Commissioner of Income Tax, Tamil Nadu-I vs Simpson and Company Ltd.

Balasubrahmanyan, J.—The assessee in this Income Tax reference is a company called M/s. Simpson and Co. Ltd., Madras. It is engaged

in the construction of bodies for buses, motor trucks, etc., on chassis supplied by the customers. For the purposes of this business, the assessee

had purchased various items of new machinery like 1 & 3 HP Kirloskar motor, brake press and various other machines and instruments. On the

cost of these items of machinery which were newly purchased and newly installed in the assessee''s plant, the assessee claimed development rebate

at the higher percentage granted under s. 33(1)(b)(B)(i) of the I.T. Act, 1961, read with Sch. V to that Act. The ITO, however, granted

development rebate only at the usual rate and rejected the claim of the assessee for the special higher rate. The Tribunal, in appeal allowed the

assessee''s claim, not after an independent consideration of the claim, but merely following an earlier order in the same assessee''s case, relating to

an earlier assessment year. The Department has questioned the Tribunal''s order before us in this reference under the following question of law :

Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to the development rebate at the higher rate in

respect of machinery installed in the body building and light engineering section of the assessee-company ?

Before us, the claim of the assessee for higher development rebate was debated at the Bar in terms of as many as three items in Sch. V to the

I.T. Act. Before noticing the relevant items, we may observe that the higher development rebate is granted by Parliament under s. 33(1)(b)(B)(i)

the I.T. Act only in a case where the machinery or plant is installed for the purpose of the business, construction, manufacture or production of any

one or more of the articles or things specified in the list in Sch v. It is in the context of this provision that the assessee''s claim was made to rest on

items Nos. 5, 10 and 20 of the Schedule. As we said, the Tribunal had made their order sketchy so far as the present case is concerned

apparently because they had dealt with the matter elaborately in the earlier assessment year. It appears from the earlier order of the Tribunal that

they were inclined to regard the machinery as falling under items Nos. 5, 10 and 20. Item 5 refers to ""internal combustion engines"". There is no

dispute before us that the assessee also manufactures internal combustion engines apart from being engaged in the construction of bus bodies. We

are, therefore, satisfied that in respect of machinery purchased and installed by the assessee for the manufacture of internal combustion engines, the

assessee will be entitled to the higher development rebate.

The dispute before us, however, centers round the applicability of entries 10 and 20. Under entry 10, the machinery engaged in the construction,

production or manufacture of motor trucks and buses in entitled to a higher development rebate. As per entry 20, similar relief would be available

in respect of machinery engaged in the constitution, production or manufacture of automobile ancillaries. The question in this case is whether the

items of machinery purchased by the assessee and installed during the relevant account year, can be regarded as machinery engaged in the

construction, production or manufacture of motor trucks and buses within the meaning of entry 10 or of automobile ancillaries within the meaning of

entry 20 of Sch. V to the Act.

We have earlier observed that what the assessee was engaged in was the construction of bodies for buses, motor trucks and other vehicles. The

process by which the assessee makes chassis into a full-fledged motor-bus or a truck is variously described. In the commercial parlance sometimes

it is called manufacture of bus bodies. Sometimes it is referred to as construction of, or building body on the chassis, of a bus. The process is

popularly described as ""bus body building"". Whether it is the one or the other description which is linguistically very appropriate, we are satisfied

that a bus body can be regarded either as an automobile ancillary or the end result of the construction, on the very skeleton of a chassis, the body

of a motor truck or a bus. In either event, it seems to us that the items of machinery engaged in this kind of process would be entitled to higher

development rebate. Hence, although the Tribunal''s order is not discursive, we are in a position to answer the question of law in the affirmative and

in favour of the assessee. The assessee will be entitled to its costs. Counsel fee Rs. 500.