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TMI Blog1981 (9) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... erred are at the instance of the assessee " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the plant and machinery installed by the applicant for the manufacture of telephone cables do not fall under item No. 7 of the Fifth Schedule to the Income-tax Act, 1961 ? At the instance of the department " (2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in not excluding 'borrowed capital' from the computation of capital for the purposes of section 80J of the I.T. Act, 1961 ? " The facts on which these questions arise may now be stated. The assessee is a public sector company in which the Govt. of Kerala is a major shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e generation and transmission of electricity, including transformers, cables and transmission towers. " The ITO did not allow the claim. That was because, according to him, "telephone cables " did not fall within item No. 7 in the Fifth Schedule of the I.T. Act. Hence he limited the development rebate to 15%. The controversy that arises as reflected in the question raised at the instance of the Revenue concerns the claim for deduction under s. 80J of the I.T. Act. This is in regard to the deduction at 6% on the capital. That the assessee is entitled to a deduction is not in dispute. The dispute concerns the quantification of the deduction. That in turn depends on the computation of the capital employed as laid down under r. 19A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the controversy in this case whether s. 80J as it stood during the relevant assessment year before its retrospective amendment by the Finance (No. 2) Act of 1980, enables a deduction of the amount borrowed for the capital from the capital for the purpose of computation under s. 80J. What that section allows is a deduction from the profits and gains of so much of the amount thereof as does not exceed the amount calculated at the rate of 6% per annum on the capital employed in the industrial undertaking. What is the capital employed is the question to be decided. But since the relevant provision in the Finance (No. 2) Act of 1980 came into force with retrospective effect from April 1, 1972, it is that which applied and that provides the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m works. Telephone cables cannot be substituted for electrical cables used in electricity transmission lines. Could it be said that telephone cable is an equipment for the generation and transmission of electricity ? If not could it still be said that telephone cables falls within the scope of s. 33(1)(b)(B)(i)(b) for the reason that it falls within the term " cable " in item No. 7 of the Fifth Schedule. The term " equipment for generation and transmission of electricity understood plainly, requires that the equipment should be not only for generation, but also for the transmission of electricity. The requirements cannot be understood disjunctively. The word " and " cannot be read as " or ". There is no reason why such a construction sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the production of income ". The position is the same here. But for the use of the term " includes " in item No. 7 and the enumeration of things so included, the item would have been restricted to equipments for the generation and transmission of electricity. But, as it is, it includes transformers, cables and transmission towers which are not equipments which satisfy the test of being equipments for the generation and transmission of electricity. Hence the argument urged before us that the term " equipment for generation and transmission of electricity " must be understood to take in equipment for the generation of electricity as well as equipment for transmission of electricity cannot be accepted. The interpretation of the said term is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned as one of the items included within the equipments contemplated by item No. 7, that will be sufficient to make item No. 7 applicable to the present case. We have to read the term " cable " in the context of what is said in item No. 7 in the Fifth Schedule. That item relates to equipment for the generation and transmission of electricity and it is in that context that the inclusive part mentions transformers, cables and transmission towers. Necessarily what is taken in is not any cable but a cable concerned with the transmission of electricity. It need not be concerned with the generation of electricity, since" nevertheless, it has been brought within item No. 7 because of the inclusive definition. Read in the context in which the term ..... X X X X Extracts X X X X X X X X Extracts X X X X
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