Commissioner of Income Tax vs Alkali and Chemical Corporation of India Ltd.

Dipak Kumar Sen, J.—In this reference u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following questions, stated to be questions of law arising out of its order, for the opinion of this court:

"1. Whether, on the facts and in the circumstances of the case and on a proper interpretation of law, the Tribunal was correct in holding that the assets used in scientific research are also entitled to depreciation u/s 32 of the Income Tax Act, 1961, even though 100% of the capital expenditure was allowed as deduction u/s 35 of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the Tribunal in holding that the assessee was entitled to development rebate at the higher rate envisaged in Section 33 read with item 18 of the Fifth Schedule to the Income Tax Act, 1961, had relied on irrelevant materials and/or otherwise misdirected itself in arriving at the above finding ?

Whether on a proper interpretation of Section 80J of the Income Tax Act, 1961, read with Rule 19A of the Income Tax Rules, 1962, the Tribunal was correct in holding that borrowed capital should be included in the capital base for the purpose of relief u/s 80J ? "

The controversy raised in question No. 1 is covered by a decision of this court in the case of the same assessee in respect of an earlier assessment year. The order was passed in Income Tax Reference No. 417 of 1979 on the 18th June, 1986 ( Alkali and Chemical Corporation of India Ltd. Vs. Commissioner of Income Tax, ). The said order was based on the amended Section 35 of the Income Tax Act, 1961. Following the said decision, we answer question No. 1 in the negative and in favour of the Revenue.

Similarly, question No. 3 is covered by a decision of the Supreme Court in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, . Following the said decision, we answer the question in the negative and in favour of the Revenue,

The material facts relating to question No. 2 are shortly as follows ;

During the relevant assessment years, namely, 1974-75 and 1975-76, the corresponding accounting years ending on the 30th September of 1973 and 1974, the assessee manufactured polythene and rubber chemicals. In respect of the aforesaid, the assessee claimed development rebate at the enhanced rate u/s 33(1)(b)(B) of the Income Tax Act, 1961, contending that the assessee had installed machinery and plant for the purpose of manufacture or production of an article mentioned in the Fifth Schedule to the Income Tax Act, 1961. The relevant item No. 18 on which the assessee based its claim reads as follows;

" Petrochemicals including corresponding products manufactured from other basic raw materials like calcium carbide, ethyl alcohol or hydrocarbons from other sources."

The Income Tax Officer after considering technical text books and treatises found and held that the raw material from which the assessee produced polythene, namely, ethyl alcohol, was a petrochemical but the end product, namely, polythene, was not a chemical. He held that the term " petrochemical" implied that it must be a chemical as known in the market and polythene was not understood as such and, therefore, was not a petrochemical. He found that these were all end products and were not covered by item 18 of the Fifth Schedule to the Income Tax Act, 1961. He did not allow the higher development rebate u/s 33 as claimed.

Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Following the decision of the Tribunal in respect of the same assessee in the earlier assessment year 1972-73, the Commissioner of Income Tax (Appeals) held that the products fell under item 18 of the Fifth Schedule to the Income Tax Act, 1961, and, therefore, the assessee was entitled to claim development rebate at the higher rate u/s 33 of the Act.

Being aggrieved, the Revenue came up in appeal before the Income Tax Appellate Tribunal. The Tribunal followed its earlier order in the assessee''s own case and dismissed the appeal.

At the hearing before us, the learned advocate for the Revenue submitted that on a plain reading of item 18 of the Fifth Schedule to the Act with the evidence which had been considered by the Income Tax Officer, it should be held that polythene and rubber chemicals produced by the assessee were not covered by item 18 of the Fifth Schedule to the Act. He submitted that the only evidence produced by the assessee was an opinion of Professor N. K. Bose of the University College of Science and Technology of the University of Calcutta. This written opinion was produced before the Tribunal in respect of the appeal preferred by the assessee in the assessment year 1972-73.

The learned advocate for the assessee contended to the contrary and submitted that item 18 of the Fifth Schedule to the Act was wide enough to cover polythene and other products manufactured by the assessee.

In support of his contentions, the learned advocate for the assessee drew our attention to two decisions of the Supreme Court, namely, Commissioner of Income Tax, Bombay Vs. Nirlon Synthetics Fibres and Chemicals Ltd., and J.K. Synthetics Ltd. Vs. Commissioner of Income Tax, Kanpur, . The Supreme Court accepted, in the first case, the finding of the Tribunal that Nylon-6 yarn manufactured by the assessee in that case from imported raw material was a petrochemical and that the Tribunal in finding the product to be such had not misapplied any rule of law and had not ignored any material evidence. It was held that it could not be said that the decision of the Tribunal was based on no evidence or based on inadmissible evidence. The question raised by the Revenue was not a question of law. The same view was taken by the Supreme Court in the second decision in respect of manufacture of Nylon-6 yarn.

In the facts and the circumstances of the instant case, we are not inclined to interfere with the decision of the Tribunal on the question inasmuch as, in our view, the question is mainly one of fact and it cannot be said that the Tribunal has ignored any evidence on record or that the finding of the Tribunal is based on no evidence. Sitting in an advisory jurisdiction, we are not inclined to reappreciate the evidence adduced before the authorities below and in that process come to a different conclusion.

For the reasons as aforesaid, we answer question No. 2 in the negative and in favour of the assessee.

The reference is disposed of accordingly. There will be no order as to costs.

Shyamal Kumar Sen, J.

I agree.