Skip to content


Commissioner of Income-tax, Gujarat-iii Vs. Prakash Trading Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 70 of 1975
Judge
Reported in[1980]124ITR334(Guj)
ActsFinance Act, 1966 - Sections 2(5); Finance (Amendment) Act, 1967 - Sections 2(4); Industries (Development and Regulation) Act, 1951; Income Tax Act, 1961 - Sections 261
AppellantCommissioner of Income-tax, Gujarat-iii
RespondentPrakash Trading Co.
Appellant Advocate G.N. Desai, Adv.
Respondent Advocate K.C. Patel, Adv.
Excerpt:
.....clause (a) (ii) and section 2 (5) (c) emphasis on specified industry - if exemption taken away by clause (c) in respect of specified industry then claim of assessee fails - exemption not allowed - deletion of exemption not in general interest of exporters - question to be decided by supreme court in interest of general public. - - 2(5)(a)(ii) and (iii) as well as s. the tribunal was, therefore, clearly in error in constructing sub-cls. it is in the context of the scheme of this section as well as in view of the rival contentions that we have to answer the questions referred to us. (ii) and (iii) of clause (a) as well as in clause (c) of s. (ii) and (iii) of clause (a) and particularly of clause (c), we are of the opinion that the contentions urged on behalf of the revenue are well..........the ito rejected the claim made by the assessee holding that on a plain reading of the relevant exemption clause and s. 2(5)(c) or s. 2(4)(c), as the case may be, of the respective finance acts, it was clear that the industry engaged in the manufacturer or production of vegetable oils and vanaspathi was not entitled to exemption. the assessee's claim for exports in the course of the accounting year corresponding to the assessment year 1967-68 was also rejected for identical reasons. the assessee-firm, therefore, carried the matter in appeal in appeal before the aac, who by his common order of december 8, 1977, accepted the claim made by the assessee for both the assessment years and accordingly directed the ito to grant deduction as claimed by the assessee. the revenue, therefore,.....
Judgment:

B.K. Mehta, J.

1. The assessment years under reference are 1966-67 and 1967-68, corresponding to previous years being S.Y. 2021 ending on October 24, 1965, and S.Y. 2022 ending on November 12, 1965, respectively. The assessee is a registered partnership firm carrying on business as general merchants and commission agents in Jamnagar and also manufactures of groundnut oil at Veraval. The assessee-firm has got a solvent extraction plant at Veraval. It exported or sold to exporters de-oiled cakes of the value of Rs. 48,92,902, during the year of account relevant to assessment year 1966-67. The assessee-firm claimed deduction from income-tax in respect of such exports or sales to the exporters under s. 2(5)(a)(ii) and (iii) of the Finance Act, 1966. Similarly, during the year of account relevant to the assessment year 1967-68, the assessee-firm exported or sold to exporters de-oiled cakes of the value of Rs. 24,13,040, and claimed deduction from income-tax in respect of such exports or sales to exporters under s. 2(4)(a)(ii) and (iii) of the Finance (No. 2) Act, 1967. It should be noted that the aforesaid two provisions of the respective Finance Acts are in pari materia. The ITO rejected the claim made by the assessee holding that on a plain reading of the relevant exemption clause and s. 2(5)(c) or s. 2(4)(c), as the case may be, of the respective Finance Acts, it was clear that the industry engaged in the manufacturer or production of vegetable oils and vanaspathi was not entitled to exemption. The assessee's claim for exports in the course of the accounting year corresponding to the assessment year 1967-68 was also rejected for identical reasons. The assessee-firm, therefore, carried the matter in appeal in appeal before the AAC, who by his common order of December 8, 1977, accepted the claim made by the assessee for both the assessment years and accordingly directed the ITO to grant deduction as claimed by the assessee. The revenue, therefore, preferred appeal before the Appellate Tribunal. The Appellate Tribunal, following the decision of the Bombay Bench of the Tribunal in the case of Oudh Sugar 'Mills Ltd., v. ITO (Income-tax Appeal No. 2006 of 1968-69) and in the case of ITO v. Late Shri Hemumal Alimchand (Income-tax Appeals Nos. 3672 and 3673 of 1971-72), confirmed the order of the Appellate Assistant Commissioner. At the instance of the revenue, the following two questions of law are, therefore, referred to us for our opinion :

'(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim deduction from tax in respect of de-oiled cakes exported or sold to exporters by it under section 2(5)(a)(ii) and (iii) and section 2(5)(c) of the Finance Act, 1966, read with item No. 28 of the First Schedule to the Industries (Development and Regulation) Act, 1951, for the assessment year 1966-67

(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim deduction from income-tax in respect of de-oiled cakes exported or sold to exporters by it under section 2(4)(a)(ii) and (iii) and section 2(4)(c) of the Finance Act, 1967, read with item No. 28 of the First Schedule to the Industries (Development and Regulation) Act, 1951, for the assessment year 1967-68 ?'

2. A neat question of law which arises before us is whether the assessee-firm which is carrying on the industry of manufacturing vegetable oil is entitled to claim exemption as prescribed under s. 2(5)(a)(ii) and (iii) on the turnover of its exports or sales to the exporters of de-oiled cakes. It cannot be disputed that de-oiled cake is a by-product in solvent extraction industry. In order to answer the questions referred to us, we will set out the relevant part of the section which are material for purposes of this reference. We read s. 2(5)(a)(ii) and (iii) as well as s. 2(5)(c) of the Finance Act, 1966, as under :

'2(5)(a). In respect of any assessment for the assessment year commencing on the April 1, 1966, in the case of an assessee being a domestic company or an assessee other that a company, -... (ii) where he is engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (LXV of 1951), and has, during the previous year, exported such articles out of India, he shall be entitled, in addition to the deduction of income-tax referred to in sun-clause (i), to a further deduction, from the amount of income-tax with which he is chargeable for the assessment year, of an amount equal to the income-tax calculated at the average rate on income-tax on an amount equal to two per cent. of the sale proceeds receivable by him in respect of such export....

(iii) where he is engaged in the manufacturer of any articles in an industry specified in the said First Schedule and has, during the previous year, sold such articles to any other person in India who himself has exported them out of India, 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 with which he is chargeable for the assessment year, of an amount equal to the income-tax calculated at the average rate of income-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) or sub-clause (iii) of clause (a) shall apply in relation to -

(1) fuels,

(2) fertilisers,

(3) photographic raw film and paper,

(4) textiles (including those dyed, printed or otherwise processed)made wholly or in part of jute, including jute twine and rope,

(5) newsprint,

(6) pulp-wood pulp, mechanical, chemical, including dissolvingpulp,

(7) sugar,

(8) vegetable oils and vanaspathi,

(9) cement and gypsum products,

(10) arms and ammunition, and

(11) cigarettes,

respectively, specified in items 2, 18, 20, 23(2), 24(2), 24(5), 25, 28, 35, 37 and 38 of the Industries (Development and Regulation) Act, 1951 (LXV of 1951).'

3. It has been contended on behalf of the revenue that sub-cls. (ii) and (iii) provided for exemption while clause (c) specifies as to which industries and articles are not entitled to exemption. On a plain reading of clause (c), in the submission of the learned Government pleader for the revenue, vegetable oils and vanaspathi industries are not entitled to exemption provided in sub-cls. (ii) and (iii) for export of any articles manufactured in the said industries. The Tribunal was, therefore, clearly in error in constructing sub-cls. (ii) and (iii) of clause (a) and clause (c) of s. 2(5) of the Finance Act, 1966. On the other hand, it has been urged on behalf of the assessee that sub-cls. (ii) and (iii) give exemption to any of the articles manufactured by the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, and similarly, clause (c) takes away exemption in respect of the specifies articles only. If clause (c), which is in the nature of exception to the exemption clause, it is so argued on behalf of the assessee, does not preclude in terms the articles from the exemption granted under sub-cls. (ii) and (iii), and which is the position here in the present case it must be held that the Tribunal was completely justifies in holding that the assessee-firm was entitled to claim exemption on its exports or sales to the exporters of the de-oiled cakes. In any case, it was submitted on behalf of the assessee, if on the interpretation of clause (c) of s. 2(5) of the Finance Act, 1966, the court entertains doubt, and it there is a reasonable possibility of two views on the interpretations of clause (c) which is the nature of an exception to the exemption of clause which is in the nature of an exception to the exemption clause, the court must resolve that doubt in favour of the assessee. It is in the context of the scheme of this section as well as in view of the rival contentions that we have to answer the questions referred to us.

4. In our opinion, the contentions if the revenue must prevail obviously for the following reasons : We must admit at the outset that the legislative intent is not happily brought out in sub-cls. (ii) and (iii) of clause (a) as well as in clause (c) of s. 2(5) of the Finance Act, 1966. However, on reading the relevant sub-cls. (ii) and (iii) of clause (a) and particularly of clause (c), we are of the opinion that the contentions urged on behalf of the revenue are well founded. Sub-clauses (ii) and (iii) of clause (a) provided for the exemption. The exemption is granted not to all the industries but to those industries which are specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. It is no doubt true that the concession under the said sub-clause is in respect of any of the articles manufactured by the qualified industries. If we look to the First Schedule to the Industries (Development and Regulation) Act, 1951, we find that the said Schedule specified different industries which are sought to be regulated by the said Act. The specified industries are again sub-divided in the said Schedule. As for example, fuel industry is sub-divided into coal, lignite, coke and their derivatives, mineral oil (crude Oil) and fuel gases. Metallurgical Industries are divided into ferrous and non-ferrous and they are further sub-divided accordingly. The items in the First Schedule, therefore, specify industries broadly. The sub-items in the Schedule sub-divide the broad heads of industries. Sub-clauses (ii) and (iii) of clause (a) of s. 2(5) of the Finance Act, 1966, therefore, extend the concession to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, in respect of any articles manufactured in the said industries provided such articles are exported or sold to the first exporters. Clause (c) of s. 2(5), however, attempts to take away this concession or exemption extended by sub-cls. (ii) and (iii) of cl (a). It is no doubt true that the structure of clause (c) is not consistent since, in the very nature of it, the Legislature was trying to exclude certain industries wholly or certain articles only from the concession which it extended in sub-cls. (ii) and (iii) of s. 2(5)(a) to the specified industries. All the terms in clause (c) except items Nos. (5) and (11) refer to the broad heads of industries as specified in the Schedule. The other two items in clause (c), however, refer to the particular parts of industries specified in the sub-items in Sch. I to the industries (Development and Regulation) Act, 1951. On behalf of the assessee, therefore, it was sought to be argued that sub-cls. (ii) and (iii) of clause s. 2(5) of the Finance Act, 1966, extended concession to any articles manufactured by the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, and similarly clause (c) of s. 2(5) also withdraws this concession in respect of the articles specifically mentioned therein. Now, this contention, though it appears to be attractive, does not stand scrutiny, if we look closely to sub-cls. (ii) and (iii) of clause (a) of s. 2(5) of the Finance Act, 1966, and clause (c) of s. 2(5) thereof. As stated above, sub-cls. (ii) and (iii) extend concession to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. Schedule I, it should be recalled, specifies broadly in the items the heads of industries. The sub-items of the said Schedule sub-divide those broad heads of industries having regard to the articles or the commodities that may be manufactured by these industries. Sub-clauses (ii) and (iii), therefore, extend concession to the specified industries, no doubt, with reference to the articles manufactured by such industries. It is no doubt true that item No. 5 or for that matter item No. 11 of clause (c) of s. 2(5) excludes newsprint and cigarettes from the purview of the concession extended under sub-cls. (ii) and (iii) and these two items are not referable to the broad heads of the industries specified in the First Schedule, because newsprint is a part of paper industry while cigarettes are part of miscellaneous industries. To that extent, it may be possible to argue that clause (c) takes away the concession in respect of the articles though we do not intend to express our final opinion on this point because that is not the subject-matter of the questions directly arising before us. It is only for purposes of construction of clause (c) that we are examining this position and even if we agree with the learned advocate for the assessee, it does not follow that in respect of other items mentioned in clause (c) the reference is to the articles and not to the industries. If we compare the broad heads of the industries mentioned in the First Schedule with the heads mentioned in clause (c) we find that all the items except items (5) and (11) refer to the board heads of industries. In the present case, we are concerned with an industry of vegetable oil. It is an admitted position that the assessee is a manufacturer of vegetable oil and for that purpose has got a solvent extraction plant also. It is exporting de-oiled cake which is a by-product in the solvent extraction industry. It is, therefore, claiming exemption under sub-cls. (ii) and (iii), because the industry of vegetable oil is an industry sub-cls. specified in the First Schedule and since it is manufacturing de-oiled cake which has been exported it is entitled to exemption. However, if we look to clause (c), item 8, the exemption in respect of the entire industry of vegetable oil and vanaspathi which is specified in item No. 28 of the First Schedule to the Industries (Development and Regulation) Act, 1951, is taken away. On a plain reading of sub-cls. (ii) and (iii) of clause (a) read with clause (c) of s. 2(5) we are the opinion that the emphasis is on the specified industries and, therefore, if the exemption is taken away by clause (c) in respect of the specified industries, the claim of the assessee to the concession must fail.

5. In the result, therefore, this reference is allowed and we answer both the questions referred to us in the negative, that is, against the assessee and in favour of the revenue. The assessee shall pay the costs of this reference to the Commissioner of Income-tax.

6. Mr. Patel on behalf of the respondent-assessee prays for a certificate under s. 261 of the I.T. Act, 1961, to appeal to the Supreme Court of India as this is a question of general public importance inasmuch as it affects the interest of a large number of exporters seeking to export do-oiled cakes in view of the concession appeared to have been extended under sub-cls. (ii) and (iii) of s. 2(5)(a) and which is now negatived by this judgment. In view of the fact that the question is a substantial question of law since it involves the construction of sun-cls. (ii) and (iii) of c. (a), and clause (c) of s. 2(5) of the Finance Act, 1966, and also because it is a question of general public importance inasmuch as it affects a large number of exporters who must have exported de-oiled cakes on the supposition of their entitlement to the concession under sub-cls. (ii) and (iii) of clause (a) of s. 2(5) of the Finance Act, 1966, and since there is no authoritative pronouncement we are of the opinion that this is a question which is fit to be decided by the Supreme Court, we accept the oral application of Mr. Patel and grant certificate that this matter is a fit one for appeal to the Supreme Court. Certificate is accordingly granted.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //