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Issues: Interpretation of development rebate eligibility for machinery manufacturing pulp under the Fifth Schedule of the Income-tax Act, 1961.
Analysis: The case involved a dispute regarding the entitlement to a higher development rebate for machinery manufacturing pulp under the Fifth Schedule of the Income-tax Act, 1961. The Income-tax Officer initially reduced the development rebate on the pulp plant machinery from 25% to 15% as the pulp produced was used for manufacturing rayon yarn, not paper or newsprint as specified in item No. 16 of the Fifth Schedule. The Commissioner of Income-tax (Appeals) granted the higher development rebate of 25% by considering that the pulp manufactured, although used for rayon yarn, could also be used for paper production. The Department appealed this decision before the Appellate Tribunal, which upheld the higher development rebate. The Department contended that pulp, being listed between paper and newsprint in the Fifth Schedule, should only be meant for paper production to qualify for the higher development rebate. Citing a previous case involving depreciation for a weekly magazine, the Department argued that specific industries for special benefits should be determined by the Legislature, not the courts. However, the court rejected this argument, emphasizing that the Schedule explicitly mentions machinery manufacturing paper, pulp, and newsprint for the higher development rebate, without restricting the use of pulp solely for paper production. Therefore, as long as the assessee manufactures any one of the items listed in the Fifth Schedule, including pulp, they are entitled to the higher development rebate. The court clarified that the purpose for which the manufactured pulp is used post-production is not relevant for determining eligibility for the development rebate. As long as the assessee manufactures paper, newsprint, or pulp, they qualify for the higher rebate. The court highlighted that the Schedule does not impose restrictions on the utilization of the manufactured pulp. The Tribunal's decision to grant the higher development rebate of 25% was upheld, considering both the factual findings and the provisions of the Income-tax Act. The court answered the referred question in the affirmative, ruling in favor of the assessee and against the Department.
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