DIPAK KUMAR SEN, J. - (1.) IN this reference under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following questions, stated to be questions of law arising out of its order, for the opinion of this Court : " 1. Whether, on the facts and in the circumstances of the case and on a proper interpretation of law, the Tribunal was correct in holding that the assets used in scientific research are also entitled to depreciation under s. 32 of the IT Act, 1961, even though 100 per cent of the capital expenditure was allowed as deduction under s. 35 of the IT Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal in holding that the assessee was entitled to development rebate at the higher rate envisaged in s. 33 r/w item 18 of the Fifth Schedule to the IT Act, 1961, had relied on irrelevant materials and/or otherwise misdirected itself in arriving at the above finding ? 3. Whether on a proper interpretation of s. 80J of the IT Act, 1961 r/w r. 19A of the IT Rules, 1962, the Tribunal was correct in holding that borrowed capital should be included in the capital base for the purpose of relief under s. 80J ? "
(2.) THE controversy raised in question No. 1 is covered by a decision of this Court in the case of the same assessee in respect of an earlier assessment year. The order was passed in IT Ref. No. 417 of 1979 on the 18th June, 1986 [Alkali & Chemical Corporation of India Ltd. vs. CIT (1986) 56 CTR (Cal) 139:(1986) 161 ITR 820 (Cal)]. The said order was based on the amended s. 35 of the IT Act, 1961. Following the said decision, we answer question No. 1 in the negative and in favour of the Revenue. Similarly, question No. 3 is covered by a decision of the Supreme Court in Lohia Machines Ltd. vs. Union of India (1985) 44 CTR (SC) 328:(1985) 152 ITR 308 (SC). Following the said decision, we answer the question in the negative and in favour of the Revenue.
(3.) THE material facts relating to question No. 2 are shortly as follows : During the relevant assessment years, namely, 1974-75 and 1975- 76, the corresponding accounting years ending on the 30th September of 1973 and 1974, the assessee manufactured polythene and rubber chemicals. In respect of the aforesaid, the assessee claimed development rebate at the enhanced rate under s. 33(1)(b)(B) of the IT Act, 1961, contending that the assessee had installed machinery and plant for the purpose of manufacture or production of an article mentioned in the Fifth Schedule to the IT Act, 1961. The relevant item No. 18 on which the assessee based its claim reads as follows: " Petrochemicals including corresponding products manufactured from other basic raw materials like calcium carbide, ethyl alcohol or hydrocarbons from other sources. " The ITO after considering technical text books and treatises found and held that the raw material from which the assessee produced polythene, namely, ethyl alcohol, was a petrochemical but the end product, namely, polythene, was not a chemical. He held that the term " petrochemical " implied that it must be a chemical as known in the market and polythene was not understood as such and, therefore, was not a petrochemical. He found that these were all end products and were not covered by item 18 of the Fifth Schedule to the IT Act, 1961. He did not allow the higher development rebate under s. 33 as claimed.;