MESSRS NATIONAL FOOD VS THE COMMISSIONER OF INCOME-TAX

1991 P T D 850

[Karachi High Court]

Before Mamoon Kazi and Salahuddin Mirza, JJ

Messrs NATIONAL FOOD

Versus

THE COMMISSIONER OF INCOME-TAX

I.T.R. No.34 of 1983, acceded on 22nd April, 1991.

(a) Income-tax Act (XI of 1922)------

----Ss. 35 & 23(3)---Finance Act (XL of 1974), First Sched., Part II 4(iv)-- Rectification of mistake---Scope of rectification under S. 35---Claim of rebate of 10% by assessee in respect of super-tax as per cl. 4(iv) of Part II of the First Sched. of Finance Act, 1970---Income Tax Officer allowed rebate to the assessee' as claimed by it holding that the assessee was deriving income from processing, preserving and canning of food and consequently it was entitled to the benefit of the said provision in the Finance Act, 1974---Successor Income Tax Officer of the first Income-tax Officer found that the order passed by his predecessor required rectification as spices could not be termed as food as contemplated in the provision of the Finance Act, 1974, hence, after issuing a show-cause notice to assessee under S. 35 of the Income Tax Act, 1922, he withdrew the rebate which was originally allowed by his predecessor---Held, order subsequently passed by the successor Income Tax Officer could not be validly passed as rebate had been clearly granted by the Income Tax Officer who originally dealt with the case on the ground that processing of spices fell within the purview of the Finance Act, 1974 allowing 10% rebate on income derived from processing etc. of food, vegetable etc. and processing of spices was held to be the same as processing of food or vegetables etc. and this interpretation was not accepted by successor of the Income Tax Officer who was of the view that spices could not be bracketed with. food or vegetables---Such an exercise amounted to clear revision of the earlier order passed by this predecessor because the Income Tax Officer who subsequenlty dealt with the case arrived at his conclusions by a different interpretation by application of the process of reasoning and argument---Original order passed by the I.T.O. could not be result of an apparent mistake but the same was based on the opinion of the said I.T.O. who found that "spices" were the same as "food" or vegetables---Income Tax Officer, who later dealt with the case thus could not invoke the provisions of S. 35, Income Tax Act, 1922 and- recall earlier order passed by his predecessor.

Harbans Lal Malhotra & Sons Private Ltd. v. Income-tax. Officer (1972) 83 I T R 848; Aloo Investment Co., (Pvt.) Ltd. v. Union- of India and another (1973) 90 ITR 64; Commissioner of Income-tax, West Bengal II v. Rajnaga Tea Company Ltd. (1973) 87 ITR 669; National Rayon Corporation Ltd. v. G. R. Bahmani, Income-tax Officer (1965) 56 ITR 114; K. Parameswaran Pillai v. Additional Income-tax Officer, Quilon (1955) 28 ITR 885; T.S. Balaram, Income tax Officer v. Volkart Brothers (1971) 82 ITR 50; M. Subbaraja Mudaliar v. Commissioner of Income-tax, Madras (1958) 33 ITR 228; Additional Commissioner of Income-tax, A.P. v. P.R.N.S. & Co. (1978) 37 Tax 45; Helal Jute Press Limited v. Commissioner of Income-tax, Dacca Zone, (1970) 22 Tax 157 and Pakistan River Steamers Ltd. v. Commissioner of Income-tax, Dacca Zone (1971) 23 Tax 236 ref.

Sh. Muhammad Iftikharul Haq v. Income-tax Officer, Bahawalpur P L D 1966 SC 524 distinguished.

(b) Finance Act (XL of 1974)---

----First Sched., Part II, cl.4(iv)---Spices---Food---Meaning---Spices being vegetable substances and used as ingredients in the preparation of food, are covered by the definition of "food" or "vegetable"---Canning of spices therefore could not be excluded from the purview of First Sched., Part II, cl. 4(iv) of the Finance Act, 1974.

Harver's World Encyclopedia, Vol. 20, p. 3686; Oxford Dictionary and Butterworth's Words and Phrases Legally Defined, Vol.II ref.

(c) Interpretation of statutes---

---- When the statute is beneficial its provisions cannot be interpreted in a mamour so as to bring about a result contrary to the object of the legislation-- Interpretation likely to advance the remedy and suppress the mischief must be adopted in case of statutes which confer benefit on individuals or any class of persons---Court can always extend the language of the law to give effect to the legislative intent or to extend the benefit of the law to cases which were not intentionally excluded from the purview of any beneficial provision in an enactment---Any rigid interpretation in cases which were not intentionally omitted from the enactment may destroy the object which was intended to be achieved by the enactment.

Bindra's Interpretation of Statutes, 7th Edn., p. 593 ref.

Mazhar Jafri for Applicant.

Sheikh Haider for Respondent.

Dates of hearing: 18th and 19th March, 1991.

JUDGMENT

MAMOON KAZI, J.---The applicant is engaged in processing, packing and sale of spices. The applicant claimed a rebate of 10% in respect of assessment for the years 1974-75 and 1975-76 of super-tax as per clause 4(iv) of Part II of the First Schedule of the Finance Act; 1974 which provided as follows:--

"(iv) A rebate of 10% to such company in respect of its income, profits and gains to which subsection (9) of section 10 of the Income Tax Act, 1922 (X of 1922) applies or which are derived by it in Pakistan from processing, freezing, preserving and canning of food, vegetables, fruits, grains, meat, fish and poultry."

The Income Tax Officer allowed rebate to the applicant as claimed by it, holding that the applicant was deriving income from processing, preserving and canning of food and consequently, it was entitled to the benefit of the said provision in the Finance Act. However subsequently, I.T.O. who was the successor of the first I.T.O. found that the order passed by his predecessor required rectification as spices could not be termed as food as contemplated in the aforesaid provision of the Finance Act. Hence, after issuing a show-cause notice to the applicant under section 35 of the repealed Income-tax Act of 1922, the Income-tax Officer withdrew the rebate, which was originally allowed by his predecessor.

2. The applicant then preferred an appeal before the Appellate Assistant Commissioner of Income Tax, challenging the validity of the order passed by the income-tax Officer under section 35 of the repealed Act but the learned Assistant Commissioner held that the mistake committed by the Income-tax Officer was apparent and was simple and in the nature of a clerical error which had been properly rectified by him while exercising power under section 35 of the said Act. The appeal filed by the applicant against the said order before the learned Appellate Tribunal was also dismissed and the order passed by the Income-tax officer was upheld. The learned Tribunal also rejected the applicant's alternate plea, viz., that the processing of spices was the same thing as processing of food or vegetables. In this regard the Tribunal held as follows:--

"In the background of the above principles, spices processed by the appellant cannot be considered as processing of vegetables because in most popular sense vegetables are used as food; whereas the spices, although they have a vegetable origin, cannot be considered as vegetable consumed as food. Spices can only be used as condiment and never as food itself. In this view of the matter, the learned counsel of the appellant fails on this ground as well. We accordingly sustain the orders of the departmental officers below in respect of assessment years 1974-75 and 1975-76."

3. Being dissatisfied with the learned Tribunal's decision the applicant requested it to refer the questions of law arising from the aforesaid circumstances of the case under section 136(1) of the Income Tax Ordinance, 1979 to this Court. Consequently, the following questions have been referred by the learned Tribunal for our opinion:--

"(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Income Tax Officer passed under section 23(3)/35 of the repealed Income Tax Act as valid in law?

(2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the processing of spices (`masalahjaat) could be considered as processing of goods, vegetable as contemplated in clause 4(iv) of Part II of the First Schedule of the Finance Act, 1974?"

4. So far as the first question is concerned, Mr. Mazhar Jafri, learned counsel for the applicant has argued that rebate was originally allowed by the Income-Tax Officer after applying his mind to the facts of the case and consequently section 35 of the repealed Act could not be invoked by his successor as it tantamounted to revising the orders of his predecessor for which the I.T.O. was not competent. Section 35 of the repealed Income Tax Act reads as follows:--

35.--(l) "The Commissioner or Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or in revision, as the case may be, and the Income-tax Officer may, at any time within the four years from the date of any assessment order or refund order passed by hire, on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee:

Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard: "

The question as to the scope of section 35 arose in the case of Harbans Lal Malhotra & Sons Private Ltd. v. Income-tax Officer (1972) 83 I T R 848. In this case the mistake proposed to be rectified depended on the question whether the machinery used for production of safety razor blades could be said to be a part of "Iron and Steel Industry". It was held that determination of the question first required an investigation of facts as well as interpretation of law, consequently it could not be said that an obvious and apparent mistake which was self-evident and did not require either a process of argument or investigation. Consequently, proceedings initiated against the assessee were held to be invalid. In another case reported as Aloo Investment Co. (Pvt.) Ltd. v. Union of India and another (1973) 90 ITR 64 the Income-tax Officer held the assessee to be liable for payment of super-tax of 37% on the undistributed balance in his hands. Subsequently, a different Income-tax Officer rectified the order while purporting to act under section 35 of the Indian Income Tax Act, 1922 and it was held by him that the assessee was liable to pay super tax of 50% instead of 30% as according to him the investment of the assessee in shares, house property, loan and advances anal deposits exceeded 50% of its total assets. The assessee riled a writ petition challenging the order of rectification. It was held that the later Income tax Officer negatived the findings of the earlier officer and that the loans, advances and call deposits made by the petitioner-Company were not evidence of any business of dealing in or holding of investment and that the mistake of law if any, in making the first order imposing super-tax at the rate of 35% o was not liable to be corrected under section 35 of the Act and in purporting to act under section 35, the later Income-tax Officer had acted as if he had appellate jurisdiction. The ambit of the income-tax Officer's authority under section 35 of the repealed Act was once again examined by the High Court of Calcutta in Commissioner of Income-tax, West Bengal II v. Rajnaga Tea Company Ltd. (1973) 87 I T R 669. It was held that "a mistake apparent from the record" may be a mistake of law or fact but it must be a clearly apparent or self-evident mistake. If the discovery of a mistake calls for elaborate investigation either as to the legal position or the facts involved, it would not be a mistake apparent from the record. It was further held that in a case where two views are possible, you cannot take one of those views and proceed to rectify a so-called mistake on the basis of that view and that would not be rectifying a mistake apparent from the record. Similar views were expressed by the High Courts of Bombay and Tranvancore Cochin in the case of National Rayon Corporation Ltd. v. G.R. Bahmani, Income-tax Officer (1965) 56 ITR 114 and K. Parameswaran Pillai v. Additional Income-tax Officer, Quilon (1955) 28 ITR 885 respectively. In the case of T.S. Balaram, Income-tax Officer v. Volkart Brothers (1971) 82 ITR 50 the Supreme Court of India while once again examining the provisions of section 35 of the Income Tax Act, 1922 corresponding to the provisions of section 154 of the Indian Income-Tax Act, 1961 held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. A decision on a debatable point of law is not a mistake apparent from the record. Similarly, in M. Subbaraja Mudaliar v. Commissioner of Income-tax, Madras (1958) 33 I T R 228 it was held by the High Court of Madras that although a mistake capable of being rectified under section 35 may not be found to be a clerical or arithmetical mistake, but on the other hand, section 35 does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof. Similar views were once again expressed in Additional Commissioner of Income Tax, A.P. v. P.R.N.S. & Co. (1978) 37 Tax 45. Reference may also be made to the case of Helal Jute Press Limited v. Commissioner of Income-tax, Dacca Zone, (1970) 22 Tax 157 as in this case also, a rectification requiring more than elucidation and resulting in setting aside of the original finding was held to be not permissible under section 35 of the repealed Income-Tax Act of 1922. It was observed by the Court:--

"It has been already found in the present case that the alleged rectification of mistake will require more than elucidation, of argument or debate as the rectification cannot be done without setting aside the finding confined up to appellate stage that Jute Baling and Jute Trading Businesses of the petitioner are distinct and separate businesses. Reversing of this finding will amount to not only reviewing the case but a de novo assessment of the whole case. This is beyond the scope of the provision of section 35 of the Act. The Income-Tax Officer to whom the application under section '35 was made and the Income-tax Commissioner before whom the revision was filed were justified in rejecting the contention cf the petitioner." '

In this case reference was also made by the Dacca High Court to the case of Sh. Muhammad Iftikharul Haq v. Income-tax Officer, Bahawalpur P L D 1966 SC 524 wherein Cornelius, C.J. approving the action of the Income-tax Officer, held:-

There had been an oversight in respect of the imposition of the super-tax for which no enquiry regarding income, profits etc. is necessary beyond that which is requisite for the imposition of income-tax. That process had been gone through in the case of this firm and in order to assess super-tax on ascertainment of income, a simple mathematics,; formula had to be applied, which cannot fall within the meaning of ascertainment of facts. An oversight is clearly a mistake of inadvertence and as such a mistake within the meaning of section 35 aforesaid."

However, as is evident from the above observations, the facts of the case were clearly distinguishable. In another case reported as Pakistan River Steamers Ltd. v. Commissioner of Income Tax, Dacca Zone (1971) 23 Tax 236, also decided by the Dacca High Court, although the order of the Income-tax Officer passed under section 35 of the Income-tax Act, 1922 was upheld but it was further observed that the mistake must be obvious and patent from the record and an error which is not obvious or patent and can only be discovered as a result of an argument cannot be an error apparent from the record.

5. Reference to these cases clearly indicates that the order subsequently passed by the I.T.O. and upheld by the learned Assistant Commissioner of Income-tax and then by the learned Income-tax Appellate Tribunal could not validly be passed as rebate had been clearly granted by the I.T.O. who originally dealt with the case on the ground that processing of spices fell within the purview of the said provision introduced in the Finance Act, 1974 allowing 10% rebate on income derived from processing, etc. of food, vegetable, etc. In other words, processing of spices was held to be the same as processing of food or vegetables, etc. This interpretation was not accepted by the successor of the I.T.O. who was clearly of the view that spices could not be bracketed with "Food" or "Vegetable". This, in our opinion, amounted to clear revision of the earlier order because the I.T.O. who subsequenlty dealt with the case arrived at his conclusions by a different interpretation by application of the process of reasoning and argument. The original order passed by the I: T.O. cannot be the result of an apparent mistake but the same was based on the opinion of the said I.T.O. who found that spices were the same as "Food" or "Vegetable". Consequently, we are unable to hold that the I.T.O. who later dealt with the case could invoke the provisions of section 35 of the repealed Act and recall the order earlier passed by his predecessor. We are, consequently, of the view that the learned Appellate Tribunal was not justified in upholding the order of the Income-tax officer passed under section 23(3)/35 of the repealed Income Tax Act and therefore the first question referred to by the learned Tribunal is answered in the negative and in favour of the applicant.

6. Turning to the second question, although in view of the opinion expressed by us in respect of the first question, it would be futile to answer the second question but nevertheless, in view of the importance of the said question, we would still like to express our opinion in respect of the same. To recapitulate the facts, the I.T.O. who subsequently dealt with the case, the learned Appellant' Assistant Commissioner of Income-tax and the learned Income-tax Appellate Tribunal have reached the conclusion that income derived by the assessee from processing, packing and sale of spices cannot be equated with income derived from processing, freezing, preserving and canning of food, vegetable etc. and hence the assessee cannot be given the benefit of 10% rebate by virtue of the said provision in the Finance Act, 1974,

Mr. Mazhar Jafri has argued that spices are products of vegetables and used as ingredients in the preparation of food and hence they are covered by the said provision of the Finance Act, 1974. Mr. Shaikh Haider, learned counsel for the respondent, on the other hand, has fully supported the findings of the Tribunals below in this regard that spices although having vegetable origin, cannot be considered as vegetables consumed as food. They can be used as condiments but not as food itself.

7. The term "Spice" has been defined in Harver's World Encyclopedia, Vol. 20, at page-3686 as "any vegetable substance with distinctive aroma and flavor used for seasoning food". The description further goes on to say: "Spices are obtained from various parts of a number of plants, mostly tropical. For example, ginger is a root, cinnamon is bark and pepper a fruit. Spices played an important part in the early history of trade. They were highly valued as additives to make poor quality food edible." The term "spice" has also been denied in the Oxford Dictionary as:

"One or other various strongly flavored or aromatic substances of vegetable origin, obtained from tropical plants commonly used as condiments."

The said Encyclopedia has also defined "Vegetables" in its 21st Volume at Page-3950 as:--

"General terms for plants whose leaves, flowers, roots, stems, or fruits are edible. The distinction between fruit and vegetable is more a matter of common usage than of botanical classification. The fruits are usually eaten raw and are sweet whereas vegetables are usually cooked and seasoned. At one time, the word"vegetable" was synonymous with "plant"."

The Dictionary meaning of "Vegetable" is as follows:--

"A plant cultivated for food specially an edible herb or root used for human consumption and commonly eaten either cooked W raw ...."

It is also pertinent to refer to the definition of "Food", which. according to its ordinary dictionary meaning, is as follows:--

"A substance to be taken into the body to maintain life and growth."

The said term, according to Butterworth's "Words and Phrases Legally Defined", Vol. II, has been described as:--

"Food includes in substances ordinarily used in the composition or preparation of food, the seeds of any cereal or vegetable and any feeding stuff for animal, but does not include growing crops."

According to the said book:

"Food includes drink, chewing gum and other products of alike nature and use, articles and substances used as ingredients in the preparation of food and drink or of such products, but does not include:

(a) Water, live animals or birds,

(b) Fodder or feeding stuff for animals, birds or fish, or

(c) Articles or substances used only as drugs."

It would thus be seen that spices are substances obtained from vegetables and food and are ordinarily used in the composition or preparation of food. "Vegetables" which are edible plants or fruits are also used for human consumption as food. "Food", according to its dictionary meaning, is a substance to be taken into the body to maintain life and growth. The said term, according to its different meanings reproduced earlier, also includes substances used in its preparation. Consequently, we are unable to see how spices can be separated from "Vegetables" or "Food". In fact spices, like many other species of food or vegetable take their origin from the same genus. The learned Tribunal, although, has held that spices have their origin in the plants but, according to it, they cannot be called "Food" or "Vegetable" at the same time as, according to the learned Tribunal, they are simple, aromatic and pungent vegetable substance used only to flavor food e.g. cloves, pepper etc. We are unable to agree with this interpretation because, in our opinion, spices being vegetable substances and used as ingredients in the preparation of food, are covered by the said definitions of "Food" or "Vegetable". We would like to point out that if two interpretations are possible, the one favouring the assessee must be preferred as the said provision introduced in the Finance Act was clearly meant to provide relief to the assessee in respect of payment of income-tax. What really requires to be considered is whether any income derived from processing or canning of spices was intentionally excluded from the purview of the said provision. Nothing can be spelt out from the language used in the said provision to lead us to such an inference. No doubt, as has been observed by the learned Tribunal, in a taxing Act there is no room for any intendment and there is no equity about a tax and' there is no presumption as to a tax and nothing is to be implied but one can only look fairly at the language used. However, in case of a beneficial statute its provisions cannot be interpreted so as to bring about a result contrary to the object of the legislation. An interpretation likely to advance the remedy and suppress the mischief must be adopted in case of statutes, which confer benefit on individual or any class of persons. (See Bindra's Interpretation of Statutes, 7th always extend the language of the law to give effect to the legislative intent or to extend the benefit of the law to cases which were not intentionally excluded from the purview of any beneficial provision in an enactment. No doubt, a statute cannot be strained so as to include cases plainly and apparently omitted from its purview but any rigid interpretation in cases which were not intentionally omitted therefrom may destroy the object which is intended to be achieved by the enactment. We are, consequently, of the view that spices being vegetable substances and ingredients used for preparation of food were apparently intended to be included within the purview of the said provision in the Finance Act. We, therefore, express our opinion in this regard in the affirmative. Thus the second question is also answered in favour of the applicant.

8. We leave the parties to bear their own costs.

M.B.A./N-359/KOrder accordingly.