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Commissioner of Income-tax, Bombay City-i Vs. Oudh Sugar Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 142 of 1971
Judge
Reported in(1982)27CTR(Bom)183; [1982]136ITR186(Bom); [1982]9TAXMAN203(Bom)
ActsFinance Act, 1964 and 1965 - Sections 2(5); Industries (Development and Regulation) Act, 1951 - Sections 2(5); Income Tax Act, 196 - Sections 256(1)
AppellantCommissioner of Income-tax, Bombay City-i
RespondentOudh Sugar Mills Ltd.
Excerpt:
.....exported is article which is to be found in first schedule - de-oiled cake not found in first schedule to act - assessee will not be entitled to rebate under section 2 (5) - court answered in negative and against assessee. - - this was, however, rejected by the ito as well as by the aac. (2) mineral oil (crude oil), motor and aviation spirit, diesel oil, kerosene oil, fuel oil, diverse hydrocarbon oils and their blends including synthetic fuels, lubricating oils, and the like. item 7 is 'transportation' and under it there are 7 items such as, (1) aircraft, (2) ships and other vessels drawn by power, (3) railway locomotives, (4) railway rolling stock, (5) automobiles, (6) bicycles, and (7) others, such as fork lift trucks and the like. 6 which is 'telecommunication'.now, clearly..........in cl. (c). the tribunal took the view that the rebate under cl. (5)(a)(ii) was in respect of the articles manufactured and that the ban in cl. (5) (c) was not in respect of articles relating to the industries specified therein. the tribunal took the view that such a construction of cl. (5)(c) could not be ruled out and if there was some difficulty in the interpretation and two possible views could be taken, it was settled law that the view favourable to the taxpayer should be taken when construing a fiscal enactment. the tribunal thus directed the ito to give the appropriate relief under s. 2(5)(a)(ii) of the finance act.3. arising out of this order of the tribunal, the following question has been referred at the instance of the revenue under s. 256(1) of the i.t. act, 196 :'whether,.....
Judgment:

Chandurkar, J.

1. The assessee, M/s. Oudh Sugar Mills Ltd., Bombay caries on the business of manufacture of sugar, oil, ice and power alcohol. In the assessment year 1964-65, the assessee had exported de-oiled cake which is a by-product of the solvent extraction plant of the assessee. Before the ITO, the assessee claimed the benefit of cl. (5)(a)(ii) of s. 2 of the Finance Act, 1964, claiming an additional rebate as provided by that clause. This was, however, rejected by the ITO as well as by the AAC.

2. In the appeal before the Tribunal, the view taken was that the assessee being engaged in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as 'the Industries Act, 1951'), the claim of the assessee was not affected by the provisions of cl. (5)(c) of s. 2 of the Finance Act, 1964, which provided that the benefit of cl. (5)(a)(ii) would not be available in the case of the items specified in cl. (c). The Tribunal took the view that the rebate under cl. (5)(a)(ii) was in respect of the articles manufactured and that the ban in cl. (5) (c) was not in respect of articles relating to the industries specified therein. The Tribunal took the view that such a construction of cl. (5)(c) could not be ruled out and if there was some difficulty in the interpretation and two possible views could be taken, it was settled law that the view favourable to the taxpayer should be taken when construing a fiscal enactment. The Tribunal thus directed the ITO to give the appropriate relief under s. 2(5)(a)(ii) of the finance Act.

3. Arising out of this order of the Tribunal, the following question has been referred at the instance of the revenue under s. 256(1) of the I.T. Act, 196 :

'Whether, on the facts and in the circumstance of the case, the Tribunal was right in holding that on a correct construction of section 2(5)(a)(ii) and section 2(5)(c) of the finance Act, 1964, the assessee was entitled to rebate of tax on exports of de-oiled cake ?'

4. In order to appreciate the contentions raised before us, it is necessary to refer to the provisions of s. 2(5) of the Finance Act. sub-clauses. (i) of cl. (5)(a) provides that in respect of any assessment for the assessment year commencing from April 1, 1964, and assessee being Indian company whose total income includes any profits and gains derived from the export of any goods or merchandise out of India, shall be entitled to a deduction from the amounts of income-tax and super-tax with which he is chargeable, of an amount equal to the income-tax and super-tax calculated respectively at one-tenth of the average rate of income-tax and of the average rate of super-tax on the amount of such profits and gains included in the total income. This clause, therefore, provides for what is commonly known as export rebate if the total income of the assessee includes any profits and gains derived from the export of any goods or merchandise out of India. The deduction permissible is to be worked out at the rate of one-tenth of the average rate of income-tax and of the average rate of super-tax on the amount of the profits and gains derived from the export of any goods or merchandise out of India Sub-clauses (ii) and (iii) of cl. (a) and the relevant part of cl. (c) read as follow :

(5)(a) In respect of any assessment for the assessment year commencing on the April 1, 1964...

(ii) where an assessee of the type referred to in sub-clauses (i) engaged in the manufactured of any articles in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (65 of 1951), has exported after the February 28, 1963, such articles out of India, he shall be entitled, in addition to the deduction of the tax referred to in sub-clause (i), to a further deduction, form the amount of tax with which he is chargeable for the assessment year of an amount equal to the income-tax and super-tax calculated respectively at the average rate of income-tax and the average rate of super-tax on an amount equal to two per cent, of the sale proceeds receivable by him in respect of such export :

(iii) where an assessee of the type referred to in sub-clause (i) engaged in the manufacture of any articles in an industry specified in the said first Schedule has sold after the February 28, 1963, such articles to any other person in India who himself has exported them out of Indian and evidence is produced before the Income-tax Officer of such articles having been so exported, the assessee shall be entitled to a deduction from the amount of income-tax and super-tax with which he is chargeable for the assessment year of an amount equal to the income-tax and super-tax calculated respectively at the average rate of income-tax and the average rate of super-tax on a sum equal to two per cent of the sale proceeds receivable by him in respect of such articles from the exporter...

(c) Nothing contained in sub-clause (ii) and sub-clause (iii) of clause (a) shall apply, -

(i) in relation to -...

(8) vegetable oils and vanaspathi....

respectively specified in items 2, 18, 20...'

5. A careful reading of sub-clauses. (ii) and (iii) above will show that they are special provisions permitting the assessee to earn an additional export rebate if the assessee of the type referred to in sub-clauses. (i) is engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries Act, 1951, if the assessee has exported after February 28, 1963, such articles out of India.

6. It is not in dispute that the assessee in the instant case satisfies the description in cl. (5)(a)(i) of the Finance Act. The additional deduction which is referred to in sub-clauses. (ii) as 'further deduction' is permissible at the average rate of income-tax and the average rate of super-tax on an amount equal to 2% of the sale proceeds receivable by him in respect of the articles exported as referred to earlier. For the purposes of the present reference, we are not concerned with sub-clauses. (ii) which entitles a rebate to be earned by the manufacture of the same articles as are referred to in sub-clauses. (ii) where the manufacture has sold after February 28, 1963, such articles to any other person in india and such person has himself exported them out of India. Additional rebate would be permissible to the assessee in such a case to be calculated at the average rate of income-tax and average rate of super-tax on a sum equal to 2% of the sale proceeds received by him in respect of that articles sold by the manufacturer assesse to the exporter provided of course, evidence is produced before the ITO of such articles having been exported. Now, when we come to cl. (c), we find that the provisions of sub-clauses. (ii) and sub-clauses. (iii) of cl. (a) are made inapplicable in relation to, among other items, 'vegetable oils and vanaspathi', which is item 28 in the First Schedule to the Industries Act, 1951.

7. It will be proper at this stage to refer to the relevant provisions of the Industries Act, 1951, because sub-clauses. (ii) and (iii) of cl. (5) in the finance Act make reference to the First Schedule to the Industries Act, 1951. Section 2 of the Industries Act, 1951, contains declaration that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule. Section 3(i) defines a 'scheduled industry' as meaning any of the industries specified in the First Schedule. We are not concerned with the other provisions of the industries Act for the purposes of the Finance Act. the First Schedule contains a list of several items and it is a matter of dispute as to whether these items refer to the articles manufacture or whether they refer to the industries. The relevant part of the First Schedule reads as follow :

'Any industry engaged in the manufacture or production of any of the articles mentioned under each of the following headings or sub-headings, namely :-

28. Vegetable oils and Vanaspathi :

(1) Vegetable oils, including solvent extracted oils. (2) Vanaspathi.'

8. Now, the contention which is advanced on behalf of the revenue by Mr. Joshi is that de-oiled cake on the export of which the assessee claim an additional export rebate is not an item to be found in the First Schedule and, therefore, the assessee will not be entitled to claim the benefit of sub-clauses. (ii).

9. On the other hand, Mr. Metha, appearing on behalf of the assessee, contends that sub-clauses. (ii) must be so read that it takes within it any articles produced in the course of the manufacture of an articles in the industry concerned and, therefore, since de-oiled cake is a by-product in the manufacture of vegetable oils and vanaspathi, the assessee would be entitled to claim the benefit of sub-clauses. (ii). It is however, further argued that when the same item is referred to in cl. (c), the reference to vegetable oils and vanaspathi must be read as carving out from the provisions of sub-clauses. (ii) only a case of export of vegetable oils and vanaspathi alone and not the by-product. The argument of the learned counsel found favour with the Tribunal which has taken the view that the licence issued to the assessee was for the manufacture of oil from oil cake by solvent extraction process and for the manufacture of vegetable oil from cotton seeds and cotton seeds cake and other oil cake. The Tribunal seems to have held that the assessee was undoubtedly engaged in an industry specified in the First Schedule to the Industries Act, 1951, and the assessee exported oil cake which is not one of the items whose export is disentitled to the rebate under s. 2(5)(a)(ii).

10. A careful reading of sub-clauses. (ii) of cl. (5) of s. 2 of the Finance Act shows that the benefit of an additional rebate is available only in respect of he export of articles which are manufactured in an industry specified in the first Schedule. It is no doubt true that while, making a reference to the articles, export of which was contemplated by sub-clauses. (ii), the words used are 'engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951'. These were the words relied upon by the learned counsel for the assessee for the contention that de-oiled cake is manufactured in an industry which is specified in the First Schedule, namely, the industry engaged in the manufacture of vegetable oils, including solvent extracted oils, and vanaspathi. However, when we come to the first Schedule to the Industries Act, 1951, we find that the Schedule consists of several general headings under which there are certain sub-headings these sub-heading there are some other items included. For example, the first heading is 'Metallurgical Industries'. Under this there are two sub-heading : 'A. Ferrous' and 'B. Non-ferrous'. Under each of these sub-headings there are several other item such as under the sub-headings 'Ferrous' the items are, (1) iron and steel (metal), (2) ferroalloys, (3) iron and steel casting and forgings, etc. The second heading is 'Fuels' and then the items ar :

'(1) coal, lignite, coke and their derivatives.

(2) Mineral oil (crude oil), motor and aviation spirit, diesel oil, kerosene oil, fuel oil, diverse hydrocarbon oils and their blends including synthetic fuels, lubricating oils, and the like.'

11. The sixth heading is 'Telecommunication' and under this there are six different item such as telephone, telegraph equipment, wireless communication apparatus, radio, receivers, television sets and teleprinters. Item 7 is 'Transportation' and under it there are 7 items such as, (1) aircraft, (2) ships and other vessels drawn by power, (3) railway locomotives, (4) railway rolling stock, (5) automobiles, (6) bicycles, and (7) others, such as fork lift trucks and the like. Now, it is not doubt true that under the definition clause in the Industries Act, 1951, a 'scheduled industry' is defined as any of the industries specified in the First Schedule. When it actually came to specifying the industries, the industries were mentioned with reference to the articles, in the manufacture of which that industry was engaged. This is made very clear and, indeed, the language appears to be unambiguous, when, while describing the industries, it was described as 'any industry engaged in the manufacture or production of any of the articles mentioned in each of the following heading or sub-headings'. These words do not leave any room for doubt that what was contemplated by parliament was to give a list of articles and any industry engaged in the manufactured or production of those articles was to be a scheduled industry within the meaning of the Industries Act, 1951. We have reproduced above item No. 6 which is 'Telecommunication'. Now, clearly 'Telecommunications' is not an industry by itself, but what is contemplated is an industry engaged in the manufacture or the production of telephones. Similarly 'Transportation' is not an industry because transportation cannot be manufactured. What is obviously intended is the manufacture of the means of transportation such as aircraft, ships, railway, locomotives, etc. There is, therefore, no doubt that though the finance Act refers to an industry specified in the first Schedule, those words are preceded by the words 'engaged in the manufactured of any articles'. If what was intended to be referred to was a schedule with reference to the article, then even for the purposes of sub-clauses (ii), the construction would have to be the same and it will have to be held that the article in respect of the export of which the export rebate was contemplated had to be an article which is to be found within the items specified in the First Schedule, We may point out that while referring to the first Schedule of the Industries Act, 1951, the Supreme Court in Harakchand Ratanchand Banthia v. Union of India, : [1970]1SCR479 , has in para 10 of the judgment, pointed out that there is no scientific or logical scheme in the classification of the first Schedule of Act 65 of 1951, that is, the Industries (Development and Regulation) Act, 1951, but 'it is a mere enumeration of grouping of various items'.

12. Once we come to the conclusion that the First Schedule to the Industries Act, 1951, contains a list of items of articles, then these must be the articles which have to be considered for the purposes of sub-clauses, (ii) of cl. (5)(a) of s. 2 of the Finance Act and unless the article exported is an article which is to be found in the First Schedule, the assessee will not be entitled to the benefit of sub-clauses. (ii). Admittedly, the benefit which the assessee is claiming is in respect of de-oiled cake which is not to be found in the First Schedule to the Industries Act, 1951, and on that short ground, in our view, the assessee will not be entitled to the benefit of sub-clauses. (ii). It is not, therefore, necessary for us to consider the argument whether such benefit was excluded by the express words of cl. (c) of cl. (5) of s. 2 of the Finance Act.

13. We, may however, point out that, Mr. Joshi has brought to our notice a decision of the Gujarat High Court in CIT v. Prakash Trading Co. : [1980]124ITR334(Guj) . That was also a case where the assessee was claiming a benefit of an additional rebate in respect of de-oiled cake under similar provisions though for a different year. The Division Bench while construing sub-clauses. (ii) and (iii) of cl. (a) of s. 2(5) of the Finance Act, 1966, which was similarly worded, pointed out that those clauses extended concession to the specified industries in reference to the articles manufactured by such industry. The Gujarat High Court, however, seems to have taken the view that though the assessee was claiming exemption under sub-clauses. (ii) and (iii) because the industry of vegetable oil is an industry specified in the First Schedule and that the claim of the assessee was that it was manufacturing de-oiled cake which had been exported and it was, therefore, entitled to exemption from cl. (c), in view of item (8) in cl. (c). the exemption in respect of the entire industry of vegetable oil and vanaspathi, which is specified in item No. 28 of the First Schedule of the Industries (Development and Regulation) Act, 1951, was taken away. The Gujarat High Court thus held (p. 339 :

'On a plain reading of sub-clauses (ii) and (iii) of cl. (a) read with cl. (c) of s. 2(5) we are of the opinion that the emphasis is on the specified industries and, therefore, if the exemption is taken away by cl. (c) respect of the specified industries, the claim of the assessee to the concession must fail.'

14. The Gujarat High Court thus seems to have taken the view that but for the provisions in cl. (c), the assessee would have been entitled to the benefit of sub-clauses. (ii). However, in the view which we have taken and which is, in our view, sufficient to dispose of the reference, we need not consider the contention of the learned counsel of the assessee that the Gujarat High Court was not justified in taking the view that cl. (c) operates in respect of the entire industry of vegetable oil and vanaspathi. As already pointed out, the contention of the learned counsel for the assessee is that cl. (c) must be construed as taking away the benefit of additional export rebate only in respect of the two articles, namely, vegetable oil and vanaspathi.

15. In the view which we have taken, the question referred must be answered in the negative and against the assessee. The assessee to pay the costs of the reference.


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