1. These cross-appeals by the revenue and the assessee are directed against the order of the AAC dated 31-3-1981 relating to the assessment year 1974-75. Before recording the issues projected in the respective appeals, a glance on the factual backdrop from which these issues arise will be of immense benefit.
2. The assessee is a registered firm working under the name and style of Sriyansh Knitters. Its business is manufacture of woollen hosiery mainly for purposes of exports. For the assessment year under appeal, the assessee installed new machinery of the value of Rs. 7,80,646. The assessee claimed development rebate at the rate of 25 per cent under Section 33 of the Income-tax Act, 1961 ('the Act'). The ITO, however, allowed the development rebate at 15 per cent with the general observation that it was clear that Section 33(1)(b) and Schedules under the Act did not permit development rebate to the assessee at the rate of 25 percent.
3 to 5. [These paras are not reproduced here as they involve minor issues.] 6. The AAC did not accept the claim of the assessee that it was entitled to development rebate at the rate of 25 per cent. He supported the ITO as according to him, the assessee had not given any cogent verifiable basis or evidence to support this ground.
[Part of this para is not reproduced here as it involves a minor issue].
7 to 10. [These paras are not reproduced here as they involve minor issues.] 11. The only other ground that survives for consideration in the appeal of the assessee is regarding the issue of development rebate. It is common ground that the assessee is having a composite unit for manufacture of hosiery which involves spinning and finally up to the finished products. During the year under appeal, the assessee installed new mechinery worth Rs. 7,80,646. This new machinery was owned by the assessee and it was used in the process of manufacture by the assessee carried on during the year under appeal. The development rebate is admissible to the assessee. The only dispute is with regard to the rate at which the development rebate is to be allowed. The claim of the assessee is that it is entitled to development rebate at 25 per cent in view of the provisions of Section 33(1)(b)(B)(i)(b) read with item 32 of the Fifth Schedule. Shri D.K. Gupta, the learned counsel for the assessee, argued that the assessee's manufacturing unit being a composite unit may be considered as manufacturing hosiery irrespective of the stage of processing at which the machinery is installed. In this view of the matter, it has been contended that a reasonable and proper interpretation of item 32 of the Fifth Schedule, which was inserted by Section 23 of the Finance Act, 1969, with effect from 1-4-1970, is that any assessee engaged in the manufacture of textiles wholly or mainly of cotton and any assessee who is manufacturing cotton yarn and hosiery and rope is entitled to development rebate at 25 per cent. It was emphasised that the Legislature in its wisdom has placed 'comma' after the words 'wholly or mainly of cotton', which indicates that the items subsequently mentioned are to be considered as independent of the first item, i.e., textiles. In other words, it was argued that hosiery, whether of cotton or wool, is entitled to development rebate at 25 per cent. It was further emphasised that hosiery is separate from the textiles in this context. Therefore, it is not warranted to deny the assessee development rebate at the rate of 25 percent. Shri Gupta emphasised that the authorities below in fact have no reason to deny the claim because no reason as such has been mentioned in any of the orders of the authorities below.
12. These submissions were, however, opposed by Shri Jain, the learned departmental representative, who contended that under item 32 of the Fifth Schedule, development rebate at 25 per cent is available only to textiles made of cotton. According to him, cotton yarn, hosiery and rope only if they are wholly or mainly of cotton, will be entitled to development rebate at 25 percent.
13. In the rejoinder Shri Gupta emphasising his earlier contentions, further clarified that item 32 of the Fifth Schedule read with item 33 is in wide contrast and shows the intention of the Legislature because in item 33, after the words 'textiles made wholly or mainly of jute' ; it is mentioned, 'including jute twine and jute rope'. According to him, the Legislature with clear intent prefixed the word 'jute' before the word 'twine' and the word 'rope' to emphasise that the textiles including jute twine and jute rope will be entitled to development rebate at 25 per cent. Therefore, it is clear that the interpretation that he has propounded of the item 32 is the only interpretation which is reasonable and which should be adopted.
14. After giving a very careful thought to the rival submissions and after careful consideration of the provisions of law, it appears to me that although the assessee has installed machinery during the year in the spinning unit, yet the business of the assessee is a composite one and spinning is only involved in one of the processes of manufacture of hosiery. It is, therefore, to be seen whether on these facts, the assessee is entitled to development rebate in view of the provisions of Section 33(1)(b)(B)(i)(b) read with item 32 of the Fifth Schedule to the Act. Item 32 of the Fifth Schedule is as under : Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope.
15. A careful reading of item 32 shows that textiles if made wholly or mainly of cotton including those dyed, printed or otherwise processed, will by entitled to development rebate at 25 per cent, i.e., machinery installed, owned and used by the assessee in the manufacture of textiles wholly or mainly of cotton including those dyed, printed or otherwise processed will be entitled to development rebate at the rate of 25 per cent. After the words 'wholly or mainly of cotton' the use of 'comma' indicates clearly the intent of the Legislature to include in the ambit of this benefit, cotton yarn, hosiery and rope manufactured by any assessee that may be considered for development rebate at 25 per cent. Hosiery is a word which takes into its ambit hosiery manufactured out of cotton or woollen yarn. Therefore, there does not appear to be any reason, whatsoever, to import into the word 'hosiery' or to 'restrict the word 'hosiery' only to such items of hosiery which are manufactured out of cotton yarn either wholly or mainly. The interpretation of hosiery has to be inclusive of hosiery made of woollen yarn and even hosiery made of man-made fibres.
16. This interpretation agrees with the intention of the Legislature expressed and manifested in item 33 where, as pointed out by the learned counsel for the assessee, the Legislature in its legislative wisdom appended the word 'jute' to the words 'twine' and 'rope' after using the word 'textile' in the beginning of the item. This is not so when one comes to item 32. Therefore, I am convinced that the interpretation to be placed on textiles including cotton yarn, hosiery and rope has to be of such amplitude as to include composite unit of hosiery out of woollen goods to entitle it to development rebate at the rate of 25 per cent. This is the case of the assessee and, therefore, it has to be allowed.
17. There is a well settled principle of law now and for this no authority need be cited that for a fiscal statute if there are two reasonable views possible in its construction, the one that favours the subject has to be adopted. If it may be said that with the arguments raised on behalf of thtf revenue, a doubt can be created in the interpretation of item 32 as above, even then the other reasonable view has to be adopted which favours the assessee. On this ground also, the appeal of the assessee on this issue has to be allowed.
18. In the result, the appeal of the revenue is dismissed and that of the assessee is allowed in part.