1997 (10) TMI 24 - HC - Income Tax

Classification of resistors as electronic equipment for higher development rebate upheld

The High Court affirmed the Tribunal's decision that the resistors manufactured by the assessee are classified as basic components of electronic ... Developement Rebate, Higher Rate Issues Involved:1. Whether the volume controls manufactured by the assessee fall within the expression 'electronic equipment' under entry No. 17 of the Fifth and Sixth Schedules to the Income-tax Act, 1961.2. Whether the Tribunal was justified in not dealing with the question regarding the reopening of the assessment under section 147(b) of the Income-tax Act, 1961.Detailed Analysis:1. Classification of Volume Controls as 'Electronic Equipment':The primary issue was whether the volume controls (resistors) manufactured by the assessee could be classified as 'electronic equipment' under entry No. 17 of the Fifth and Sixth Schedules to the Income-tax Act, 1961. The relevant entry reads: 'Electronic equipment, namely, radar equipment, computers, electronic accounting and business machines, electronic communication equipment, electronic control instruments and basic components, such as valves, transistors, resistors, condensers, coils, magnetic materials and microwave components.'- Assessee's Argument: The assessee argued that resistors are basic components of electronic equipment and, therefore, should be classified under entry No. 17, making them eligible for higher development rebate as a priority industry.- Revenue's Argument: The Revenue contended that the volume controls were components of radio receivers, which fall under 'telecommunication' and not 'electronic equipment' as per the Industries (Development and Regulation) Act, 1951. Hence, they argued that the assessee's product does not qualify as 'electronic equipment' for the purpose of higher development rebate.- Tribunal's Findings: The Tribunal concluded that the resistors are indeed basic components of electronic communication equipment, which falls under item No. 17 of the Sixth Schedule. The Tribunal relied on various sources, including a book titled 'Understanding Electronic Components' and a circular from the Central Board of Direct Taxes, which, despite differentiating between electronic and telecommunication equipment, did not provide sufficient evidence to exclude radio receivers from electronic equipment.- High Court's Decision: The High Court affirmed the Tribunal's decision, stating that resistors are basic components of electronic communication equipment. The court noted that the Revenue failed to provide compelling evidence that radio receivers cannot be classified as electronic equipment. The court also referred to the legislative history and relevant judicial precedents, including decisions from the Gujarat High Court and the Bombay High Court, which supported the assessee's position.2. Reopening of Assessment under Section 147(b):The second issue was whether the Tribunal was justified in not addressing the reopening of the assessment under section 147(b) of the Income-tax Act, 1961.- Tribunal's Approach: The Tribunal did not delve into the validity of the reassessment proceedings for the year 1970-71 because it had already decided the primary issue on the merits.- High Court's Decision: The High Court found that since it had upheld the Tribunal's decision on the merits of the case, it was unnecessary to address the second question regarding the reassessment under section 147(b).Conclusion:The High Court answered the questions of law in the affirmative and against the Revenue. The court upheld the Tribunal's findings that resistors manufactured by the assessee are basic components of electronic communication equipment and, therefore, the assessee is entitled to the higher development rebate as a priority industry. Consequently, the question regarding the reopening of the assessment under section 147(b) was deemed unnecessary to address. No order as to costs was made.