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Cellulose Products of India Ltd. Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No.160 of 1974
Judge
Reported in[1977]110ITR151(Guj)
ActsIncome Tax Act, 1961 - Sections 84, 84(2) and 84(7); ;Income Tax Act, 1922 - Sections 15C
AppellantCellulose Products of India Ltd.
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate J.M. Thakore, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases Referred(iii). In Rajeswari Mills Ltd. v. Commissioner of Income
Excerpt:
direct taxation - benefit - sections 84, 84 (2) and 84 (7) of income tax act, 1961 and section 15c of income tax act, 1922 - relief under section 84 claimed by assessee for assessment year 1966-67 - section 84 deleted by finance act of 1967 - relief denied on ground that assessment year was not within five years from year in which production started - as per circumstances production of article in industrial undertaking of assessee had commenced in 1962-63 - assessment year falls within five years from years of production - assessee entitled to get benefit of section 84. - - it is obvious on a plain reading of section 84 that the articles which are referred to in clause (iii) of sub-section (2) are the end product or the final product for the manufacture of which the undertaking has.....b.j. divan, c.j. 1. in this case, at the instance of the assessee, the following question has been referred to us for our opinion : 'whether, on the facts and in the circumstances of the case, the tribunal was right in rejecting the assessee's claim for relief under section 84 of the act for the assessment year 1966-67 ?' 2. the assessment year with which we are concerned in this case is 1966-67, the previous year of account being the financial year 1965-66 ending on march 31, 1966. the assessee is a public limited company. it was incorporated on april 14, 1959. the industrial licence was issued to the assessee-company by the central government for the manufacture of sodium carboxy methyl cellulose, hereinafter referred to and also referred to on the record as 'c.m.c. 'on august 19, 1959,.....
Judgment:

B.J. Divan, C.J.

1. In this case, at the instance of the assessee, the following question has been referred to us for our opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee's claim for relief under section 84 of the Act for the assessment year 1966-67 ?'

2. The assessment year with which we are concerned in this case is 1966-67, the previous year of account being the financial year 1965-66 ending on March 31, 1966. The assessee is a public limited company. It was incorporated on April 14, 1959. The industrial licence was issued to the assessee-company by the Central Government for the manufacture of sodium carboxy methyl cellulose, hereinafter referred to and also referred to on the record as 'C.M.C. 'On August 19, 1959, the company issued its prospectus and on October 7, 1959, the assessee-company entered into a collaboration agreement with a Swedish firm for the manufacture of C.M. C. in India. It may be pointed out at this stage that C.M.C. is a cellulose derivative and in the manufacture of this product raw materials which are used are cellulose pulp, caustic soda and sodium salt of monochloracetic acid. On October 21, 1959, the Registrar of Companies issued the commencement certificate to the company. The company had installed what is known as a cellulose plant for the manufacture of cellulose pulp which in its turn was going to be utilised as a raw material for the manufacture of C.M.C. On March 18, 1961, the production of cellulose pulp in the cellulose plant started and on June 15, 1961, the assessee-company started production of C.M.C.

3. For the assessment year 1966-67, the assessee-company originally submitted a return of income disclosing a new taxable income of Rs. 3,32,975. In arriving at this figure an amount of Rs. 4,78,583 was deducted from the total income claiming that amount to be relief under section 84 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). Section 84 subsequently came to be deleted by Finance (No. 2) Act, 1967, and the deletion has been with effect from April 1, 1968. On December 13, 1967, the assessee-company filed a revised return showing therein the total income without deduction of the aforesaid amount of Rs. 4,78,583, but claiming relief in respect of that amount under section 84 of the Act. The Income- tax Officer held that as production of cellulose pulp had started in the month of March, 1961, the assessee had begun to manufacture or produce finished articles or goods. He, therefore, took assessment year 1961-62 as the first year in which the assessee was entitled to relief under section 84 of the Act. Since assessment year 1966-67 was not within five years from the year in which according tot he Income-tax Officer the production of articles or goods had started, he did not grant relief under section 84 to the assessee-company. There were also certain other points on which the decision was given by the Income-tax Officer against the assessee-company. Being aggrieved by the decision of the Income-tax Officer, the assessee went in appeal before the Appellate Assistant Commissioner and so far as the question of relief under section 84 of the Act was concerned, the Appellate Assistant Commissioner confirmed the view taken by the Income-tax Officer. Against the decision of the Appellate Assistant Commissioner the matter was taken in further appeal by the assessee before the Tribunal and the Tribunal after appreciating the evidence on record held that cellulose pulp manufactured by the assessee in the month of March, 1961, was a finished product and that cellulose pulp was a marketable commodity. In view of this conclusion, the Tribunal further held that the assessee-company had begun production or manufacture of finished product which was capable of being sold in the market in the year of account relevant tot he assessment year 1961-62. It, therefore, held that assessment year 1965-66 was the last year in which the assessee was entitled to get relief under section 84 of the Act. Before the Tribunal, on behalf of the assessee-company it was contended in the alternative that the production of cellulose pulp had begun on March 18, 1961, as a trial production and that it was only during assessment year 1962-63 that regular production of cellulose pulp and thereafter of C.M.C. had commenced. As regards the alternative contention, the Tribunal held that there was no evidence to show that the cellulose pulp manufactured in the month of March, 1961, was by way of trial run or by way of trial production. The Tribunal, therefore, rejected the contention that the production of cellulose pulp during the month of March, 1961, was trial production. According to the Tribunal, in the absence of any evidence to the contrary, the only conclusion which could be reached was that cellulose pulp manufactured by the assessee-company during the month of March, 1961, was a finished product which was marketable. The Tribunal distinguished the decision of the Bombay High Court in Commissioner of Income-tax v. Hindustan Antibiotics Ltd. : [1974]93ITR548(Bom) on which reliance was placed on behalf of the assessee-company in the course of the arguments before the Tribunal and, in the light of the conclusions reached by it, the Tribunal held that this decision of the Bombay High Court was of no assistance to the assessee. The Tribunal having held that the relief under section 84 was not available to the assessee-company in the assessment year 1966-67, the question set out hereinabove has been referred to us for our opinion.

4. Section 84 of the Act is in terms a reproduction of section 15C of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act of 1922'). The Bombay High Court in Commissioner of Income-tax v. Hindustan Antibiotics Ltd. : [1974]93ITR548(Bom) was considering the provisions of section 15C of the Act of 1962 which,as we have pointed out, was in identical terms as section 84 of the Act of 1961. It must also be pointed out that though section 84 was repealed with effect from April 1, 1968, by Finance (No. 2) Act, 1967, a new section 80J with minor variations which are of no relevance for the purposes of this judgment and which is in identical terms as section 84 is inserted and thus, in one form or another, provisions similar to section 84 have been on the statute book for a long time and are still on the statute book. At the relevant time, section 84 as it stood on the statute book was in these terms :

'84. Income of newly established industrial undertakings or hotels. - (1) Save as otherwise hereinafter provided, income-tax shall not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking or business of a hotel or from any ship, to which this section applies, as does not exceed six per cent. per annum on the capital employed in such undertaking or business or ship, computed in the prescribed manner.

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely : (i) It is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of a building machinery or plant previously used for any purpose; (iii) it manufactures or produces articles or operates one or more cold storage plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of twenty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking; (iv) in a case the industrial undertaking manufactures or produces articles, it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power :

Provided that the condition in clause (i) shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section :

Provided further that the condition in clause (ii) shall be deemed not to have been contravened if the industrial undertaking is set up in rented premises.......

(7) The provision of this section shall, in relation to an industrial undertaking, apply to the assessment -

(i) for the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or, as the case may be, operate the cold storage plant or plants, and

(ii) where the assessee is a co-operative society, for the six assessment years immediately succeeding, and where the assessee is any other person, for the four assessment years immediately succeeding....'

5. It is in the light of these provisions that we have to consider some of the facts which are on the record of this case.

6. Annexure 'M' in the reference paper-book before us is a statement of working days of cellulose pulp plant and C.M.C. plant of the assessee-company. This statement shows that in the month of March, 1961, for 13 days for two shifts this cellulose pulp plant was worked.In the month of April,1961,the cellulose pulp plant worked for 25 days in both the shifts.In May, 1961, it worked for four days in the first shift and three days in the second shift. In the month of June, 1961, it worked for ten days in the first shift and nine-days in the second shift and it was for the first time in the month of June, 1961, that C.M.C. plant worked for ten days in the first shift. In the month of July, 1961, neither the cellulose pulp plant nor the C. M.C. plant worked at all. In the month of August, 1961, the cellulose pulp plant worked for five days in each of the two shifts and C M.C. plant worked for seven days in the first shift and five days in the second shift. It appears from this statement annexure 'M', that it was only from the month of October, 1961, that regular and consistent production of both cellulose pulp plant and C.M.C. plant started. Annexure 'N' shows that in 1960-61, that being the year of account of the company, the assessee-company had produced 6.220 metric tonnes of cellulose pulp. In 1961-62, the company produced 124.547 m. tonnes of the commodity. In 1962- 63, it produced 124.668 m. tonnes of that commodity. In 1960-61, there were no sales of cellulose pulp but out of the carried forward production of 6.220 m. tonnes of the year 1960-61, and the total production of 124.547 m. tonnes in 1961-62, the assessee sold 16.948 m. tonnes and the average sale price per metric tonne realised by the assessee company was Rs. 1,291 as against the cost of production of Rs. 1,458 for the year 1960-61 and Rs. 2,680 for 1961-62. It appears that in the year 1962-63, also the assessee-company sold a very small quantity, namely, 2.659 per m. tonnes of cellulose pulp, and the average sale price realised was Rs. 1,342 per m. tonne as against the cost of Rs. 3,030 per m. tonne for that particular year of account. In annexure 'N' in the second part the consumption of cellulose pulp by the company itself is shown and it is pointed out in this statement that out of the total quantity of 6.2 m. tonnes produced in 1960-61 and 124.5 m. tonnes of cellulose pulp produced in 1961-62, the assessee-company consumed 105.2 m. tonnes of cellulose pulp in the production of C.M.C. In 1962-63, out of the total quantity of 124.7 m. tonnes of cellulose pulp produced by the company, it consumed 123.8 m. tonnes of cellulose pulp produced by the compay, it consumed 123.8 m.tonnes in the production of C.M.C. and in that year it produced 303.4 m.tonnes of C.M.C. In annexure 'O' to the paper-book the details of the sales of cellulose pulp are shown and this table shows that between April 26, 1961, and May 10, 1961, the assessee-company had sold as much as 14.358 m. tonnes of cellulose pulp. The remaining quantity of 2.6 m. tonnes appears to have been sold partly in the month of October, 1961, and party in March, 1962. When we go back to the statement, annexure 'M' regarding the working days of cellulose pulp of the assessee-company it is obvious that the company had produced most of the pulp which was sold between April, 1961, and May 10, 1961, in the months of March, April and May, 1961. Therefore, there is considerable force, in the light of these figures, in the connection which was sought to be urged on behalf of the assessee-company before the Tribunal that the production of cellulose pulp from March 18, 1961, was only by way of trial run and the regular production had started only in 1962. However, we must point our at this stage that in view of the question which had been referred to us it is not permissible for us to go behind the conclusion of the Tribunal that the production which was started on March 18, 1961, was not a trial production and that that production was the regular production by the assessee-company. Since the question has not been referred to us and since this finding of fact of the Tribunal has not been challenged before us as perverse or based on no evidence or as being contrary to law, it is not open to us in this reference to consider as to what conclusion we would have reached regarding this argument of the production of cellulose pulp from march 18, 1961, being trial production only.

7. It must be emphasized that under section 84 it is profits and gains derived from a new industrial undertaking which are to be taken into consideration and under section 84(2)(iii) one of the four cumulative conditions which would make an industrial undertaking eligible for the relief under section 84 is that it must manufacture or produce articles in any part of India and it must have begun to manufacture or produce articles at any time within the period of twenty-three years commencing from the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify in that behalf. It is obvious on a plain reading of section 84 that the articles which are referred to in clause (iii) of sub-section (2) are the end product or the final product for the manufacture of which the undertaking has been set up and since the same words, namely, 'manufacture or produce articles,' are with a slight variation occurring in section 84(7)(i), the same meaning of the word 'article' should be given to the word in that clause also in view of the well-known principle of interpretation that when the same words are used in the same section of the same statute, as far as possible the same meaning should be given tot he same word in both the places. The words in section 84(7)(i) are 'beings to manufacture or produce articles.' If the qualifying clause (iii) in sub-section (2) 'manufactures or produces articles...... in any part of India' means only manufactures or produces articles which are the final product of the undertaking or the end product of the undertaking, then there is no reason to assign any other meaning to the word 'articles' when section 84(7)(i) speaks of the undertaking beginning to manufacture or produce 'articles.' This is as it appears to us on a plain reading of the section. Therefore, it is necessary for us to examine the materials on record to ascertain as to why was this industrial undertaking set up or what was the article which this particular undertaking was intended to manufacture or produce.

8. The industrial licence issued by the Government of India, Ministry of Commerce and Industry, on July 21, 1969, in so far as it is relevant is in these termsn :

'(4) The new industrial undertaking shall have installed capacity (on three shift operation) for the manufacture of the following as indicated against it.

Sodium Carboxy Methyl Cellulose : 1, 500 tons per annum.'

9. So the industrial licence was for the production of C.M.C 1,500 tonnes per annum on the basis of the plant operating on three shifts. The industrial licence is annexure 'J' in the paper book. Thereafter, the company issued its prospectus and as required by the terms of the industrial licence, the prospectus stated :

'A licence has been obtained from the Central Government for the establishment of this new industrial undertaking at Ahmedabad of which a copy is open to public inspection at the head office of the company. It must be distinctly understood that in granting this licence the Government of India do not take any responsibility for the financial soundness of this undertaking or for the correctness of any of the statements made or opinion expressed in regard to it.'

10. In the prospectus the history behind this new industrial undertaking is set out and it mentions that in India there was no production of C.M.C. and for the few years immediately preceding the date of the prospectus, viz., August 19, 1959, C.M.C. was being imported in progressively greater quantities. This chemical was a versatile chemical and had wide range of application and it was gradually becoming known to industrial in India and its consumption was going up. The promoters of the company after careful survey of the market for C.M.C., supply of raw materials and after study of various other factors such as cost of production, etc., decided to instal and operate a plant for the production of C.M.C. and throughout this history as set out in the prospectus, it was emphasized that the new industrial undertaking was being set up for the production of C.M.C. It may be pointed out at this stage that cellulose pulp plant, if set up independently by itself, required a separate industrial licence but since the assessee-company was setting up a cellulose pulp plant as a part of the overall plant for the production C.M.C. and since the cellulose pulp produced by the company in the cellulose pulp plant was to be utilised in the manufacture of C.M.C. no separate licence for the installation of cellulose pulp plant was applied for nor was a separate licence for the purpose granted by the Government of India. Thereafter, on August 19, 1969, the assessee-company entered into a collaboration agreement with the Swedish company known as Uddeholms Aktiebolag of Sweden and throughout the collaboration agreement the Swedish collaborator is referred to as Uddeholm. It is pointed out in the collaboration agreement that it was for the establishment of the C.M.C. plant according to the best system then known to Uddeholm that this collaboration agreement was being entered into. Under this agreement of collaboration, Uddeholm undertook to instruct one or more of the employees of the assessee-company in the operation of Uddeholm's C.M.C plant in Sweden. Clause 6 of the collaboration agreement is worth noting at this stage and it mentions :

'Uddeholm undertakes to investigate the possibility of using cellulose in form of such cotton linters as are available to CPIL (assessee-company) as raw material for the production of C.M.C. technical grades.' We should mention at this stage that in the memorandum of association of the assessee-company, the objects clause, as it not unusual in such companies, was in very terms and the relevant portion of that clause is as follows : 'To carry on the business of manufacturers of and dealers and importers and exporters in chemical products of any nature and kind whatsoever and particularly of carboxy methyl cellulose, cellulose pulp and other chemical products.' It is undoubtedly true that the objects clause being in very wide terms, it was open to the assessee-company to manufacture cellulose pulp but the industrial licence, the collaboration agreement and the prospectus make it clear that this particular industrial undertaking which was being installed and started by the assessee-company was for the production of C.M.C. Undoubtedly, the company has, as part of its undertaking for the manufacture of C.M.C., a plant which is referred to as cellulose pulp plant but that plant was not independently established nor was it an independent undertaking.

11. In Commissioner of Income-tax v. Hindustan Antibiotics Ltd. : [1974]93ITR548(Bom) , the Bombay High Court was concerned with a problem slightly different from the problem which is before us. In that particular case the assessee-company undertook a project for the manufacture of penicillin. It started actual operation for the manufacture of crude penicillin in December, 1954. The first samples of crude penicillin were required to be sent to U.S.A. and U.K. for obtaining certificates as to their qualities. The certificates were obtained in June, 1955, and the assessee-started regular production of sterile penicillin, the only product that could be sold in the market in August, 1955. On the question as to when the manufacture of sterile penicillin had started and whether the assessee was entitled to the exemption under section 15C of the Act of 1922, for the assessment year 1960-61, on the facts, the Bombay High Court held that the production of articles by the assessee had begun only in August, 1955. According to the Bombay High Court, the benefit of the exemption under section 15C arose to the assessee for the first time in the assessment year 1956-57, and, therefore, it was entitled to the exemption under section 15C for the assessment year 1960-61 also. Kantawala C.J., delivering the judgment of the Bombay High Court, has pointed out at page 552 of the report that the object of section 15C was to encourage establishment of new industrial undertakings. The profits of the industrial undertaking to which this section applied were exempt from tax to the extent of 6 per cent, per annum on the capital employed in the undertaking. Appropriate rules had been made for computing the capital employed. Relief under that section was available for the first five years after production commenced. Then he observed (See [1974} 93 ITR 548) :

12. The question that arise for consideration in this case depends upon the correct interpretation of the expression 'has begun or begins to manufacture or produce articles 'used in section 15c(2)(ii)' and he furher observed at page 553 :

'The word 'articles' used in this expression has to be interpreted regard being had to the object with which this section was enacted. Undoubtedly, the object was to encourage establishment of new industrial undertakings and such object was sought to be achieved by granting an exemption from tax to the extent of 6 per cent. per annum on the capital employed in the undertaking in the manner prescribed. If the object is to give exemption from tax, that presupposes that the real object is that the profits are capable of being earned by the company. If such be the object, then until the assessee-company reaches a stage where it is in a position to decide that a final product, which could ultimately be sold in the market, could be manufactured or produced by it, it will be idle formality to say that it had started manufacture or production of articles simply because trial products are prepared with a view to verify whether they can be ultimately used in the preparation or manufacture of the final products.' He further observed at page 554 : 'In our view, if regard be had to be object with which the section was enacted, then the word 'articles' in section 15C(2)(ii) can only be interpreted to mean articles which are definitely capable of being used by the assessee-company for manufacture or production of finished things which are to be ultimately sold by the company.'

13. It is thus clear that according to this decision of the Bombay High Court, 'articles' used in section 15C(2)(ii) of the Act of 1922, which was equivalent to section 84(2)(iii) of the Act of 1961, referred to intermediate products which were to be used by the producer for the manufacture or production of finished goods which are ultimately to be sold. It may be pointed out that on the facts before the Bombay High Court in that particular case, the only question was whether the trial production of crude penicillin which was not a marketable commodity and which was not even tested and in respect of which the report of test was not received till June, 1955, could be said to have been produced or manufactured 'articles' in December, 1954. As pointed out above, it was only sterile penicillin which was the saleable product in the market and in order to produce sterile penicillin, the tests of crude penicillin were required to be carried out to ascertain whether that crude penicillin could be properly utilised for the production of sterile penicillin. It was while dealing with these facts that the Bombay High Court has interpreted the word 'articles' and also has interpreted the expression 'has begun or begins to manufacture or produce articles.' With respect, we are unable to agree entirely with these conclusions of the Bombay High Court. When we turn to section 84(2)(iii), the industrial undertaking must manufacture or produce articles in India and if that is the qualifying condition for the eligibility for the relief under section 84, then it must have reference to manufacture or production of the final product of the undertaking and not merely any intermediate product. In our opinion, it must be the manufacture or production of articles by the industrial undertaking in India which is the crucial question and looking to the object with which section 84 was brought on the statute book, and prior to the Act of 1961, section 15C was brought on the statute book, was to encourage establishment of new industrial undertakings in India, mere establishment of a new industrial undertaking was not enough. It must start manufacture or production of articles in India and it can only enjoy the relief when those articles or products are being sold in the market and start bringing in profit to the particular assessee who has established that particular industrial undertaking. Therefore, with respect to the learned judges of the Bombay High Court, we are unable to agree with their conclusions that the word 'articles' occurring in section 15C(2)(ii) of the Act of 1922, equivalent to section 84(2)(iii) of the Act of 1961, refers to any intermediate product. In our opinion, regarding the scheme of section 84 as a whole in the light of the object with which the legislature enacted this section, it is obvious that what we have to consider is only the production of the final product or article for the production or manufacture of which the particular industrial undertaking was set up. It is possible that a particular industrial undertaking like the undertaking in the present case is capable of manufacturing an intermediate product which is a marketable commodity. But this particular industrial undertaking before us, on the facts that we have examined in the earlier part of this judgment, was not set up to manufacture that intermediate product, namely, cellulose pulp. Cellulose pulp as found by the Tribunal is a marketable commodity but this particular undertaking was not set up to manufacture or produce cellulose pulp. The industrial undertaking was set up to produce C.M.C. and as a part of that undertaking, cellulose pulp plant was installed so that the cellulose pulp produced by that plant could be utilised by the assessee-company in the manufacture of C.M.C. which is the final product for the production or manufacture of which this industrial undertaking has been set up. We must utter a caution here. It is possible that on the facts of a particular case is may transpire that the particular undertaking was being established by a phased programme so that at the end of each phase of installation or construction or setting up of the undertaking, a different saleable marketable commodity is produced. In that eventuality, in such facts, it will be the article of each particular phase which will be the production of that particular undertaking. It is also possible as was the case in Anil Starch Products Ltd. v. Commissioner of Income-tax : [1966]59ITR514(Guj) that a producer who is already producing one marketable commodity instals a new undertaking for the production of another material from the raw material which is already produced. Anil Starch Products Ltd., the company, was formed originally for the manufacture and sale of industrial starch. It subsequently set up another plant for producing dextrose, a pharmaceutical product, of which starch was a raw material. In that eventuality it could be said that the undertaking for the production of dextrose was the new industrial undertaking to which relief under section 84 could be given. Again, to give an illustration of the phased programme of a particular undertaking, we may give the instance of Commissioner of Income-tax v. Tata Locomotive & Engineering Co. : [1968]68ITR325(Bom) . The assessee-company which was carrying on business of manufacture of locomotives and other engineering products had undertaken a realistic manufacturing scheme comprising a purely assembly stage followed by four progressive stages of manufacture, each of one year duration. The company had envisaged four gradual stages of the manufacturing process which they proposed to adopt during the period of four years and the question was whether the production could have been started in the very first year of that phased programme. It was held that the assembling of the imported parts into a finished chassis amount to the manufacture or production of an article within the meaning of section 15C(2)(ii) of the Act of 1922. Therefore, it will depend upon the facts of each case whether the particular industrial undertaking which is under consideration has a phased programme or not and if there was any phased programme of production, what was the particular article for the manufacture of which the industrial undertaking was set up and it is only in the assessment year during which the production or manufacture of that particular article has begun that will be counted as the first year for the purpose of granting relief under section 84. In our opinion, no other possible meaning can be attached to the words 'begins to manufacture or produce articles' occurring in section 84(7)(i) when read in the light of the words 'industrial undertaking which is to manufacture or produce articles' in section 84(2)(iii). In Rajeswari Mills Ltd. v. Commissioner of Income-tax [1963] 50 ITR 29 the Madras High Court has pointed out that where a company sets up different industrial undertakings, section 15C of the Act of 1922 applied to each undertaking independently of the other. The fact that the textile industry takes in both weaving and spinning does not make the two activities the same undertaking in all cases. It also held that the fact that the company was formed with the object of setting up both items of business did not necessarily lead to the conclusion that the subsequent setting up of the spinning mill was the same undertaking as that which was started in 1949, with the setting up of the weaving section which was said to be earlier in point of time. Therefore, it will all depend upon the facts of each case as to what is the particular industrial undertaking which is under consideration and, secondly, whether the industrial undertaking was set up with the phased programme of production or whether it was one overall process of production which was in contemplation and, in the second eventuality, which is of the type with which we are concerned in the present case, the fact that an intermediate product which is a saleable commodity in the market, emerges, does not mean that the industrial undertaking has begun to produce or manufacture 'articles.' Undoubtedly, the word 'articles' is an ordinary word employed by the legislature but in the context in which it is used and looking to the object with which this piece of legislation was enacted, it is obvious that it can only refer to the end product of the industrial undertaking as a whole when there is no phased programme of installation and construction.

14. In view of these conclusions it must necessarily follow that the mere fact that the company started the production of cellulose pulp which was an intermediate product in its cellulose pulp project on March 18, 1961, does not mean that the company had begun to produce or manufacture 'articles' in the assessment year 1961-62. It was only from June 15, 1961, when production of C.M.C. was started by this industrial undertaking that it can be said that this particular industrial undertaking of the assessee-company had begun to manufacture or produce articles and that event took place in the assessment year 1962-63. That being the case, in the year of assessment 1966-67, relief under section 84 was clearly available to the assessee-company.

15. In view of this conclusion we answer the question referred to us in the negative, that is, in favour of the assessee and against the revenue. The revenue will pay the costs of this reference to the assessee.


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