1990 (1) TMI 26 - HC - Income Tax

Summary

Issues:
Claim of development rebate at a higher rate for the manufacture of automobile ancillaries.

Analysis:
The case involved the question of whether the assessee, a registered firm engaged in manufacturing automobile ancillaries, was entitled to claim development rebate at a higher rate of thirty-five percent under section 33(1)(b)(B)(i)(a) of the Income-tax Act, 1961. The assessee received raw materials from Enfield India Ltd., processed them using owned machinery, and supplied the finished products back to Enfield India Ltd. Initially, the Income-tax Officer allowed the development rebate as claimed, but later realized an excess had been allowed, leading to the reopening of assessments. The issue centered around whether the assessee could be considered a manufacturer of automobile ancillaries and thus eligible for the higher development rebate rate. The Income-tax Officer and the Appellate Assistant Commissioner held that the assessee was not entitled to the higher rate, while the Tribunal found in favor of the assessee, stating that the nature of the activities and the use of owned machinery for manufacturing supported the claim.

The High Court analyzed the provisions of section 33(1)(a) of the Act, which required the machinery to be owned by the assessee and wholly used for the business of manufacture or production. The Court emphasized that the crucial factor for claiming the higher development rebate was the use of owned machinery for manufacturing automobile ancillaries falling under the Fifth Schedule to the Act, not ownership of raw materials or finished products. The Court highlighted that the assessee had indeed manufactured automobile ancillaries using owned machinery, despite not owning the raw materials or the end products. Drawing parallels to a Supreme Court case, the Court emphasized that ownership of end products was irrelevant for the tax benefit, as the taxable event was the manufacturing process. Therefore, the Court held that the assessee, by using owned machinery for manufacturing automobile ancillaries, was entitled to the higher development rebate rate, irrespective of ownership in raw materials or finished products.

In conclusion, the High Court answered the common question referred to it in the negative and in favor of the assessee, stating that the assessee was entitled to the costs of the references. The Court reiterated that the focus should be on the use of owned machinery for manufacturing automobile ancillaries, rather than ownership of raw materials or end products, in determining eligibility for the higher development rebate rate.