Holding

Item 7 of the Fifth/Sixth Schedule refers only to complete, self‑contained equipment for generation and transmission of electricity, and winding wires are merely components, not "cables" within its scope; therefore the assessee is not a priority industry and is ineligible for the claimed tax benefits.

Summary

Hindustan Wires Products Ltd., a manufacturer of insulated copper wires, claimed that its winding wires qualified as "cables" under item 7 of the Fifth/Sixth Schedule of the Income Tax Act, 1961, and therefore entitled it to development rebate and priority‑industry deductions under sections 33 and 80‑I for assessment years 1966‑67 to 1971‑72. The Income Tax Officer rejected the claim, the Appellate Tribunal allowed it, and the matter was referred to the Supreme Court on two questions concerning the applicability of the provisions. The Court examined the language of item 7, which lists equipment for generation and transmission of electricity, and read it in conjunction with item 24, which deals with component parts of such equipment. It held that item 7 contemplates complete, self‑contained units of equipment and that a cable must be a distinct unit, not merely a component such as winding wire used in coils. Since the wires sold by the assessee were winding wires, not cables in the sense of item 7, the Court concluded that the assessee was not a "priority industry" and was not eligible for the tax benefits. Consequently, the appeals were dismissed with costs.

Issues considered

Whether insulated copper winding wires manufactured by the assessee fall within item 7 of the Fifth/Sixth Schedule of the Income Tax Act, 1961, and thus qualify the assessee as a "priority industry" for purposes of sections 33(1)(iii)(c)(A) and 80‑I.
Whether the assessee is entitled to the development rebate and deduction under sections 33(1)(b)(B)(i) and 80‑I based on the interpretation of item 7.

Legislation cited

Income Tax Act, 1961s. 33(1)(a), s. 33(1)(b), s. 33(1)(iii), s. 33(i)(iii)(c)(A), s. 33(l)(b)(B)(i), s. 34, s. 80-1, s. 80-I

Subjects

Income Taxdevelopment rebatepriority industryFifth ScheduleSixth Schedulecablesequipmentgeneration and transmission of electricitystatutory interpretationtax deductionwinding wires

Judgment

A

HINDUSTAN WIRES PRODUCTS LIMITED ~-
v.
COMMISSIONER OF INCOME-TAX, PATIALA
B
AUGUST 7, 1986

[R.S. PATHAK AND SABYASACHI MUKHARil, JJ.]
:#--
Income Tax Act, 1961, ss 33(i)(iii)(C)(A),33(l)(b)(B)(i), BOE,
80-I and items 7, 17 and 24 of the Fifth Schedule-Manufacture of
c 'f
insulated copper wires-Grant of development rebate & deduction in
respect ofprofits and gains-Permissibility of -
Section 33 of the Income Tax Act, 1961 provides for the grant of
development rebate. The appellant-assessee, who carried on the busi-
D ness of manufacture and sale of insulated copper wires, claimed for the
assessment years 1966-67 to 1971-72 that it was entitled to the benefits
conferred by ss. 33(i)(iii) (c)(A) and SOE read with items 7, 17 and 24 of
the Fifth Schedule and ss. 33(i)(b)(B)(i) and 80-I read with items 7, 17
and 24 of the Fifth or the Sixth Schedule, as the case may be, for the
aforesaid assessment years as a "priority industry". It contended be-
E fore the Income Tax Officer that lite wires manufactured by it were
covered by the word "cables" employed in the articles and things
specified in items 7, 17 and 24 of the Fifth Schedule for the assessment
years 1966-67, 1967-68 and 1968-69 and items 7, 17 and 24 of the Sixth

-
Schedule of the Income Tax Act for the assessment years 1969-70 to
1971-72. The Income Tax Officer rejected the claim made by the appel-
F lant. The matter ultimately went before the High Court in a reference.
The High Court answered the question in favour of the Revenue and )
against the appellant-assessee on the ground that the wires were not
meant for the generation and transmission of electricity and they would
:..(-
fall within item 7 only if they were meant solely for that purpose and not
otherwise.
G
Dismissing the appeal,

HELD: 1. Item 7 of the Fifth Schedule speaks of equipment for
the generation and transmission of electricity and such equipment in-
eludes transformers, cables and transmission towers. To appreciate ~
H what is comprehended in item 7, it is permissible to refer to a related
478
HINDUSTAN WIRE PRODUCTS v. C.I.T. (PATHAK. J.] 479

-} entry, item 24, which refers to component parts of the articles men- A
tioned, inter alia in item 7. When item 24 is read in its entirety. it is
apparent that the component parts mentioned therein are component
parts of what can be described as machinery. Then reading item 7 in
conjnnction with item 24, the conclusion is inescapable that when item 7
speaks of equipment, reference is intended to machinery needed tor the B
generation and transmission of electricity. The item envisages complete
~ self-contained units of equipment, units which, on being put together or
connected together, constitute the apparatus for the generation and

- ~ transmission of electricity. Viewed in that context, the reference in item
7 to cables mnst mean cables identifiable as a complete sett-contained
unit in themselves as a distinct unit of equipment when employed in the
generation and transmission of electricity. A cable does not fall within
item 7 if it is merely a component, or part of a component, of a unit of
equipment or machineiy. [485F-H; 486A-C)
c

)r
Commissioner of Income Tax, Tamil Nadu-V v. Dhandayuthapani
Foundry (Private) Ltd., [1980) 123ITR 709, inapplicable. D

In the instant case, the sales accounts of the asessee showed that
the assessee had sold winding wires used in the manufacture of different
types of electricity. These are winding wires, employed in coils, winding
of armatures, etc. and cannot be identified at all as cables in the sense in
which item 7 conceives of cables. [486D-EJ E

CIV~L APPELLATE JURISDICTION: Civil Appeal Nos. 597-
_.. 599 (NT) of 1985

f From the Judgment and Order dated 3.5.1983 of the Punjab &
Haryana High Court in Income Tax Reference Nos. 61, 63 and 64 of F
-:y 1977.

Dr. Devi Pal, V.S. Desai, O.C. Mathur, Ms. A.K. Verma, Ms.
Meera Verma and S. Sukumaran for the Appellant.

S.C. Manchanda and Ms. A. Subhashini for the Respondent. G

The Judgment.of the Court was delivered by
;...
PATHAK, J. These appeals by special leave are directed against
the judgment of the High Court of Punjab and Haryana holding that
the sale of insulated copper wires manufactured by the appellant- H
480 SUPREME COURT REPORTS [1986) 3 S.C.R.

A assessee does not entitle it to the benefits conferred by ss. 33( !)(iii) -(-
(c)(A) and SOE of the Income Tax Act, 1961 for the assessment years
1966-67 and 1967-68 and the benefits conferred by ss. 33(1)(b)(B)(i)
and SOI of the Income-tax Act, 1961 for the assessment years 1968-69
to 1971-72.
B
Section 33 of the Income Tax Act, 1961 provides for the·grant of

.-
development rebate. Prior to April l, 1968, s. 33(1)(iii)(c)(A) of the t-
Income Tax Act, 1961 provided:

"(1) In respect of a new ship acquired or new machinery or
plant (other than office appliances or road transport vehi-
c des) installed after the 31st day of March, 1954, which is
owned by the assessee and is wholly used for the purposes
of the bµsiness carried on by him, a sum by way of develop-
•
ment rebate, eqnivalent to- -.,,\

D (i) .................................................
(ii) . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(iii) in the case of machinery or plant installed after the
31st day of March, 1961-
E
(a) ........................................... .

(b)

(c) where the machinery or plant is installed after the
\;
'
F 31st day of March, 1965-

(A) for the purposes of businss of construction,
manufacture or production of any one or more of
the articles or things specified in the list in the
Fifth Schedule-
G
(a) thirty-five per cent, of the actual cost of
the machinery or plant to the assesee, where
it is installed before the 1st day of April,
1970, and

H (b) twenty-five per cent, of such cost, where
HINDUSTAN WIRE PRODUCTS v. C.l.T. [PATHAK. J.] 481

it is installed after the 31st day of March, A
-} 1970,

(B) .................................... .

shall, subject to the provisions of s. 34, be allowed as a B
deduction in respect of the previous year in which the ship
was acquired or the machinery or plant was installed or, if
the ship, machinery or plant is first put to use in the im-
mediately succeeding previous year, then, in respect of that

-
previous year."

This provision was substituted, with effect from April 1, 1968, by the c
present provision which reads:

"33(1)(a) In respect of a new ship or new machinery or
plant (other than office appliances or road transport vehi-
cles) which is owned by the assessee and is wholly used for D
the purposes of the business carried on by him, there shall,
in accordance with and subject to the provisions of this sec-
tion and of section 34, be allowed a deduction in respect of a
previous year in which the ship was acquired or the machin-
ery or plant was installed or, if the ship, machinery or plant
is first put to use in the immediately succeeding previous
,E
year, then, in respect of that previous year, a sum by way of
development rebate as specified in clause (b ).

- (
(A) ............................................... .

(B) in the case of machinery or plant,-
F
(i) where the machinery or plant is 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, -
G
(a) thirty-five per cent of the actual cost of the
machinery or plant to the assessee, where it is in-
stalled before the 1st day of April, 1970, and

(b) twenty-five per cent of such cost, where it is
installed after the 31st day of March, 1970. H
482 SUPREME COURT REPORTS [1986] 3 S.C. R.

A These provisions relate to development rebate.

A deduction was ab\) available to an assessee in respect of profits
and gains from specified industries in the case of certain companies
prior to April 1, 1968. Section SOE provided:
B
"SOE ( 1) Jn the case of a company to which this section
applies, where the total income (as computed in accord-
ance with the other provisions of this Act) includes any

-
profits and gains attributable to the business of generation
or distribution of electricity or any other form of power or
of construction, manufacture or production of any one or
c more of the articles or things specified in the list in the Fifth
Schedule, there shall be allowed a deduction from such pro-
fits and gains of an amount equal to eight per cent. thereof
in computing the total income of the company."

D Section 80E was deleted with effect from April I. 1968 and was
substituted bys. 80-1 which provides:

"80-1(1) In the case of a company to which this section ap-
plies, where the gross total income includes any profits and
E gains attributable to any priority industry, there shall be
allowed, in accordance with and subject to the provisions
of this section, a deduction from such profits and gains of
an amount equal to eight per cent, thereof, in computing
the total income of the company."

F It is not disputed between the parties that the assessee is a company to
which the provisions of s. SOE and subsequently of s. SOI will apply.
Section 801, it may be noted, was deleted by the Finance Act, 1972
with effect from April 1, 1973. With effect from April 1, 196S the
expression 'priority industry' was defined ins. SOB(7) as meaning:

"the business of generation or distribution of electricity or
G
any other form of power or of construction, manufacture or
;>roduction of any one or more of the articles or things
specified in the list in the Fifth Schedule or the business of
any hotel where such business is carried on by an Indian
company ancHhe hotel is for the time being approved in this
H behalf by the Central Government."
HINDUSTAN WIRE PRODUCTS v. C.I.T. [PATHAK, J.] 483

The word 'Sixth' was substituted for 'Fifth' by the Finance Act 1968 A
with effect from April 1, 1969.

With effect from April 1, 1964 the Fifth Schedule set forth a list
of articles and things and items 7, 17 and 24 which possess some rele-
vance to this case read as follows: B
"(7) Equipment for the generation and transmissio!' of
electricity including transformers, cables and transmission
towers,

(17) Electronic equipment, namely, radar equipment,
computers, electronic accounting and business machi- c
nes, electronic communication equipment, electronic con-
trol instruments and basic components, such as valves,
transistors, resisters, condensors, coils, magnetic materials
and microwave components,
D
(24) Component parts of the articles mentioned in items
Nos. (4), (5), (7) and (9), that is to say, such parts as are
essential for the working of the machinery referred to in
1he items aforesaid and have been given for that purpose
some special shape or quality which would not be essen-
tial for their use for any other purpose and are in comp-
E
lete finished form and ready for fitment."

... The Sixth Schedule which replaced the Fifth Schedule with effect from
April 1, 1969 contained identical items 7, 17 and 24 .
( These appeals relate to the assessment years 1966-67 to 1971-72.
F
The assessee carries on the business of manufacture and sale of in-
sulated copper wires. Before the Income Tax Officer, it claimed that it
constituted a priority industry for the purposes of the provisions of ss.
33(1)(iii)(c)(A) and SOE read with items 7, 17 and 24 of the Fifth
Schedule of the Income Tax Act, 1961 for the first two years and
sections 33(1)(b)(B)(i) and 80-I read with items 7, 17 and 24 of the
G
Fifth or the Sixth Schedule, as the case may be, of the Income Tax Act,
1961 for the latter four years. The assessee claimed that it was entitled
to the benefits conferred by those provisions for the aforesaid assess-
ment years as a 'priority industry'. It asserted that the wires manu-
factured by it were covered by the word 'cables' employed in the
articles and things specified in items 7, 17 and 24 of the Fifth Schedule H
484 SUPREME COURT REPORTS [1986] 3 S.C. R.

A for the assessment years 1966-67, 1967-68 and 1968-69 and items 7, 17
and 24 of the Sixth Schedule of the Income Tax Act for the assessment
years 1969-70 to 1971-72. It produced expert evidence in support of its
claim. The Income Tax Officer rejected the claim made by the assessee.
An appeal to the Appellate Assistant Commissioner was dismissed. The
assessee then appealed to the Income Tax Appellate Tribunal.
B
.The Appellate Tribunal allowed the six appeals and held that the
assessee was entitled to the benefits claimed by it as a 'prority in-
dustry'. It noted that although the assessee had based its claim on
items 7, 17 and 24 of the Schedules, the claim was emphatically pressed
in the hearing before it under item 7 alone. The question before it then
c was limited to the point whether the wires manufactured by the asses-
see fell within item 7. In disposing of the appeals, the Appellate Tri-
bunal adverted to its finding in the appeals for the two immediately
preceding assessment years 1964-65 and 1965-66. In its appellate order
for the assessement ~ear 1964-65 it found that the assessee manu-
factured aluminium cables which were used in the transmission of
D
electricity and held that, therefore, it was entitled to the benefit of the
·Fifth Schedule relevant for those two assessment years. In the appeal
pertaining to the assessment year 1965-66 it considered the matter
again and upheld the claim in view of its order for the preceding
assessment year. It noted that the Revenue had accepted the orders
E
and had not questioned them in reference. It found from a perusal of ¥
the Industrial Licences on the basis of which the assessee was operat-
ing that there was no change in the nature or type of the goods manu-
factured by it during the six assessment years before it in appeal. It
observed that when it referred to aluminium cables in its earlier orders -
it should have described them as copper and aluminium cables. Having )
regard to the material before it, the Appellate Tribunal found no
F
reason to change its opinion from the view taken in the preceding
assessment years that the manufacture of the cables attracted the be- ¥-
nefits claimed by the assessec.

Thereafter, at the instance of the Revenue, the Appellate Tri-
bunal made a reference for the six assessment years to the High Court
G of Punjab and Haryana for its opinion on the following two questions:

"Whether. on the facts and in the circumstances of the
case, the assessee-company was entitled to the benefits
conferred by the provisions of sections 33(1)(iii)(c)(a) and
H
80EoftheincomeTaxAct, 1961?
HINDUSTAN WIRE PRODUCTS v. C.l.T. (PATHAK, J.} 485

2. Whether on the facts and in the circumstances of the A
case, the assessee-company was entitled to the benefits
conferred by the provisions of sections 33(1)(b)(B)(i) and
80-I of the Income Tax Act, 1961?"

The High Court answered those questions in favour of the Revenue
B
and. against the assessee. The High Court differed from the Appellate
Tribunal and took the view that in the cases for the assessment years
under consideration the Income Tax Officer had come into possession
of fresh facts indicating that the assessee was manufacturing copper
wires of a particular type known as winding wires which were exclu-

r
sively used in the manufacture of different types of gadgets and not for
the purpose of generation and transmission of electricity. It observed c
that the wires were not meant for the generation and transmission of
electricity, and they would fall within item 7 only if they were meant
solely for that purpose and not otherwise.

In these appeals it is contended on behalf of the assessee that the
D
High Court has misconstrued the facts found by the Appellate Tri-
bunal and has, therefore, erroneously held that the cables manu-
factured by the assessee do not fall within the scope of item 7. It is
urged also that the true test for determining whether the cables could
be used in the generation and transmission of electricity was that laid
down by the Madras High Court in Commissioner of Income-Tax, Tamil
E
Nadu-V v. Dhandayuthapani Foundry (Private) Ltd., [!980] 123
I.T.R. 709 where in considering the question whether an implement

- could be described as an agricultural implement it was observed that
the real test was not whether it was exclusively used for agricultural
purposes but whether it was commonly so used and whether it was
intimately and directly connected with agricultural operations.
F
The point before us is whether the cables manufactured by the
assessee qualify for inclusion in item 7 of the Fifth Schedule or the Sixth
Schedule, as the case may be having regard to the relevant assessment
year. Item 7 speaks of equipment for the generation and transmission of
electricity, and such equipment includes transformers, cables and trans-
G
mission towers. To appreciate what is comprehended in item 7, it is
permissible to refer to a related entry, item 24, which refers to compo-
nent parts of the articles mentioned, inter alia, in item 7. When item 24
is read in its entirety, it is apparent that the component parts men-
tioned therein are component parts of what can be described as
machinery. Then reading item 7 in conjunction with item 24, the con- H
486 SUPREME COURT REPORTS [1986] 3 S.C.R.
A
clusion is inescapable that when item 7 speaks of equipment, reference
~-
is intended to machinery needed for the generation and transmission
of electricity. The item envisages complete self-contained units of
equipment, units which on being put together or connected together
constitute the apparatus for the generation and transmision of electri-
B city. Viewed in that context, the reference in item 7 to cables must
mean cables identifiable as a complete self-contained unit in them-
selves as a distinct unit of equipment when employed in the generation
and transmission of electricity. A cable does not fall within item 7 if it t-
is merely a component, or part of a component, of a unit of equipment
or machinery. '(
c The High Court is right in our opm10n, in holding that the
Appellate Tribunal erred in ignoring the fresh evidence gathered by
the Income Tax Officer and considered by the Appellate Assistant
1
Commissioner in the assessment proceedings under consideration.
The sales accounts of the assessee showed that the assessee had sold
D winding wires used in the manufacture of different types of electrical
gadgets and for the purpose of transmission of electricity. These are
winding wires, employed in coils, winding of armatures, etc. and can-
not be identified at all as cables in the sense in which item 7 conceives
of cables. That being so, the test propounded in Commissioner of
Income-Tax, Tamil Nadu-V v. Dhandayuthapani Foundry (Private)
E Ltd. (supra) does not call for consideration.

In the circumstances, the questions referred to the High Court

F
for its opinion were rightly answered in the negative, in favour of the
Revenue and against the assessee.

In the result, the appeals are dismissed with costs.
) -
M.L.A. Appeals dismissed.
+