient for the assessee to show that they could be termed as textile accessories. The Tribunal rejected the plea of the assessee on the ground that a humidifier is machinery by itself and, therefore, not an accessory. It further held that a humidifier would become part of textile machinery only when it is purchased by textile mills and set up in textile plants. To that extent, the appeal of the assessee was dismissed though it was partly allowed on the other point.
4. What is contended by learned counsel for the assessee is that the Tribunal has recorded an inconsistent finding and was not justified in holding that humidifiers manufactured by the assessee were not textile machinery or textile accessories. He drew our attention to paragraph 7 of the order wherein the Tribunal has held that, until the humidifiers manufactured by the assessee are purchased by textile mills and set up in textile plants, they cannot be termed as textile machinery. The Tribunal, then, while rejecting the contention that humidifiers manufactured by the assessee could be regarded as textile accessories, has observed that a humidifier is machinery by itself and not an accessory and that it becomes a part of textile machinery only when it is purchased by a textile mill and set up in its textile plant or plants. Thus, the contention of the assessee set up in its plant or plants. Thus, the contention of the assessee that humidifiers manufactured by it were textile accessories was rejected by the Tribunal by holding that they are machinery by themselves. Not only that, the Tribunal has further observed, after referring to its earlier orders in respect of earlier assessment years, that the plea of the assessee was not turned down by the Tribunal on the ground that humidifiers were not textile machinery but on the ground that the assessee could not he said to be manufacturing textile machinery while manufacturing the humidifiers, though such humidifiers, when purchased by textile mills and set up in their textile plants, would become part of textile machinery. In that very paragraph, the Tribunal has further observed that : "As humidifiers are mainly used in the manufacture of cloth, we fail to see how it could be urged that humidifiers are accessories to machinery". The Tribunal has, as a matter of fact, found that humidifiers are mainly used for manufacture of cloth. If that is so, humidifiers should be regarded as textile machinery. What the Tribunal has held is that humidifiers in the hands of textile mills are textile machinery but they cannot be regarded as such in the hands of the assessee. It is difficult to appreciate this reasoning of the Tribunal. If humidifiers are textile machinery on the ground that they are mainly used in the manufacture of cloth, we fail to appreciate how they cease to be such articles in the hands of the assessee. For being a manufacture of textile machinery, one need not be a manufacturer of textiles. The materials on record also discloses that 96 per cent. of the assessee's sales are to textile industries. Therefore, considering the use for which the humidifiers are manufactured by the assessee, in our opinion, no other view could have been taken by the Tribunal except that the humidifiers manufactured by the assessee are textile machinery or textile accessories.
5. It was, however, urged on behalf of the Revenue that only industrial machinery specified under sub-heading 'A' of heading 'B' have been included in the Sixth Schedule to the Act and other articles specified in the First Schedule to the Industries (Development and Regulation) Act. 1951, have not been included. He also submitted that item (1) under heading 8(A) of the First Schedule to the Industries (Development and Regulation) Act, 1951, is the relevant item. The said item is "Textile machinery (such as spinning frames, carding machines, power looms and the like) including textile accessories." Relying upon this item, it was submitted that only such parts like spinning frames carding machines, power looms, etc., can be regarded as textile machinery and an article lie a humidifier which dies not play a direct role in manufacture of cloth cannot be regarded as textile machinery. As regards what can be regarded as textile accessories, learned counsel for the Revenue relied upon the Government Circular letter No. 1(206) 65/(TPL), dated January 15, 1966. Therein, wet processing machinery like dyeing, bleaching, finishing, as well as textile accessories such as shuttles, bobbins, healds, reeds inserts and other spares and attachments are regarded as textile accessories. He submitted that only such articles should be regarded as textile accessories and not humidifiers which are not attached to the textile plant and, which do not play a direct role in the manufacture of textiles. As we have pointed out above, the Tribunal has held that humidifiers are "textile machinery" though it has further held that they were so in the hands of the textile mills and not in the hands of the assessee. We have held earlier that there was no justification for drawing a distinction like this in view of the further finding recorded by the Tribunal. It will have to be held that the Tribunal was wrong in holding that humidifiers manufactured by the assessee were not textile machinery or textile accessories and that 2 the assessee was not entitled to higher development rebate at the rate of 25 per cent. We hold that, in view of the finding of fact recorded by the Tribunal, it should have been held that humidifiers manufactured by the assessee were textile machinery or textile accessories and was thus entitled to higher development rebate at the rate of 25 per cent.
6. In the result, questions Nos. 1 and 2 are answered in the negative, i.e. in favour of the assessee and against the Revenue. Question No. 3 is not answered as not pressed. Question No. 4 is answered in the affirmative i.e., in favour of the Revenue and against the assessee. Reference is disposed of accordingly with no order as to costs.