Commissioner of Income Tax vs Madras Rubber Factory Ltd.

Ramanujam, J.—T.C.P. Nos. 433 and 436 of 1982. - After hearing the counsel at some length, we are satisfied that the following three

questions of law arise for consideration out of the order of the Tribunal :

Whether, the Appellate Tribunal was right in holding that the provisions for gratuity should be allowed as a deduction in computing the total

income of the assessee for the asst. yr. 1970-71 ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the items processed by the

assessee''s tread units at Madras and Kottayam are automobile ancillaries within the meaning of Entry 20 of the first Schedule to the IT Act, 1961

and that the assets installed in these units are entitled to development rebate at a higher rate u/s 33(1)(b)(i)(a) of the IT Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the appellate Tribunal was right in cancelling the reassessment made u/s 147 for the

asst. yr. 1970-71 as bad in law ?

So far as the first question is concerned there is a decision of this court in favour of the assessee. But leave to appeal against the said decision

has been granted by this court. So the question is at large. Therefore, that question also has to be referred to, Hence, we direct the Tribunal to

state a case and refer the said there questions for the opinion of this court.

T.C.P. No. 435 of 1982. - The assessee in this case is engaged in the manufacture and sale of motor car tyres and motor truck tyres. In the

original assessment for the year 1971-72 completed on 27-12-1973, the ITO had granted development rebate at the rate applicable treating the

plant and machinery installed in the tread units at Madras and Kottayam as manufacturing an article shown in Sch. V. Subsequently in the course of

the assessment proceedings for the year 1972-73, the ITO found that the plant and machinery installed in the tread units at Madras and Kottayam

had been wrongly granted higher development rebate. He, therefore, proceeded to invoke the powers u/s 147(b) to reopen the assessment and

reduced the development rebate already granted in the original assessment, in his reassessment order dt. 25-9-1976. The said reassessment order

was taken in appeal to the AAC by the assessee contending that there was no in information in the possession of the ITO for setting in motion the

proceedings u/s 147(b) in respect of the development rebate granted in the original assessment, that it is merely a change of opinion which he took

at the stage of the assessment for the subsequent year, that no information his come from any source and that, therefore, the initiation of

proceedings u/s 147(b) cannot legally be sustained.

The revenue took the matter in appeal to the Tribunal. The Tribunal also found that the ITO has reopened the assessment only on the ground

that the development rebate given in the original assessment was wrong because in his view the production of masticated rubber could not be

considered as production of automobile ancillaries, that the reopening is only based on the change of opinion of the ITO and that the ITO even at

the stage of the original assessment was well aware of the activities in Madras and Kottayam tread units and after taking those facts into

consideration, it through that the articles produced by those units would come within the scope of the automobile ancillary and that merely because

in the subsequent year''s assessment he took a different view cannot be taken to be an information which came into his possession from outside, so

as to enable him to reopen the assessment.

Thus, both the AAC as well as the Tribunal have taken the view that in this case the reopening has been made by the ITO only as a result of the

change of opinion on his part and not on the basis of any information or material which came to him from any sources. In view of the findings

rendered by the AAC as well as the Tribunal, the initiation of proceedings u/s 147(b) has rightly been held as not justified. In this view of the

matter, we see no justification to refer the first question namely :

Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the reassessment made u/s 147(b) for the

asst. yr. 1971-72

The other two questions are :

""Whether, the Appellate Tribunal was justified in not considering the question whether the assessees are entitled to higher development rebate in

respect of machineries installed in the tread units at Madras and Kottayam especially when it was raised in the grounds of appeal ?

""Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the items processed by the

assessee''s tread units at Madras and Kottayam are ''automobile ancillaries"" within the meaning of Entry 20 of the Fifth Schedule to the IT Act,

1961 and that the assets installed in those units as entitled to development rebate at a higher rate u/s 33(1)(b)(i)(a) of the IT Act, 1961 ?

So far as these two questions are concerned, it is seen that they would arise only if reassessment proceedings u/s 147(b) are upheld. As a matter

of fact, the AAC as well as the Tribunal, have gone into the merits of reassessment. Hence these questions also do not arise for consideration.

This petition is, therefore, dismissed.

T.C.P. No. 436 of 1982 : The revenue has in this petition sought a reference to this court u/s 256(2) the following four questions :

Whether, on the facts and in the circumstances of the case, the sum if Rs. 4,69,131 being 25% of the technical service charge paid to Mansfield

Tyre and Rubber Company was liable to be disallowed as capital expenditure ?

Whether, on the facts and in the circumstances of the case, the assessee was entitled to relief u/s 80J in respect of its Kottayam Unit ?

Whether, the Appellate Tribunal was right in holding that the provision for gratuity is an admissible deduction while computing the income of the

assessee for the asst. yr. 1972-73 ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the items processed by the

assessee''s tread units at Madras and Kottayam are : automobile ancillaries"" within the meaning of Entry 20 of the Fifth Schedule to the IT Act,

1961 and that the assets installed in those units are entitled to development rebate at a higher rate u/s 33(1)(b)(i)(a) of the IT Act, 1961 ?

So far as the first question is concerned we find that in the assessee''s own case for the earlier years, this court has answered the said question in

favour of the assessee on 17-9-1982 in T.C. Nos. 594, 774 & 775/1976. In view of the aid decision of this court which is against the revenue in

the assessee''s own case for the earlier years, question No. 1 has to be rejected. So far as questions 2, 3 and 4 are concerned, we have already

held in T.C.P. Nos. 433 and 436 of 1982 that similar questions arise for consideration out of the order of the Tribunal. Based on our order in

T.C.P. Nos. 433 and 436 of 1982, we direct the Tribunal to refer questions Nos. 3 and 4, So far as the second question is concerned, that is the

subject matter of reference already made by the Tribunal u/s 256(1). We are inclined to direct reference on that question as well. We, therefore,

direct the Tribunal to state a case and refer questions Nos. 2 and 4 for the opinion of this court.