1984 (11) TMI 23 - HC - Income Tax

Summary

Issues:
Interpretation of whether insulation boards manufactured by the assessee fall under item 18 of Schedule IX to the Income-tax Act, 1961.

Detailed Analysis:
The case involves a reference under section 256(1) of the Income-tax Act, 1961, where the Tribunal referred the question of whether the insulation boards manufactured by the assessee fall under item 18 of Schedule IX. The assessee claimed initial depreciation based on the ground that the products manufactured fall under item 18, which includes "Paper, pulp and newsprint." The Income-tax Officer denied the claim, leading to an appeal by the assessee to the Appellate Assistant Commissioner, who also rejected the claim. However, relief was obtained in the second appeal to the Tribunal, which concluded that the products manufactured by the assessee fell within item 18 of Schedule IX.

The key question in the case was whether the insulation boards manufactured by the assessee could be considered as paper within the purview of item 18 in Schedule IX. The Tribunal found that the raw materials used and the manufacturing process adopted were similar to those in the paper industry. Additionally, the products were listed under the Paper Directory of the Directorate General of Technical Development, Government of India, and excise duty was levied and licenses were issued under the item "Paper and paper boards." The Tribunal upheld the claim of the assessee based on these findings.

The court referred to previous judgments, such as State of Uttar Pradesh v. Kores (India) Ltd., where the Supreme Court defined "paper" in a popular and commercial sense, and CIT v. Straw-Board Manufacturing Co. Ltd., where straw-board was considered as paper due to the identical manufacturing process. The court also considered samples of insulation boards manufactured by the assessee, which were certified as press papers of electrical trade grade by the National Test House. The classification for excise duty purposes and industry handling under the Paper Directory further supported the argument that the products were similar to paper.

Ultimately, the court held that the products manufactured by the assessee were akin to paper based on various circumstances, including the classification for excise duty and the National Test House certification. The principle of adopting an interpretation favorable to the subject was applied, leading to the conclusion that the Tribunal was justified in allowing the assessee's claim. The court found no illegality in the Tribunal's decision and answered the question in favor of the assessee and against the Revenue.