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Issues Involved:
1. Deductibility of provision for excise duty. 2. Classification of nylon as a petrochemical for higher development rebate. Issue-wise Detailed Analysis: 1. Deductibility of Provision for Excise Duty: The first issue concerns whether the provision for excise duty of Rs. 15,96,000 and Rs. 17,00,000 for the assessment years 1971-72 and 1972-73, respectively, is deductible in computing the income of the assessee. The assessee, a company engaged in the manufacture of nylon yarn, made provisions for excise duty based on its production of polymer chips, which was considered an intermediate stage in the manufacture of nylon yarn. The ITO initially disallowed this deduction, stating that the liability had not accrued during the relevant accounting year. However, the AAC allowed the deduction, and the Tribunal upheld this decision, citing the Supreme Court's rulings in Kedarnath Jute Manufacturing Co. Ltd. and Kesoram Industries and Cotton Mills Ltd., which established that liability for excise duty accrues upon the manufacture of goods. The Tribunal's decision was based on the understanding that under the Central Excises and Salt Act, 1944, excise duty is attracted at the point of manufacture, irrespective of whether the goods are used internally or sold. This interpretation aligns with the Federal Court's decision in Madras Province v. Boddu Paidanna & Sons, which clarified that excise duty is levied on the manufacture or production of goods. The Tribunal concluded that the liability for excise duty had accrued, making the provision for excise duty deductible. 2. Classification of Nylon as a Petrochemical: The second issue pertains to whether nylon qualifies as a petrochemical under item (18) of the Vth Schedule to the Income-tax Act, 1961, thereby entitling the assessee to a higher development rebate. The AAC had allowed the higher development rebate, and the Tribunal upheld this decision, despite the revenue's argument that nylon-6 could not be classified as a petrochemical. The Tribunal relied on the opinions of experts and previous decisions by the Allahabad and Bombay Benches of the Tribunal, which supported the classification of nylon-6 as a petrochemical. The Tribunal considered various definitions and expert opinions, including those from Dr. B. S. Ramanathan and the book "Petroleum-Prehistoric to Petrochemicals" by G. A. Purdy. Despite some conflicting views, the Tribunal found that nylon-6, produced from caprolactum, fits within the broad definition of petrochemicals, which includes both intermediate and finished products derived from petroleum or natural gas. The Tribunal also noted that the legislative history and the inclusive language of item (18) in the Vth Schedule support this broader interpretation. Conclusion: The High Court affirmed the Tribunal's decisions on both issues. For the first issue, the Court agreed that the provision for excise duty was deductible as the liability had accrued upon manufacture. For the second issue, the Court upheld the classification of nylon-6 as a petrochemical, entitling the assessee to a higher development rebate. Both questions were answered in the affirmative and in favor of the assessee, with each party bearing its own costs.
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