Commissioner of Income Tax vs Hindustan Kokoku Wires Ltd.

Arijit Pasayat, C.J.—At the instance of the Revenue, the following question has been referred for the opinion of this court u/s 256(1) of the Income tax Act, 1961 (for short "the Act"), by the Income Tax Appellate Tribunal, Delhi Bench "B" (in short "the Tribunal") :

"On the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessed was entitled to initial depreciation u/s 32(1)(vi) on the written down value of the plant and machinery amounting to Rs. 3,18,500 which was used for manufacturing of steel wires ?"

The dispute relates to the assessment year 1976-77. The factual position in a nutshell is as follows. The assessed-company at the relevant point of time was engaged in the manufacture and sale of steel wires and other types of wires which arc used in connection with the manufacturing of A. C. S. R. conductors required in connection with transmission and distribution of electricity. The basic raw material for manufacturing the steel wire is wire rod. As a result of the process of drawing, the diameter of the wire rod reduces but the basic shape of the cross-section remains unaltered as also the Chemical composition of the rod. During the assessment year 1976-77 corresponding to the previous year ending on March 31, 1976, the assessed purchased plant and machinery worth Rs. 3,18,500 and claimed that it was entitled to initial depreciation at the rate of 20 per cent, as provided u/s 32(1)(vi) of the Act. It was the assessed''s stand that its case was covered by item No. 1 of "Iron and steel (metal)" in the list of articles or things in the Ninth Schedule to the Act. The Income Tax Officer, however, did not allow the claim. The matter was carried in appeal before the Commissioner of Income Tax (Appeals) (for short "the CIT(A)"). Following the decision of the apex court in State of Madhya Bharat v. Hiralal [1966] 17 STC 313 and the judgments of the Kerala High Court in COMMISSIONER OF Income Tax, KERALA Vs. MITTAL STEEL RE-ROLLING AND ALLIED INDUSTRIES (P.) LTD., and Commissioner of Income Tax Vs. West India Steel Co. Ltd., , the Commissioner of Income-lax (Appeals) directed allowance of initial depreciation u/s 32(1)(vi). The matter was carried in appeal before the Tribunal by the Revenue. Reliance was placed on a decision of the Calcutta High Court in Indian Steel and Wire Products Ltd. Vs. Commissioner of Income Tax, to contend that the Commissioner of Income Tax (Appeals) view was wrong. The Tribunal held with reference to the decisions of the Kerala High Court, referred to above and The State of Madhya Bharat (Now The State of Madhya Pradesh) and Others Vs. Hiralal Ji, that "iron and steel (metal)" falls within the meaning of item No. 1 of the Ninth Schedule. It was also noticed that the Madras High Court has followed the decision of the Kerala High Court in Addl. Commissioner of Income Tax Vs. Trichy Steel Rolling Mills Ltd., . The view expressed by the Calcutta High Court in Indian Steel and Wire Products Ltd. Vs. Commissioner of Income Tax, was not followed. Placing reliance on the decision of the Supreme Court in Controller of Estate Duty Vs. R. Kanakasabai and Others, it was observed by the Tribunal that since there was divergence of views, one that helps the assessed is to be adopted. Accordingly, the direction given by the Commissioner of Income Tax (Appeals) to the Income Tax Officer to allow initial depreciation was held to be correct. On being moved for a reference, the question as set out above, has been referred.

We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice. As the factual position would go to show, the decisions rendered by the Kerala High Court are fully applicable to the facts of the case.

The Tribunal on considering the rival stands held as follows :

"We have carefully considered the rival submissions. The question for determination in this appeal is whether steel wires manufactured by the assessed are covered by the words ''iron and steel (metal)'' appearing at item No. 1 of the list of articles or things given in the Ninth Schedule of the Act. This point is not rest Integra. The Kerala High Court in COMMISSIONER OF Income Tax, KERALA Vs. MITTAL STEEL RE-ROLLING AND ALLIED INDUSTRIES (P.) LTD., considered similar words used in item No. 1 of the list of articles and things given in the Fifth Schedule. In that case the assessed-company produced mild steel rods and steel sections from steel billets and ingots and claimed development rebate at the rate of 35 per cent, against which the Revenue''s contention was that the assessed would be entitled to development rebate only at the rate of 20 per cent. The Kerala High Court accepted the assessed''s submission and held that the addition of the word ''metal'' within briskets after the word ''iron and steel'' in item No. 1 of Schedule V to the Act was not intended to limit the scope and ambit to the entry. There was no justification for qualifying item No. 1 by insisting that the articles produced or manufactured or constructed for the purpose of the business of the assessed-company must be those produced, manufactured or constructed from materials which were not iron and steel. The Kerala High Court relied on the judgment in The State of Madhya Bharat (Now The State of Madhya Pradesh) and Others Vs. Hiralal Ji, . This judgment of the Kerala High Court was considered by a Full Bench of the same High Court in Commissioner of Income Tax Vs. West India Steel Co. Ltd., and it was held that the M. S. rods and steel sections are basically ''iron and steel (metal)'' within the meaning of item No. 1 in the Fifth Schedule to the Income Tax Act, 1961. The judgment of the Kerala High Court in Commissioner of Income Tax Vs. West India Steel Co. Ltd., was followed by the Madras High Court in Addl. Commissioner of Income Tax Vs. Trichy Steel Rolling Mills Ltd., . The Madras High Court also referred to the judgment of the Supreme Court in State of Madhya Bharat v. Hiralal [1966] 17 STC 313. In COMMISSIONER OF Income Tax, PATIALA Vs. KRISHNA COPPER AND STEEL ROLLING MILLS., it has been held that development rebate at 35 per cent, will be available or machinery and plant installed by an assessed who manufactures of produces iron and steel (metal) either from the original ore or scrap u/s 33(1)(b)(B)(i) read with item No. 1 of the Fifth Schedule. In view of these different judgments of the Kerala, Madras and Punjab and Haryana High Courts, we uphold the order of the Commissioner of Income Tax (Appeals). With respect we are not following the Calcutta High Court judgment referred to by the learned Departmental Representative and in doing so we have kept in view the judgment of the Supreme Court in Controller of Estate Duty Vs. R. Kanakasabai and Others, wherein it has been held that if a taxing provision is ambiguous and is only capable of more than one interpretation, that interpretation which is beneficial to the subject must be adopted. The judgment of the Madras High Court in Commissioner of Income Tax Vs. Arasan Fertilisers (P.) Ltd., relied on by the learned Departmental Representative does not advance the case of the Revenue in any manner. We thus hold that the Commissioner of Income Tax (Appeals) was right in directing the Income Tax Officer to allow initial depreciation on the plant and machinery costing Rs. 3.18,500 which was admittedly used for manufacturing of steel rods."

We are in agreement with the analysis made and view expressed by the Tribunal. The inevitable result is that the reference has to be answered in favor of the assessed and against the Revenue. Ordered accordingly.

The reference is accordingly disposed of.