Hakeem, J.:—
The Tribunal has referred the following question under Section 256(1) of Income Tax Act, 1961 (hereinafter referred to as the Act):
“(1) Whether, on the facts and in the circumstances of the case, the assessee is entitled to relief under Section 80J for the full year even though the concern worked for only a part of the year?
(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to the higher development rebate under Section 33(1)(b)(B) in respect of manufacture of aluminium caps?”
2. The assessee is a private limited company incorporated on 15th July 1971. However, it appears that the production in the Company commenced on 21st November 1973. For the assessment year 1975-1976 relating to the accounting year ending 30th June 1974, the assessee claimed relief under Section 80J of the Act and also development rebate at higher rate of 25%. It is not in dispute that assessee is entitled to relief, under Section 80J of the Act. The Income Tax Officer held that the assessee is entitled to relief, but restricted the same to the period of production which commenced on 21st November 1973. The ITO worked out the relief at six per cent for the part of the year i.e for seven and one-third months at Rs. 896/-.
The assessee also claimed development rebate at a higher rate of 25 per cent on the ground that it is processing aluminium caps and other articles. The ITO rejected the assessee's claim for higher rebate and allowed the claim at 15 per cent only.
3. The assessee appealed against the order of the ITO to the Commissioner of Income-Tax (Appeals). On the first question relating to the claim for relief under Section 80J, the Commissioner of Income-Tax (Appeals) agreed with the ITO that the relief has to be allowed only on pro rata basis. On the second question he justified the order of the ITO on the ground that the development rebate at the rate of 25 per cent cannot be allowed, since under the Fifth Schedule to the Act such higher rebate is allowed only if aluminium is manufactured, but the assessee is manufacturing only aluminium caps and not aluminium as such.
4. On further appeal by the assessee, the Tribunal held that the assessee is entitled to relief for the full year and that such relief should not be limited to proportionate part of the year. In coming to this conclusion the Tribunal relied upon decision in C.I.T v. Simpson and Co. . 122 ITR 283. As regards the assessee's claim for higher development rebate the Tribunal held that the claim has to be considered under item-2 to Schedule-V of the Act, and following the decision in C.I.T v. West India Steel Co. Ltd.1A it held that the items manufactured by the assessee viz., aluminium caps, would come within the purview of item-2 in Fifth Schedule to the Act. Accordingly the Tribunal held that the assessee is entitled to higher development rebate as claimed by it. The Tribunal has, however, referred both the questions for the opinion of this Court.
5. The answer to the first question does not present any difficulty in view of the decision of this Court in C.I.T v. Mysore Petro-Chemical Ltd.1B. Wherein this Court has held that the relief provided under Section 80J of the Act is an incentive to the assessee which has established a new industrial undertaking, which is available for the full five years inclusive of the year in which the manufacturing operations started and that the relief depends not only upon the commencement of production but also on the capital employed; and as such there can be no pro-rating for the period of production operation. There is, therefore, no doubt that deduction has to be allowed to the full extent and it cannot be reduced in proportion to the part of the year only during which the undertaking was in productive operation.
Following the said decision we answer the first question in the affirmative and against the Revenue.
6. The answer to the second question depends upon the meaning and interpretation to be given to Item-2 in the Fifth schedule to the Act, which reads as under:
“The Fifth Schedule.
List of articles and things.
2. Aluminium, copper, lead and zinc (metals)”
7. Section 33(1)(b)(B) of the Act provides for development rebate inter alia in respect of machinery or plant installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, if machinery or plant is installed after the 31st day of March 1970, at 25% of such cost.
8. The short question is whether ‘aluminium caps’ cannot be considered as ‘aluminium metal’ within the meaning of Item-2 in the Fifth Schedule to the Act.
Sri K. Srinivasan, Learned Counsel for the Revenue contended that aluminium caps are different from aluminium metal contemplated under the above item qualifying for a higher rebate under Section 33 of the Act and that the said caps come within the purview of ‘things’ and commercially a different commodity than aluminium metal.
On the other hand Sri G. Sarangan, Learned Counsel for the assessee contended that ‘aluminium metal’ necessarily includes aluminium caps manufactured by the assessee. The word ‘metal’ used in item-2 in the Fifth schedule is only to distinguish the same from a compound or alloy and as such any article made out of aluminium metal will fall within the purview of item-2 in the Fifth Schedule to the Act qualifying for higher statutory rebate under Section 33 of the Act.
9. In the State of Madhya Bharat v. Hiralal . 17 S.T.C 313. a similar question came up for consideration before the Supreme Court. The question was whether iron bars, flats, and plates are not Iron and Steel within the meaning of item No. 39 of the Notification issued under the Madhya Bharat Sales Tax Act, which were exempted from levy of sales tax. The contention on behalf of the State in that case was that the expression ‘iron and steel’ means iron and steel in its original condition and not iron and steel in the shape of bars, flats and plates. In this context the Supreme Court has observed at page-315 thus.
“In our view, this contention is not sound. A comparison of the said two notifications-brings out the distinction between raw materials of iron and steel and the goods prepared from iron and steel: while the former is exempted from tax, the latter is taxed. Therefore, iron and steel used as raw material for manufacturing other goods are exempted from taxation. So long as iron and steel continue to be raw materials, they enjoy the exemption. Scrap iron purchased by the respondent was merely re-rolled into bars, flats and plates. They were processed for convenience of sale. The raw materials were only re-rolled to give them attractive and acceptable forms. They did not in the process lose their character as iron and steel. The dealer sold ‘iron and steel’ in the shape of bars, flats and plates and the customer purchased ‘iron and steel’ in that shape. We, therefore, hold that the bars, flats and plates sold by the assessee are iron and steel exempted under the Notification.”
10. Sri Sarangan placed reliance upon two decisions of the Kerala High Court in C.I.T, Kerala v. Mittal Steel Re-Rolling & Allied Industries . 108 I.T.R 207. and C.I.T, Kerala v. West India Steel Co. Ltd. In the latter decision following the earlier one, it was held by the Kerala High Court that M.S rods and steel sections are basically ‘iron and steel (metal)’ within the meaning of item-(1) in the Fifth Schedule to the Act, entitling to higher rate of development rebate under Section 33 of the Act. It is observed at page-605 therein:
“The fact that for the purpose of Sales Tax enactments the finished product is a different commercial commodity, will not prevent the finished product being basically iron or steel. The real question in such cases is whether the finished product retains the character of iron and steel. There can be little doubt that M.S rods and steel sections can be understood as basically iron and steel (metal) within the meaning of item (1) in the Fifth Schedule to the Act. This aspect has also been made clear by a decision of the Supreme Court in State of Madhya Bharat v. Hiralal (17 STC 313) : (A.I.R 1965 SC 1546).”
It is further observed at page-606:
“If Iron and Steel bars or other raw material has been used for making an article, which is known and accepted in common parlance or in the commercial world as a specific article different from iron and steel and that article can no more be treated or understood basically as iron and steel, that article cannot be termed ‘iron and steel (metal)’. To illustrate, if iron is used for manufacture of shovels or pickaxes no one would understand, treat or name the shovels or pickaxes as iron and steel. So the question is whether the finished article can be said to be something basically different from iron and steel.”
11. From the above observations of the Supreme Court which has been followed by the Kerala High Court, it is clear that if a metal has been used as a raw material for making an article which is known and accepted in common or commercial parlance as a specific article, then that article can no more be understood basically as a metal.
12. In the instant case from the aluminium metal, which is a raw material in the form of sheets, the assessee manufactures aluminium caps. The said finished product can hardly be said to be aluminium metal. To call it the aluminium metal, would perhaps be an abuse of the word “metal” used in item-2 in the Fifth Schedule. If that is the interpretation given, then no article made of aluminium could escape item-2 in the Fifth Schedule. That could never have been the intention of the Parliament.
13 In our opinion, therefore, the Tribunal is not right in holding that the items manufactured by the assessee will come within the meaning of item-2 in the Fifth Schedule to the Act entitling the assessee to the higher development rebate.
In the result, we answer the second question in the negative and in favour of the Revenue.