INCOME TAX OFFICER Vs. G R STEELS P LTD
INCOME TAX APPELLATE TRIBUNAL
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T. Venkatappa, Judicial Member -
(1.) THE assessee is a company engaged in the manufacture of iron and steel goods of flats, rounds, bars, etc. It claimed initial depreciation under Section 32(1)(va) of the Income-tax Act ('the Act') and investment allowance under Section 32A of the Act. According to the assessee, it falls under item 1 of the Ninth Schedule of the Act. THE ITO held that the assessee is only engaged in re-rolling of steel. THE assessee cannot be said to have been engaged in the manufacture of iron and steel. Thus, he disallowed the claim of the assessee.
(2.) The assessee appealed to the Commissioner (Appeals). He directed the ITO to allow the initial depreciation and investment allowance as claimed by the assessee. In doing so, he followed the decision of the Kerala High Court in the cases of CIT v. West India Steel Co. Ltd.  108 ITR 601 (FB) and in CIT v. Mittal Steel Re-rolling & Allied Industries (P.) Ltd.  108 ITR 207. Against the same, the revenue has come up in appeal.
The learned departmental representative submitted that the Commissioner (Appeals) was wrong in allowing initial depreciation and investment allowance claimed by the assessee. He relied on the decision of the Calcutta High Court in the case of Indian Steel & Wire Products Ltd. v. CIT  108 ITR 802. The learned counsel for the assessee relied on the order of the Commissioner (Appeals).
(3.) THE assessee produces flats, rounds, bars, etc., from billets. In has claimed initial depreciation and investment allowance. THE question for consideration is whether the assessee falls under item 1 of the Ninth Schedule which reads as under :
Iron and steel (metal)
If the articles manufactured by the assessee fall under that item, the assessee is entitled for the initial depreciation and investment allowance. THE above item came up for consideration in various decisions. In West India Steel Co. Ltd.'s case (supra) item I of the Fifth Schedule came up for consideration. THEre also the assessee claimed higher rate of development rebate. In that case it was contended on behalf of the revenue that the articles, M.S. rod and steel sections, produced by the assessee cannot be termed 'iron and steel (metal)'. THE Full Bench of the Kerala High Court held 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. THEir Lordships relied upon the decision of the Supreme Court in the case of State of Madhya Bharat v. Hiralal  17 STC 313. THE Kerala High Court in West India Steel Co. Ltd.'s case (supra) observed as under:
It was contended by counsel for the revenue that the entry in the notification that was interpreted by the Supreme Court did not contain the word 'metal'. According to the counsel, 'iron and steel' mentioned in the entry in the notification are quite different from 'iron and steel (metal)' mentioned in item (1) in the Fifth Schedule to the Act. We are unable to accept this contention ; in fact we are unable to understand 'iron and steel' as anything different from metal. By the addition of the word 'metal' in the Fifth Schedule to the Act, we do not think that anything more or less is meant than using the expression 'iron and steel'. THE word 'metal' has perhaps been added to clarify that the commodity produced or manufactured must be still 'iron and steel' and that it should not have lost the characteristics of iron and steel. 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. We are fortified in our view that M.S. rods and steel sections are not anything different from 'iron and steel (metal)' by the high authority of the Supreme Court in State, of Madhya Bharat v. Hiralal  17 STC 313 ; AIR 1966 SC 1546. We hold that the resulting article produced by the manufacturing process (that it is manufacturing process is clear from the decision in Devi Dans Gopal Krishnan v. State of Punjab  20 STC 430 (SC) which we have already referred to) is 'iron and steel' and item (1) of the Fifth Schedule is, therefore, attracted.(pp. 605-06)
This decision was followed by the Madras High Court in Addl. CIT v. Tricky Steel Roiling Mills Ltd.  118 ITR 39. In this decision, the decision of the Calcutta High Court in Indian Steel & Wire Products Ltd. (supra) taking a contrary view was also considered. It was observed by the Madras High Court as under :
It is clear from the decision of the Supreme Court from the passage that had been extracted by the Kerala High Court which we have extracted here, that the 'iron and steel' in the shape of bars, flats and plates are iron and steel exempted under the notification. On the reasoning therein we come to the conclusion that M.S. rods will also be iron and steel. THE only question is whether the addition of the word 'metal' after the term 'iron and steel' in Schedule V would make any difference. THE real distinction is what has been pointed by the Supreme Court and which has been noticed by the Calcutta High Court in the passage which we have extracted . above and that is, whether, by the process of change resulting from the manufacturing process, an article different from iron and steel had come into existence or not. THE Kerala High Court has referred to this aspect and has held that by producing M.S. rods from iron and steel in a raw material form, the iron does not cease to be iron and steel does not cease to be steel and naturally they continue in metal form. THE word 'metal' is used to emphasise that the change should not be such as to alter the character of the iron and steel used from iron and steel into any other specified finished article. If there is such change, iron and steel will continue as iron and steel (metal). With respect we follow the decisions of the Kerala High Court above cited and answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department. . ..(p. 42)
Similar view was taken by the Allahabad High Court in Singh Engineering Wcrks (P.) Lul. v. CIT  119 ITR 891 and also by the Punjab High Court in CIT v. Krishna Copper & Steel Rolling Mills  119 ITR 256. In fact, in the latter decision, a reference was made to the decision of the Board interpreting item 2 of the Fifth Schedule, After extracting the decision of the Board, their Lordships held that it is quite clear that the Board itself was of the opinion that for the purpose of allowing the higher rate of development rebate, item 2 of the Fifth Schedule would include the manufacture of aluminium (metal) both from bauxite as well as from aluminium scrap, and the same interpretation should be given to item 1 of the Fifth Schedule.;
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