2006 (10) TMI 136 - HC - Income Tax

Assessee availed development rebate in respect of certain Plant and Machinery withdrawal of development rebate within the meaning of section 155(5) since assessee sold part of plant and machinery as scrap before the expiry of the eight year period, provision of section 34(3) read with section 155(5) will be attracted rebate was rightly withdrawn - Tribunal was in error in holding that the cops and bobbins sold as scrap cannot be equated with the plant and machinery

Summary

Issues Involved:
1. Applicability of Section 155(5) of the Income-tax Act, 1961, for withdrawing development rebate on cops and bobbins sold as scrap.
2. Interpretation of "plant and machinery" under Section 155(5) and whether it includes unusable components sold as scrap.
3. Whether the Revenue can challenge the Tribunal's order dated September 30, 1981, given the Tribunal's earlier order dated January 9, 1981.

Detailed Analysis:

1. Applicability of Section 155(5) for Withdrawing Development Rebate:
The primary issue was whether the Tribunal was legally right in holding that the scrap comprising cops and bobbins cannot be equated with plant and machinery, thus making Section 155(5) inapplicable for withdrawing the development rebate.

The court noted that the assessee availed of development rebate for the assessment year 1969-70, including cops and bobbins as part of the plant and machinery. The assessee later sold these items as scrap within eight years, triggering a show-cause notice under Section 155(5) for withdrawal of the development rebate. The Assessing Officer withdrew the rebate, a decision upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal reversed this decision, leading to the present reference.

2. Interpretation of "Plant and Machinery":
The court examined the statutory provisions, particularly Sections 2(47), 33, 34(3), and 155(5) of the Act. Section 155(5) states that if any plant or machinery is sold or otherwise transferred within eight years, the development rebate shall be deemed to have been wrongly allowed. The court emphasized that the statute must be strictly construed, and the term "plant and machinery" cannot be qualified with "usable" as suggested by the assessee.

The court rejected the assessee's contention that only usable plant and machinery fall under Section 155(5). It referred to the Supreme Court's interpretation in CST v. Modi Sugar Mills Ltd., emphasizing that taxing statutes must be interpreted strictly based on the clear language of the law.

3. Revenue's Challenge to the Tribunal's Order:
The court addressed the argument that the Revenue should not challenge the Tribunal's order dated September 30, 1981, because it did not appeal against the Tribunal's earlier order dated January 9, 1981. The court found this argument unconvincing for several reasons:
- The earlier order lacked reasoning and merely followed an untraceable order from the Bombay Bench of the Tribunal.
- The later order was in the context of separate proceedings under Section 155(5) specifically addressing the withdrawal of development rebate.
- The challenge pertains to the same assessment year (1969-70), making it valid.

Conclusion:
The court held that the Tribunal erred in its judgment. The sale of cops and bobbins as scrap constituted a transfer of part of the plant and machinery within eight years, attracting the provisions of Section 155(5) and resulting in the pro rata withdrawal of the development rebate. The court answered the question in favor of the Revenue and against the assessee, thereby disposing of the reference accordingly.