Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, we have been referred two questions for two different years which are as follows : For the assessment year 1965-66 : "Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions contained in Para. F read with items (10) and (21) of Part III of the First Schedule to the Finance Act, 1965, the Tribunal was right in holding that the assessee is entitled to rebate of tax at the higher rate of 35% on its profits and gains attributable to the manufacture or production of all the automobile ancillaries including those utilised by it in its own manufacture of cars for the assessment year 1965-66 ?" For the assessment year 1966-67 : "1. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 80E read with items (10) and (20) of the Fifth Schedule to the Income-tax Act, 1961, the Tribunal is right in holding that the assessee is entitled to deduction under the said Section 80E in respect of its profits and gains attributable to its manufacture or production of all the automobile ancillaries including those utilised by it in its own manufacture of cars ?
(2.) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the provisions of Section 33(1)(iii)(c)(A)(a) of the Income-tax Act, 1961, the Appellate Tribunal is justified in holding that the assessee is entitled to development rebate at 35% on the cost of the machineries newly installed for the manufacture of automobile ancillaries, irrespective of whether the ancillaries so manufactured were sold by the assessee to outside parties or were utilised by it in its own manufacture of cars ?" 2. The assessee is M/s. Hindusthan Motors Ltd. and is engaged, inter alia, in the manufacture of motor cars. The assessment years involved are 1965-66 and 1966-67. In order to determine the questions involved for the assessment year 1965-66, it has to be borne in mind that the assessment was governed by the Finance Act, 1965. According to Para. F of the First Schedule to the said Finance Act, a company was entitled to a higher rebate of 35% of the tax on so much of its profits and gains as could be attributed to the manufacture or production of any one or more of the articles or things specified in the list in Part III of the First Schedule to the said Finance Act. The articles and things specified in item (10) in the said Part were "motor trucks and buses" while the articles and things specified in item (21) thereof were "automobile ancillaries", In the assessment for the assessment year 1965-66, the assessee claimed the higher development rebate of 35% under the aforesaid provisions of the Finance Act, 1965, in respect of its profits and gains attributable to its manufacture of production of automobile ancillaries. The ITO disallowed the assessee's claim for higher rebate of 35% in so far as the claim related to the profits and gains attributable to the manufacture of motor cars and to the manufacture of automobile ancillaries utilised by the assessee in its manufacture of new cars on the ground that the manufacture of cars was not one of the articles enumerated in Part III of the First Schedule to the Finance Act, 1965. He, however, allowed the rebate at the lower rate as prescribed in Para. F of the First Schedule to the said Finance Act.
(3.) In the next assessment year 1966-67, the assessee's claim for deduction fell to be considered under Section 80E of the I.T. Act, 1961, which was almost similar to the provisions contained in the aforementioned Act, the only difference being that Section 80E of the I.T. Act, 1961, provides for deduction in the computation of the total income whereas Para. F of the First Schedule to the Finance Act, 1965, provided for rebate of tax at a certain percentage. The relief under Section 80E of the I.T. Act, 1961, was to be given in respect of the profits and gains of a priority industry, i.e., one engaged in the manufacture of the articles and things specified in the Fifth Schedule to the said Act. The articles and things specified in item (20) of the said Fifth Schedule are "motor trucks and buses" while the articles and things specified in item (21) of the same Schedule are "automobile ancillaries". For the assessment year 1966-67, the assessee claimed deduction under Section 80E of the I.T. Act, 1961, in respect of its profits and gains attributable to the manufacture of motor cars and manufacture of automobile ancillaries. It also claimed higher development rebate under Section 33(1)(iii)(c)(A)(a) of the I.T. Act, 1961, on new machineries installed for the manufacture of automobile ancillaries. The ITO allowed the claim for deduction under Section 80E only in so far as that claim related to the profits and gains arising out of the automobile ancillaries by the assessee and rejected the claim in so far as it related to profits and gains relatable to the manufacture of cars and manufacture of automobile ancillaries used by the assessee in its own manufacture of cars. Further, the ITO did not allow the higher development rebate of 35% claimed by the assessee under Section 33(1)(iii)(c)(A)(a) of the I.T. Act, 1961, on the cost of the machineries newly installed for the manufacture of automobile ancillaries.;