Commissioner
of Income Tax, Gujarat Vs. Cellulose Products of India Ltd. [1991] INSC 221 (4 September 1991)
Ojha, N.D. (J) Ojha, N.D. (J) Rangnathan, S. Ramaswami, V. (J) Ii
CITATION:
1991 AIR 2285 1991 SCR (3) 888 1991 SCC (4) 467 JT 1991 (3) 599 1991 SCALE
(2)466
ACT:
Income
Tax Act 1961: Sections 84 and 261--New Indus- trial
Undertaking--Exemption--Commencement of period----When arises.
HEAD NOTE:
The
respondent is a Public Limited Company incorporat- ed on April 14, 1989 for carrying on business of manufac-
turing chemical products particularly of Carboxy Methyl Cellulose (CMC) and
Cellulose Pulps. The respondent was also granted an industrial licence by the
Central Government for the manufacture of Carboxy Methyl Cellulose. The
respondent had installed a cellulose plant in which cellulose pulp, the raw
material for Carboxy Methyl Cellulose was manufactured.
The
plant had begun production from March 1961 while the production of Carboxy
Methyl Cellulose was started from June 15, 1961.
The
respondent claimed relief under section 84 of Income Tax Act as it stood prior
to its being deleted with effect from April 1, 1968 by Finance Act (2) 1967,
for the assessment year 1966-67, the previous year of accounting being the
financial year 1965-66.
The
Income Tax Officer took the view that since the respondent had started
production of cellulose pulp from March, 18 1961, it had begun to manufacture
or produce finished articles or goods in the year ending March 31, 1961 and
consequently the assessment year 1961-62 was the first year in which the assessee
was entitled to relief under section 84 Sub-section (7) of the Income Tax Act
under which the relief contemplated was to be available only for live
assessment years. So the respondent was not entitled to relief in the
assessment year 1966-67 which fell beyond the aforesaid period.
The
above view the Income Tax Officer was affirmed in appeal by the Appellate
Assistant Commissioner. Even the Income Tax Appellate Tribunal held that the
respondent having begun production or manufacture of finished product which was
capable of being sold in the market in the year of accounting relevant to the
assessment year 1961-62 the last year in which the respondent was entitled to
get relief under section 84 of the Act was the assessment year 1965-66 and the
claim for 889 the relief in the assessment year 1966-67 was not maintain- able.
The High Court on reference, held that the mere fact that the respondent
started production of Cellulose Pulp which was an intermediate product on March
18, 1961 did not mean that the company had begun to produce or manufacture
"articles" in the assessment year 1961-62 because the word
"articles" used in Sub-section (7) of section 84 in the context,
could be only the end product of the industrial undertaking as a whole where
there was no phased programme of installation and construction.
Allowing
the appeal of the Revenue with costs, the Court,
HELD:
The High Court on the facts and circumstances of the instant case committed an
error in interfering with the conclusion of the Tribunal. It is settled law
that a High Court while hearing a reference under the Act does not exercise any
appellate or revisional or supervisory juris- diction over the Tribunal and it
acts purely in an advisory capacity. Further in the instant case the finding of
the Tribunal did not suffer from any infirmities such as not being supported by
any evidence or being perverse or patent- ly unreasonable. The production of
Cellulose Pulp during the month of March, 1961 was a finished product which was
a marketable commodity. It is true that Cellulose Pulp also constitutes raw
material for manufacture of Carboxy Methyl Cellulose and the circumstances that
the industrial licence granted to the respondent was for the manufacture of Carboxy
Methyl Cellulose which also included the manufacture of Cellulose Pulp which
was intermediate product to be used in its turn as a raw material for the
manufacture of Carboxy Methyl Cellulose. The relevent clause of the Memorandum
of Association of the respondent company is obviously wide in its amplitude and
as such comtemplates "manufacture of chemical products of any nature and
kind whatsoever and particularly of Carboxy Methyl Cellulose, Cellulose Pulp
and other chemical products." So the High Court obviously com- mitted an
error in holding that the manufacture of Cellulose Pulp during March 1961 was
of no consequence and that the first year of production would be the assessment
year 1962- 63 when Carboxy Methyl Cellulose was actually manufactured.
The
provisions of section 84 of the Act could be coustrued liberally only, when
there is any genuine doubt about the interpretation. [892H-893G, 894B] In the
instant case, a plain reading of Sub-section (7) of the section 84 of the Act
makes it clear without any doubt that the period of assessment year relevant to
the previous year in which the undertaking began to manufacture or produce
"articles" was 1961-62. The question as to the assessment year in
which the undertaking begins to manufac- ture or 890 produce articles is
essentially a question to be decided on the facts of each case and on the basis
of evidence placed on record. [894C-D]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 1314 (NT) of 1976.
From
the Judgment and Order dated 15.11.1975 of the Gujarat High Court in Income Tax
Reference No. 160 of 1974.
Dr. V.
Gauri Shankar, Manoj Arora and Ms. A. Subhashini for the Appellant.
J. Vellapaly,
Ms. A.K. Verma and J.B. Dadachanji for the Respondent.
The
Judgment of the Court was delivered by OJHA, J. This appeal has been preferred
on the basis of a certificate granted by the High 'Court of Gujarat under
Section 261 of the Income Tax Act, 1961 (hereinafter re- ferred to as the Act).
The judgment appealed against is reported in Cellulose Products of India Ltd.
v. Commissioner of Income Tax, Gujarat, [1977] 110, I.T.R. page 15 1. The
respondent is a public limited company incorporated on April 14, 1989 mainly for the purpose of carrying
on business of manufacturing chemical products. The Memorandum of Associa- tion
of the respondent company, as is apparent from the order of the Appellate
Assistant Commissioner of Income Tax, inter alia contains the following clause:
"to
carry on the business of manufacture of and dealer and importers and exporters
in chemical products of any nature and kind whatsoever and particulary of Carboxy
Methyl Cellulose (CMC), Cellulose Pulps and other chemical products." The
respondent was granted an industrial licence by the Central Government for the
manufacture of Sodium Carboxy Methyl Cellulose (for short CMC). In pursuance of
the said licence the respondent installed a Cellulose plant, in which was
manufactured Cellulose pulp which in its turn was meant to be used as a raw
material for manufacture of CMC. This fact does not appear to have been in
dispute that the re- spondent began production of Cellulose pulp from March 18, 1961 in the said plant while the
production of CMC was started from June 15,1961.
891 In
the assessment year in question namely 1966-67, the previous year of account
being the financial year 1965-66 ending on March 31, 1966, the respondent
claimed relief contemplated by Section 84 of the Act (as it stood prior to its
being deleted with effect from April 1, 1968 by Finance (No. 2) Act, 1967). The
Income Tax Officer took the view that since the respondent had started
production of Cellu- lose pulp from March 18, 1961 it had begun to manufacture
or produce finished articles or goods in the year ending on March 31, 1961 and
consequently the assessment year 1961-62 was the first year in which the assessee
was entitled to relief under Section 84.
According
to him, the relief con- templated by Section. 84 being available only for five
years namely the assessment year 1961-62 and the four assessment years immediately
succeeding as contemplated by Sub-section (7) of Section 84 of the Act, the
respondent was not enti- tled to the relief claimed in the assessment year
1966-67 which fell beyond the aforesaid period. This finding of the Income Tax
Officer was affirmed in appeal by the Appellate Assistant Commissioner. The
matter was taken by the respond- ent in further appeal before the Income Tax
Appellate Tribu- nal. The respondent's contention that the production of
Cellulose pulp during the month of March 1961 was a trial production was
repelled by the Tribunal and a categorical finding was recorded by it that
Cellulose pulp manufactured by the respondent during the month of March 1961
was a finished product which was a marketable commodity. On this view the
Tribunal held that the respondent having begun production or manufacture of
finished product which was capable of being sold in the market in the year of
account relevant to the assessment year 1961-62, the last year in which the
respondent was entitled to get relief under sec- tion 84 of the Act was the
assessment year 1965-66 and the claim made by it for the said relief in the
assessment year in question namely 1966-67 was not maintainable. The Tribu- nal,
however, on an application made in this behalf by the respondent referred the
following question to the High Court of Gujarat for its opinion:- "Whether
on the facts and in the circumstances of the case, the Tribunal was right in
reject- ing the assessee's claim for relief under section 84 of the Act for the
assessment year 1966-67?" The High Court by the judgment under appeal
answered the question aforesaid in the negative, that is, in favour of the assessee
and against the revenue. It held that even though the word "article"
used in Subsection (7) of section 84 of the Act was undoubtedly an ordinary
word employed by the legislature but in the context in which it was used and
892 looking to the object with which it was enacted it was obvious that it
could only refer to the end product of the industrial undertaking as a whole
where there was no phased programme of installation and construction. On this
view the High Court found that the mere fact that the respondent started the
production of Cellulose pulp which was an in- termediate product on March 18,
1961 did not mean that the company had begun to produce or manufacture
"articles" in the assessment year 1961-62.
It has
been urged by learned counsel for the appellant that the finding recorded by
the Tribunal referred to above was essentially a finding of fact based on
appraisal of evidence and it was not open to the High Court in its advi- sory
jurisdiction to take a contrary view. For the respond- ent, on the other hand,
in support of the judgment appealed against, it was urged by its learned
counsel that inasmuch as section 84 of the Act contemplated grant of relief to
a new undertaking, it should be construed liberally so as to effectuate the
object thereof. He maintained that since the undertaking established by the
respondent was to manufacture CMC and the industrial licence had also been
granted to it for the said purpose, exemption under section 84 of the Act could
be claimed by it only in the year during which CMC was actually manufactured
and since it was so done during the assessment year 1962-63 exemption could not
be claimed in the assessment year 1961-62, notwithstanding the fact that
Cellulose pulp for captive consumption was manufactured in that year. According
to him, therefore, the period of five years contemplated by sub-section (7) of
section 84 of the Act would represent the assessment year 1962-63 and the four
assessment years immediately succeeding and in this view of the matter the High
Court was right in allowing the relief claimed by the respondent during the
assessment year in question, namely 1966-67. In the alternative, he submitted
that if ultimately the view of the Tribunal prevailed that the production had
started in the assessment year 1961-62 then the disallowance of the relief in
the 5th year namely in the assessment year in question should be restricted to
the investment of the pulp factory and the respondent should not be denied the
relief in respect of the investment exclu- sively related to the CMC plant.
Having
given our anxious consideration to the respective submissions made by the
learned counsel for the parties, we are inclined to agree with the contention
of the learned counsel for the appellant that the High Court on the facts and
in the circumstances of the instant case committed an error in interfering with
the conclusion of the tribunal. It 893 is settled law that a High Court hearing
a reference under the Act does not exercise any appellate or revisional or
supervisory jurisdiction over the Tribunal and that it acts purely in an
advisory capacity. If the Tribunal after con- sidering the evidence produced
before it on a question of fact records its finding it cannot be interfered
with in a reference by the High Court unless of course such finding was not
supported by any evidence, was perverse or patently unreasonable. In our
opinion, the finding of the Tribunal in the instant case did not suffer from
any of these infirmi- ties. The finding that the production of Cellulose pulp
during the month of March 1961 was not a trial production and that Cellulose
pulp as manufactured by the respondent was a finished product which was a
marketable commodity was essentially a finding of fact based on appraisal of evi-
dence. It is true that Cellulose pulp constitutes raw material for manufacture
of CMC but it has not been disputed before us by the learned counsel for the
respondent that it was even by itself a finished marketable commodity. The
circumstance that the industrial licence granted to the respondent was for the manufacture
of CMC and not of Cellu- lose pulp is, in our opinion, keeping in view the
nature of the two articles, not of much significance. In the same manner as a licence,
for instance, for the manufacture of cloth includes the manufacture of cotton
yarn, an intermedi- ate product necessary for manufacturing cloth, the licence
granted to the respondent for the manufacture of CMC includ- ed the manufacture
of Cellulose pulp which was an intermedi- ate product to be used in its turn as
a raw material for the manufacture of CMC. The relevant clause of the
Memorandum of Association of the respondent company, already quoted above, is
obviously wide in its amplitude, It contemplates manufac- ture of
"chemical products of any nature and kind whatsoever and particularly of
CMC, Cellulose pulp and other chemical products". Manufacture of Cellulose
pulp was thus indeed one of the objects of the company. The question involved
had to be considered in this background and the Tribunal having done so and
recorded the finding of fact referred to above the High Court obviously
committed an error in holding that manufacture of Cellulose pulps during March
1961 was of no consequence and that the first year of production would be the
assessment year 1962-63 when CMC was actually manufac- tured. The decision of
the Madras High Court relied on by the learned counsel for the respondent
reported in Madras Machine Tools Manufacturers Ltd. v. Commissioner of Income-
Tax, Madras, [1975] 98 ITR 119, in view of what has been observed above on the
facts of the instant case does not advance the case of the respondent any
further than the reasons recorded in the judgment under appeal.
894 As
regards the alternative submission made by the learned counsel for the
respondent suffice it to say that the case on the basis of which this
alternative submission is sought to be made was not set up before the Tribunal
nor any such question was sought to be referred on the basis of which this
alternative submission could be made. It cannot, as such, be permitted to be
made in the present appeal. The submission that the provisions of section 84 of
the Act should be construed liberally so as to effectuate the object thereof
need detain us for long. It is only when there is any genuine doubt about the
interpretation of a fiscal statute or where two opinions are capable of being
formed that the rule of interpretation canvassed by learned counsel for the
respondent may be taken to. In the instant case a plain reading of sub-section
(7) of section 84 of the Act makes it clear without any doubt that the period
of five years was to start from the assessment year relevant to the previous
year in which the undertaking began to manufacture or produce
"articles". Since the language of the sub-section is plain and admits
of no ambiguity there is no scope of applying the aforesaid rule of
interpretation. The question as to in which assessment year "the
undertaking begins to manufacture or produce articles" is essentially a
question to be decided on the facts of each case and on the basis of the
evidence placed on record.
In
view of the foregoing discussion, this appeal suc- ceeds and is allowed with
costs and the judgment of the High Court under appeal is set aside.
S.B.
Appeal allowed.
Back
