1991 (11) TMI 223 - SC - Income Tax

Whether the assessee are entitled to a higher rate of development rebate specified in s.33(1) (b) (B) (i)(a) and to relief under s.80 I of the Income-tax Act, 1961? Whether the assessee are engaged in the manufacture or production of any one or more of the articles or things specified in the relevant Schedule to the Act? Held that - Appeal dismissed. The assessee cited a circular of the Board that, under item 2 of the schedule, the higher development rebate would be available to an assessee who manufactured articles from aluminium scrap vide, circular no.25 D (XIX-16) dated 10th October, 1966 . The High Court, on this basis, answered the question by saying that the assessee before it was also entitled to the higher development rebate though it produced articles only from iron scrap. This does not really answer the real question but, for the reasons we have already given, we agree with the conclusion drawn by the High Court.

Issues Involved:
1. Entitlement to higher rate of development rebate under s.33(1)(b)(B)(i)(a) of the Income-tax Act, 1961.
2. Eligibility for relief under s.80 I of the Income-tax Act, 1961.
3. Interpretation of "manufacture or production" of articles or things specified in the Schedule to the Income-tax Act.
4. Judicial divergence on the interpretation among different High Courts.
5. Relevance and interpretation of previous Supreme Court decisions.

Issue-wise Detailed Analysis:

1. Entitlement to higher rate of development rebate under s.33(1)(b)(B)(i)(a) of the Income-tax Act, 1961:
The core question was whether the assessees, who are steel rolling mills manufacturing M.S. rods, bars, or rounds, qualify for the higher rate of development rebate specified in s.33(1)(b)(B)(i)(a). The judgment analyzed whether these products fall under the category of "Iron and steel (Metal), ferro-alloys and special steels" as listed in the relevant Schedule. The court concluded that M.S. rods, bars, and rounds are finished forms of iron and steel, not articles made of iron and steel, thus they qualify for the higher rate of development rebate.

2. Eligibility for relief under s.80 I of the Income-tax Act, 1961:
The eligibility for relief under s.80 I depended on whether the assessees were engaged in manufacturing or producing articles specified in the Schedule. The judgment affirmed that the products manufactured by the assessees (M.S. rods, bars, and rounds) are considered as iron and steel in finished forms, thus making the assessees eligible for the relief under s.80 I.

3. Interpretation of "manufacture or production" of articles or things specified in the Schedule to the Income-tax Act:
The judgment delved into the interpretation of "manufacture or production" and concluded that the process of converting scrap iron into M.S. rods, bars, and rounds constitutes manufacturing or production of iron and steel in finished forms. This interpretation was supported by referencing industry standards and processes, highlighting that these products are not final articles made of iron and steel but are raw materials in finished forms.

4. Judicial divergence on the interpretation among different High Courts:
The judgment acknowledged the differing opinions among various High Courts on this issue. While some High Courts (Calcutta, Allahabad) ruled against the assessees, others (Kerala, Madras, Punjab & Haryana) ruled in favor. The Supreme Court resolved this divergence by siding with the latter group, affirming that the products in question qualify for the benefits under the Income-tax Act.

5. Relevance and interpretation of previous Supreme Court decisions:
The judgment referenced three key Supreme Court decisions: State of Madhya Bharat v. Hiralal (1966), Devidass Gopal Krishnan v. State of Punjab (1967), and Hindustan Aluminium Corporation Ltd. v. State of U.P. (1981). These cases were analyzed to draw parallels and distinctions. The court concluded that the interpretation of "iron and steel" in these cases supported the view that M.S. rods, bars, and rounds are finished forms of iron and steel, not separate articles made from iron and steel.

Conclusion:
The Supreme Court upheld the views of the High Courts that ruled in favor of the assessees. The appeals by the Revenue were dismissed, affirming that the assessees are entitled to the higher rate of development rebate under s.33(1)(b)(B)(i)(a) and relief under s.80 I of the Income-tax Act, 1961. The judgment emphasized a broad and comprehensive interpretation of the tax incentives to support the development of core industries, including iron and steel.

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