Commissioner of Income Tax vs Steel Rolling Mills of Hindustan (P.) Ltd.

Dipak Kumar Sen, J.—Steel Rolling Mills of Hindustan (P.) Ltd., the assesses, carries on business of manufacture of steel castings, forging and casting of iron rolls and ingots. On 1-1-1970, the assessee entered into an agreement with Caltex (India) Ltd. and Apeejay Structurals Ltd. Under the said agreement, the assessee agreed to purchase low pressure gas cylinders from Caltex (India) Ltd. directly or from any manufacturer nominated by the latter and to hire out the said cylinders to Apeejay Structurals Ltd. for sale or distribution of col gas on terms agreed to by and between the said Apeejay Structurals Ltd. and the assessee which would not be contrary to or inconsistent with the said agreement. The said agreement provided further that during its currency the assesses and Apeejay Structurals Ltd. would not sell, pledge, pawn or otherwise alienate the cylinders to others without the prior consent of Caltex (India) Ltd. which would retain an option to purchase back the cylinders on stipulated prices. The assessee was assessed to income tax for the assessment year 1970-71, the corresponding accounting year ending on 31-3-1970. In the order of assessment it was recorded by the ITO that the business carried on by the assessee in the relevant assessment year remained the same as in the previous year, viz., manufacture and sale of iron and steel goods. The ITO, however, included the income of the assessee, the rental from hiring out the gas cylinders under the said agreement, in the assessee''s business income. But the ITO did not allow either depreciation or development rebate on the cylinders whose value was computed at Rs. 2,74,402.

The assessee preferred an appeal to the AAC against the assessment. The AAC also recorded in his order that the assessee was engaged only in the business of manufacture and sale of iron and steel goods. He noted that the ITO did not allow depreciation on the cylinders as they were put to use for less than thirty days. He, however, held that under the amended rules the assessee was entitled to full depreciation on the cylinders. He directed the ITO to allow the assessee such depreciation, and also the development rebate on the cylinders after verification of their cost. It was recorded that a statutory development rebate fund had been created by the assessee.

Being aggrieved, the revenue came up on appeal before the Tribunal. The sole contention of the revenue before the Tribunal was that the AAC had erred in allowing development rebate to the assessee on the cylinders. It was urged before the Tribunal that the assessee was not carrying on business of hiring out cylinders and that the rental income from the cylinders should be assessed as income from other sources as held in the case of the assessee in the subsequent assessment years. It was contended that the assessee, in any event, was not entitled to development rebate as the cylinders had not been used in its own business. The distribution of cal gas was the business of Apeejay Structurals Ltd. It was also contended that the cylinders had not been installed in the business of the assessee. The assessee made submission to the contrary.

The Tribunal noted that the ITO had treated the rental income of the gas cylinders as the business income of the assessee and that this had not been rectified at any time and that this aspect of the matter was not agitated before the AAO. The Tribunal held that the assessee was, in fact, carrying on the business of hiring out cylinders in which the cylinders were used.

The Tribunal also held that the expression ''installed'' in the relevant section of the statute had to be construed in a wide sense and following a decision of the Supreme Court in COMMISSIONER OF Income Tax, MADRAS Vs. MIR MOHAMMAD ALI. ARUNA MILLS LTD. : INTERVENER., held that the cylinders had actually been installed in the business of the assessee. The Tribunal upheld the order of the AAO and dismissed the appeal of the revenue.

On an application of the revenue u/s 256(1) of the income tax Act, 1961 (''the Act''), the following question has been referred by the Tribunal as a question of law arising out of its order for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, development rebate on L.P.G. cylinders of the value of Rs. 2,74,402 could be allowed for the assessment year 1970-71?"

At the hearing, the learned advocate for the revenue submitted that in view of the concurrent findings of the ITO and the AAC that the assessee was not carrying on business in hiring out gas cylinders, the conclusion of the Tribunal that the assessee was entitled to claim development rebate on such cylinders was patently erroneous. The learned advocate submitted further that, in any event, the assessee had not been found to own cylinders and, in fact, the assessee was not the owner of the same and as such the assessee was not entitled to claim development rebate on the cylinders. The learned advocate also submitted that the cylinders were not plants nor had been installed in the assessee''s business. On these grounds also the claim for development rebate should have been disallowed.

The learned advocate for the assessee submitted, on the other hand, that the Tribunal has found and held that the assessee was in fact carrying on business in cylinders. The revenue had sought to assail this finding as perverse but the question on perversity though suggested had not been referred.

It was submitted that the expression ''plant'' had been held by the Supreme Court as also other High Courts including this Court to be of wide import and law was settled that any asset used for business would be considered to be a plant for the purpose of development rebate. Similarly, the expression ''installation'' had been interpreted by the Allahabad High Court and applied in the case of gas cylinders. There was no reason why different view should be taken.

The following decisions were cited at the bar:

(a) Mir Mohammad Ali''s case (supra) : In this case it was laid down by the Supreme Court that the expression ''plant'' is of wide import, and that the expression ''installed'' in section 10(2)(vi) of the Indian Income- tax Act, 1922 (''the 1922 Act''), not only meant fixed in position but also used in the sense of inducted or introduced in a business.

(b) AJODHYA PRASAD TARA CHAND KHEKRA Vs. COMMISSIONER OF Income Tax, LUCKNOW., : This decision of a Division Bench of the Allahabad High Court was cited for the proposition that income from a plant hired out could also be assessed under the head ''Profits and gains of business or profession'' and such income would not necessarily fall under the head ''Income from other sources''. It was held that development rebate would be allowable where business was carried on by way of hiring plants or machinery.

(c) Commissioner of Income Tax Vs. Swadeshi Mining and Manufacturing Co. Ltd., : In this case, a Division Bench of this Court following the decision of the Supreme Court in Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel, Secunderabad, held that capital items like coal tubs, cast iron pipes, winding and guiding ropes, etc., would fall within the ambit of the expression ''plant'' for the purpose of development rebate.

(d) Commissioner of Income Tax Vs. National Air Products Limited, : In this case, a Division Bench of the Delhi High Court held that the assessee carrying on business of manufacture of oxygen was entitled to claim depreciation on cylinders used for storing oxygen. Following the decision of the Supreme Court in Taj Mahal Hotel''s case (supra) it was also held that such cylinders would come within the ambit of the expression ''plant''.

The material point of section 33 of the Act, which provides for development rebate reads as follows:

"(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 the previous year in which 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...."

On the facts found which have not been challenged, it appears the assessee is entitled to claim development rebate on the gas cylinders.

The statement of the ITO and the AAC in their respective orders that assessee carries on business only in manufacture and sale of iron and steel items and none other is patently erroneous inasmuch as the ITO had included the rental income of the gas cylinder in the business income of the assessee and the AAC has gone further and allowed depreciation to the assessee on the cylinders. The revenue did not choose to rectify either the order of the ITO or to prefer an appeal against the allowance of depreciation.

It has been held that the assessee had been carrying on business of hiring out gas cylinders in the relevant assessment year. This finding is unchallenged. The question sought to be raised by the revenue that the finding is perverse was not allowed by the Tribunal. The revenue did not come up before this Court u/s 256(2) to have the said question referred.

The contention of the revenue that the assessee did not own the said assets also does not bear scrutiny. The agreement dated 1-1-1970 has been noted and considered by the Tribunal. From the order of the Tribunal setting out the material provisions of the agreement it is quite clear that the assessee purchased the cylinders from Caltex (India) Ltd. and became the full owner thereof. The conditions that the assessee would not be entitled to sell, pledge or alienate the cylinders without notice to Caltex (India) Ltd. and that the latter in certain circumstances would be entitled to exercise its option to repurchase the cylinders from the assessee do not militate against the ownership of the assessee.

In Taj Mahal Hotel''s case (supra) the Supreme Court considered the meaning of the expression ''plant'' as in section 10 of the 1922 Act which is in pari materia with section 33 of the 1961 Act. The Supreme Court observed that it was the intention of the Legislature to give the expression ''plant'' a wide meaning and that is why, articles like books and surgical instruments were expressly included in the definition of a plant. The Supreme Court also considered the dictionary meaning of the word and found that the same would include land, buildings, machinery, apparatus and fixtures wherever employed in carrying on any trade or industrial activity.

In view of the aforesaid decision of the Supreme Court there is no scope for a fresh argument that a cylinder which being hired out by the owner with its business is not a plant. On the same logic, the expression ''installed'' must be construed in the same wide fashion as the expression ''plant''. We cannot go by the popular meaning of the word ''installation'' which envisages setting up of a complicated piece of machinery or manufacturing unit for the purpose of production. If that meaning is given then a number of items would have to be excluded from the expression ''plant''. With respect, we agree with the view taken by the Allahabad High Court that if a gas cylinder is brought into use for storing gas it can be said to be installed in the business.

For the reasons as above, we answer the question referred in the affirmative and in favour of the assessee.

The learned advocate for the assessee states that the name of the assessee has since been changed to Apeejay Industries (P.) Ltd. Let the correct name be brought on record. There will be no order as to costs.

Mukul Gopal Mukherji, J.

I agree.