COMMISSIONER OF INCOME-TAX VS CELLULOSE PRODUCTS OF INDIA LTD., 1992 PTD-SUPREME-COURT-INDIA 433 (1991)

(Appeal from the judgment and order dated November 15, 1975 of the Gujarat High Court in Income Tax Reference No.160 of 1974).

(a) Income-tax---

----Exemption---New industrial undertaking---Period of exemption-- Assessment year in which undertaking begins to manufacture "articles" and four assessment years immediately succeeding---Company formed for manufacture of chemical products particularly of carboxy-methyl-cellulose and cellulose pulps---Licence for manufacture of carboxy-methyl-cellulose and machinery installed therefor---Cellulose pulp, and intermediate products to be used as raw material, alone produced in first year---Appellate Tribunal holding that cellulose pulp manufactured was finished product and marketable commodity---Exemption not available for sixth year.

(b) Income-tax---

----Reference---High Court---Not entitled to reject findings of fact of Tribunal.

(c) Interpretation of -statutes---

---- Provision for relief---Liberal construction only when there is doubt or two interpretations are possible.

Cellulose Products of India Ltd. v. C.I.T. (1977) 110 ITR 151 reversed.

The respondent, a public company, was formed as provided in its memorandum of association, with the object of carrying on "business of manufacture...of chemical products of any nature and kind whatsoever and particularly of carboxy-methyl-cellulose, cellulose pulps and other chemical products". It was granted an industrial licence by the Central Government for the manufacture of sodium carboxy-methyl-cellulose (CMC). The respondent began production of cellulose pulp from March 18, 1961, in its plant and started producing CMC from June 15, 1961. Cellulose pulp was meant to be used as raw material for manufacture of CMC. The Appellate Tribunal found that the production of cellulose pulp was not a trial production and that the cellulose pulp manufactured by the respondent during the month of March, 1961, was a finished product and a marketable commodity arid, on this view, held that the respondent having begun production or manufacture of a finished product which was capable of being sold in the market in the year of account relevant to the assessment year 1961-62, the last year in which it was entitled to get relief under section 84 of the Income-tax Act, 1961, as a new industrial undertaking, was the assessment year 1965-66 and its claim for relief for the assessment year 1966-67 was not maintainable. On a reference, the High Court held that the word "articles" in section 84(7), in the context in which it was used and looking to the object, could only refer to the end-product and held that the mere fact that the respondent started production of cellulose pulp which was an intermediate product, on March 18, 1961, did not mean that the respondent had begun to produce or manufacture "articles" in the previous year relevant to the assessment year 1961-62 and, therefore, the Tribunal was not right in rejecting the respondent's claim for relief under section 84 for the assessment year 1966-67. The Department appealed to the Supreme Court. Before the Supreme Court, the respondent raised an alternative contention that it should not be denied relief for the assessment year 1966-67 in respect of investment exclusively relating to the CMC plant, since the Tribunal had held that, in the assessment year 1961-62, there was production of cellulose pulp only:

Held, reversing the decision of the High Court, (i) that the finding of the Tribunal that the production of cellulose pulp during the month of March, 1961, was not a trial production and that the cellulose pulp manufactured by the respondent was a finished product which was a marketable commodity, was essentially a finding of fact based on appraisal of evidence. Thought it was true that cellulose pulp constituted raw material for manufacture of CMC, it was even by itself a finished marketable commodity. The circumstance that the industrial licence granted to the respondent was for the manufacture of CMC and not cellulose pulp was, keeping in view the nature of the two articles, not of much significance. The licence granted for manufacture of CMC included the manufacture of cellulose pulp which was an intermediate product to be used in its turn as a raw material for manufacture of CMC. In view of the wide objects specified in its memorandum of association, manufacture of cellulose pulp was one of the objects of the respondent. Therefore, the High Court erred in rejecting the finding of fact arrived at by the Tribunal against this background and holding that the manufacture of cellulose pulp during March, 1961, was of no consequence and that the first year of production would be the assessment year 1902-63 when CMC was actually manufactured.

(ii) That the case on the basis of which the alternative contention of the respondent was sought to be made was not set up before the Tribunal; nor was any question sought to be referred on that basis. The alternative contention could not, therefore, be permitted to be raised in the appeal before the Supreme Court.

It is only when there is any genuine doubt about the interpretation of a fiscal statute or where two opinions are capable of being formed that the rule of interpretation that a provision granting relief should be construed liberally so as to effectuate the object thereof may be taken recourse to.

It is settled law that the High Court hearing a reference under the Income-tax Act does not exercise an appellate or revisional or supervisory jurisdiction over the Appellate Tribunal and that it acts in a purely advisory capacity. If the Tribunal, after considering the evidence produced before it on a question of fact, records its finding, the finding cannot be interfered with by the High Court unless such a finding was not supported by any evidence, was perverse or was patently unreasonable.

Madras Machine Tools Manufacturers Ltd. v. CIT (1975) 98 ITR 119 (Mad.) ref.

Cellulose Products of India Ltd. v. C.I.T. (1977) 110 ITR 151 reversed.

Dr. V. Gauri Shankar, Senior Advocate (Manoj Arora and Ms. A. Subhashini, Advocates with him) for Appellant.

J. Vellapally, Senior Advocate (Ms. A.K. Verma, Advocate of J.B. Dadachanji & Co. with him) for Respondent.

Date of hearing: 4th September, 1991.

JUDGMENT

N.D. OJHA, J.--This appeal has been preferred on the basis of a certificate granted by the High Court of Gujarat under section 261 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The judgment appealed against is reported as Cellulose Products of India Ltd. v. CIT (1977) 110 ITR 151 (Guj.). The respondent is a public limited company incorporated on April 14, 1959, mainly for the purpose of carrying on the business of manufacturing chemical products. The memorandum of association of the respondent-company, as is apparent from the order of the Appellate Assistant Commissioner of Income-tax, inter alia, contains the following clause (See (1977) 110 ITR 151, 159):

"to carry on the business of manufacture of and dealers and importers and exporters in chemical products of any nature and kind whatsoever and particularly of carboxy-methyl-cellulose (CMC), cellulose pulp and other chemical products."

The respondent was granted an industrial licence by the Central Government for the manufacture of sodium-carboxy-methyl-cellulose (for short "CMC"). In pursuance of the said licence, the respondent installed a cellulose plant in which was manufactured cellulose pulp which, in its turn, was meant to be used as a raw material for the manufacture of CMC. It does not appear to be in dispute that the respondent began production of cellulose pulp from March 18, 1961, in the said plant while the production of CMC was started from June 15, 1961.

In the assessment year in question, namely, 1966-67, the previous year of account being the financial year 1965-66 ending on March 31, 1966, the respondent claimed relief contemplated by section 84 of the Act (as it stood prior to its being deleted with effect from April 1, 1968, by the Finance (No.2) Act, 1967). The Income-tax Officer took the view that, since the respondent had started production of cellulose pulp from March 18, 1961, it had begun to manufacture or produce finished articles or goods in the year ending on March 31, 1961, and, consequently, the assessment year 1961-62 was the first year in .which the assessee was entitled to relief under section 84. According to him, the relief contemplated by section 84 being available only for five years, namely, the assessment year 1961-62 and the four assessment years immediately succeeding as contemplated by subsection (7) of section 84 of the Act, the respondent was not entitled to the relief claimed in the assessment year 1966-67 which fell beyond the aforesaid period. This finding of the Income-tax Officer was affirmed in appeal by the Appellate Assistant Commissioner. The matter was taken up by the respondent in further appeal before the Income-tax Appellate Tribunal. The respondent's contention that the production of cellulose pulp during the month of March, 1961. was a trial production was repelled by the Tribunal and a categorical finding was recorded by it that cellulose pulp manufactured by the respondent during the month of March, 1961, was a finished product which was a marketable commodity. On this view, the Tribunal held that the respondent having begun production or manufacture of a finished product which was capable of being sold in the market in the year of account relevant to the assessment year 1961-62, the last year in which the respondent was entitled to get relief under section 84 of the Act was the assessment year 1965-66 and the claim made by it for the said relief in the assessment year in question, namely, 1966-67, was not maintainable. The Tribunal, however, on an application made in this behalf by the respondent, referred the following question to the High Court of Gujarat for its opinion (See, (1977) 110 ITR 51,152):

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?"

The High Court, by its judgment under appeal, answered the question aforesaid in the negative, that is, in favour of the assessee and against the Revenue. It held that even though the word "articles" used in subsection (7) of section 84 of the Act was udoubtedly an ordinary word employed by the Legislature in the context in which it was used and looking to the object with which it was enacted it was obvious that it could only refer to the end-product of the industrial undertaking as a whole where there was no phased programme of installation and construction. On this view, the High Court found that the mere fact that the respondent started the production of cellulose pulp which was an intermediate product on March 18, 1961, did not mean that the company had begun to produce or manufacture "articles" in the assessment year 1961-62.

It has been urged by learned counsel for the appellant that the finding recorded by the Tribunal referred to above was essentially a finding of fact based on appraisal of evidence and it was not open to the High Court in its advisory jurisdiction to take a contrary view. For the respondent, on the other hand, in support of the judgment appealed against, it was urged by its learned counsel that inasmuch as section 84 of the Act contemplated grant of relief to a new undertaking, it should be construed liberally so as to affectuate the object thereof. He maintained that since the undertaking established by the respondent was to manufacture CMC and the industrial licence had also been granted to it only for the said purpose, exemption under section 84 of the Act could be claimed by it only in the year during which CMC was actually manufactured and since it was so done during the assessment year 1962-63, exemption could not be claimed in the assessment year 1961-62, notwithstanding the fact that cellulose pulp for captive consumption was manufactured in that year. According to him, therefore, the period of five years contemplated by subsection (7) of section 84 of the Act would represent the assessment year 1962-63 and the four assessment years immediately succeeding and, in this view of the matter, the High Court was right in allowing the relief claimed by the respondent during the assessment year in question, namely, 1966-67. In the alternative, he submitted that if, ultimately, the view of the Tribunal prevailed that the production had started in the assessment year 1961 62, then the disallowance of the relief in the 5th year, namely, in the assessment year in question, should be restricted to the investment of the pulp factory and the respondent should not be denied the relief in respect of the investment exclusively related to the CMC plant.

Having given our anxious consideration to the respective submissions made by learned counsel for the parties, we are inclined to agree with the contention of learned counsel for the appellant that High Court, on the facts and in the circumstances of the instant case, committed an error in interfering with the conclusion of the Tribunal. It is settled law that a High Court hearing a reference under the Act does not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal and that it acts purely in an advisory capacity. If the Tribunal, after considering the evidence produced before it on a question of fact, records its finding, it cannot be interfered with in a reference by the High Court unless, of course, such finding was not supported by any evidence, was perverse or patently unreasonable. In our opinion, the finding of the Tribunal in the instant case did not suffer from any of these infirmities. The finding that the production of cellulose pulp during the month of March, 1961, was not a trial production and that cellulose pulp as manufactured by the respondent was a finished product which was a marketable commodity was essentially a finding of fact based on appraisal of evidence. It is true that cellulose pulp constitutes raw material for manufacture of CMC but it has not been disputed before us by learned counsel for the respondent that it was even by itself a finished marketable commodity. The circumstance that the industrial licence granted to the respondent was for the manufacture of CMC and not of cellulose pulp is, in our opinion, keeping in view the nature of the two articles, not of much significance. In the same manner as a licence, for instance, for the manufacture of cloth includes the manufacture of cotton yarn, an intermediate product necessary for manufacturing cloth the licence granted to the respondent for the manufacture of CMC included the manufacture of cellulose pulp which was an intermediate product to be used in its turn as raw material for the manufacture of CMC. The relevant clause of the memorandum of association of the respondent-company, already quoted above, is obviously wide in its amplitude. It contemplates manufacture of "chemical products of any nature and kind whatsoever and particularly of CMC, cellulose pulp and other chemical products". Manufacture of cellulose pulp was thus indeed one of the objects of the company. The question involved had to be considered in this background and the Tribunal having done so and recorded the finding of fact referred to above, the High Court obviously committed an error in holding that manufacture of cellulose pulp during March, 1961, was of no consequence and that the first year of production would be the assessment year 1962-63 when CMC was actually manufactured. The decision of the Madras High Court relied on by learned counsel for the respondent reported in Madras Machine Tools Manufacturers Ltd. v. CIT (1975) 98 ITR 119, in view of what has been observed above on the facts of the instant case, does not advance the case of the respondent any further than the reasons recorded in the judgment under appeal.

As regards the alternative submission made by learned counsel for the respondent, suffice it to say that the case on the basis of which this alternative submission is sought to be made was not set up before the Tribunal nor was any such question sought to be referred on the basis of which this alternative submission could be made. It cannot as such, be permitted to be made in the present appeal. The submission that the provisions of section 84 of the Act should be construed liberally so as to effectuate the object thereof need not detain us for long. It is only when there is any genuine doubt about the interpretation of a fiscal statute or where two opinions are capable of being formed that the rule of interpretation canvassed by learned counsel for the respondent may be taken recourse to. In the instant case a plain reading of subsection (7) of section 84 of the Act makes it clear without any doubt that the period of five years was to start from the assessment year relevant to the previous year in which the undertaking began to manufacture or produce "articles". Since the language of the subsection is plain and admits of no ambiguity, there is no scope of applying the aforesaid rule of interpretation.

The question as to in which assessment year "the undertaking begins to manufacture or produce articles" is essentially a question to be decided on the facts of each case and on the basis of the evidence placed on record.

In view of the foregoing discussion, this appeal succeeds and is allowed with costs and the judgment of the High Court under appeal is set aside.

K.BA./1277/T Appeal allowed