COMMISSIONER OF INCOME-TAX VS SINGARENI COLLIERIES CO. LTD.
1997 P T D 1756
[221 I T R 48]
[Andhra Pradesh High Court (India)]
Before P. Venkata Rama Reddi and P. Ramakrishnam Raju, JJ
COMMISSIONER OF INCOME-TAX
versus
SINGARENI COLLIERIES CO. LTD.
Income-tax Case No.30 of 1991, decided on 01/11/1995.
(a) Income-tax---
----Reference---Business expenditure---Expenditure incurred on the boarding, lodging and education of orphans as a measure of cyclone relief and subsequently employing them in assessee's business---Tribunal whether justified in allowing the expenditure is a question of law---Indian Income Tax Act, 1961, Ss.37 & 256.
Held, that there was a finding of the Tribunal that the expenditure incurred for the lodging, boarding and education of 32 orphans pursuant to the appeal made by the State Government, as a measure of cyclone relief, was connected with the business inasmuch as those orphans were imported training and absorbed in the services of the assessee-company. But it was not clear as to whether the assessee-company was prompted by a business motive in adopting the orphans. The Tribunal surmised that if the expenditure incurred for the training imparted to them was a business expenditure, meeting the expenditure for their boarding and lodging prior to such training was also to be considered to be an expenditure meant for the purpose of getting prospective coal miners. Whether or not this approach of the Tribunal was correct and whether the Tribunal was justified in allowing deduction of the expenditure was a question of law.
(b) Income-tax---
----Reference---Investment allowance---Meaning of "production" ---Extraction of minerals amounts to production---Tribunal justified in allowing investment allowance for machinery used in extraction of minerals---No question of law arises---Indian Income Tax Act, 1961, Ss.32-A & 256.
The expression "produce" used in section 32-A of the Indian Income Tax Act, 1961, must be understood in its normal connotation and according to the commercial usage. The word "production" has a wider connotation than the word "manufacture". While every manufacture can be characterised as production, every production need not amount to manufacture. The activity of winning or excavating the coal from the mines can be aptly described as production activity. The expression "production of mineral" is used in the allied provision of the Act (section 35-E) and this is a definite pointer that Parliament employed the expression "production" to the minerals extracted from underneath the surface:
Held, accordingly, that the Tribunal was justified in holding that the assessee was entitled to investment allowance of Rs.2,24,52,331 on the new plant and machinery installed in the assessee's business of extracting coal. No question of law arose from its order.
C.I.T. v. N.C. Budharaja & Co. (1993) 204 ITR 412 (SC) applied.
C.I.T. v. Super Drillers.(1988) 174 ITR 640 (AP) ref.
(c) Words and phrases---
"Production"
S.R. Ashok for Petitioner
A. Satyanarayana Rao and M. Nageshwar Rao for Respondent
JUDGMENT
P. VENKATA RAMA REDDI, J.---In this application filed under section 256(2) of the Income Act, 1961, the Revenue seeks reference of the following two questions for the decision of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in allowing the amount of Rs.2,53,700 incurred towards boarding, lodging and education of the 32 orphans adopted by the assessee-company as a business expenditure?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct m law in holding that the assessee is entitled to investment allowance of Rs.2,24,52,331 on the new plant and machinery installed in the assessee's business of extracting coal?"
We are of the view that the first question raises a debatable point of law. No doubt, there is a finding of the Tribunal that the expenditure incurred for the lodging, boarding and education of 32 orphans pursuant to the appeal made by the State Government, as a measure of cyclone relief, is connected with the business expenditure inasmuch as those orphans were imparted training and absorbed in the service of the company. But it is to be noted that an activity undertaken purely as a philanthropic measure which has no connection with the company's business activity as such, cannot be treated as business expenditure. But, at the same time if the activity undertaken by the assessee-company in rehabilitating the orphan children with a view to eventually absorb them into the company's service is not only a philanthropic act but also prompted by considerations of business or business expediency, the findings of the Tribunal can be justified. But prima facie, from the discussion of the Tribunal it is not clear as to whether the assessee-company was prompted by a business motive in adopting the orphans. The Tribunal surmised that if the expenditure incurred for the training imparted to them is a business expenditure, meeting the expenditure for their boarding and lodging prior to such training is also to be considered to be an expenditure meant for the purpose of getting prospective coal miners. Whether or not this approach of the Tribunal is correct and whether there is material at all for the Tribunal to reach a conclusion that the incurring of expenditure for boarding, lodging and education of orphans was not only conceived as a philanthropic measure but also as a business proposition and what legal inference has to be drawn from the proved facts, is an arguable question of law to be decided.
As far as the second position is concerned, we are unable to find a debatable question of law fit to be referred for the consideration of this Court. One of the conditions to be satisfied for allowing deduction by way of investment allowance under section 32-A is that new machinery of plant should have been installed in an industrial undertaking" for the purposes of business of construction manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule". The contention advanced on behalf of the Revenue is that winning or excavating the coal from the mine does not involve production of an article or thing. Learned standing counsel contends that the Tribunal has followed the decision of this Court in CIT v. Super Drillers (1988) 174 ITR 640, wherein the Division Bench of this Court held that drilling operations resulted in the production of an article or thing, i.e., underground water within the meaning of section 32-A(2)(b)(iii) and a similar view taken by the Karnataka High Court was reversed by the Supreme Court in CIT v. N.C. Budharaja and Co.(1993) 204 ITR 412. In that case, the Supreme Court held that the activity of construction of a dam, bridge, building or road does not amount to production of an article or thing. The Supreme Court mainly relied on the legislative history of the provision for the purpose of understanding the meaning of the words "articles and things" occurring in section 32-A(2) and pointed out that they refer, only to movable objects. As far as the appeal from the judgment of the Karnataka High Court extending the benefit of section 32-A to the new machinery employed in digging bore wells was concerned, the Supreme Court merely held:
"For the reasons given hereinabove, leave is granted and the appeal is allowed."
Though no specific reasons are given for allowing the appeal, we must take it that the reasoning of the Karnataka High Court similar to the view adopted by this Court in Super Drillers' case (1988) 174 ITR 640 must be deemed to have been disapproved by the Supreme Court. The Tribunal's order in so far as it has drawn support from the decision of this Court in Super Driller' case (1988) 174 ITR 640, may not be correct. The submission made by learned standing counsel is correct to this extent. But that does not solve the problem. Even eschewing the decision in Super Driller's case (1988)174 ITR 640 (AP) from consideration, we are unable to say that the conclusion reached by the 'Tribunal is untenable or the interpretation of section 32-A(2) in the context of the facts of this case gives rise to a debatable question of law. In coming to the conclusion that no debatable question of law arises for consideration, we rely on the very decision of the Supreme Court which has been pressed into service by learned standing counsel. The Tribunal held that in extracting coal or winning coal from the coal mine, an article or thing is produced. It is not the case of the Revenue that coal which is extracted from the mine is not an article or thing. What is sought to be contended is that winning or excavating coal is not an activity of production. It is difficult to agree with this contention of the principle laid down by the Supreme Court in CIT v. N. C. Budharaja & Co.(1993) 204 ITR 412, the Supreme Court observed:
"The word 'production' has a wider connotation than the word manufacture. While every manufacture can he characterised as production every production need not amount to manufacture."
It was further observed:
"The, word 'production' or' produce' when used in juxtaposition with the word 'manufacture' takes in. bringing into existence new goods by a process which mayor may not amount to manufacture."
Then, it was observed.
"The expressions 'manufacture' and 'produce' are normally associated with movables---articles and goods, big and small---but they are never employed to denote the construction activity of the nature involved in the construction of a dam .... "
The Supreme Court also expressed the view that the expressions used the relevant clause of section 32-A must be understood in their normal connotation and according to commercial usage. Viewed from that standpoint and the legislative history of the provisions, their Lordships held that construction of a dam, bridge and the like cannot be understood as production of an article or thing.
In Webster's New International Dictionary, the word "produce" is defined as "something that is brought forth or yielded either naturally or as a result of effort and work." In Shorter Oxford English Dictionary, the following meaning is given: "To bring forward, bring forth or out; to bring into being or existence." The meaning given in Black's Law Dictionary to the expression "produce" is "To bring forward; to show or exhibit; to bring into view or notice ; to bring to the surface".
Applying the principle of interpretation spelt out by the Supreme Court in the aforementioned decision and the ordinary meaning of the word "produce" as disclosed by the dictionaries and by its ordinary connotation we have no doubt in our mind that the activity of winning or excavating the coal from the mines can be aptly described as production activity. It is common to use the expression that the coal or ore is produced from the mine and the statistics of total production of coal or other minerals are required to be given under the statutory provisions governing mines and minerals. It is also not out of place to mention that under section 35-E of the Income-tax Act which deals with deduction for expenditure on prospecting, etc., for certain minerals, the following is the language employed:
?.....engaged in any operations relating to prospecting for, or extraction or production of, any miner]??.."
Thus, the expression "production of mineral" is used in the allied provisions of the Act itself and it is a definite point that Parliament employed the expression "production" to the minerals extracted from underneath the surface as well as just as the legislative history taken into account by the Supreme Court, the internal aid to interpretation furnished by a cognate provision can be ultimately taken into account. Viewed from any angle, we are of the view, that the benefit of section 32-A is available to the respondent assessee. The correct legal position regarding deduction of investment allowance should not be left in doubt and an uncertainty created in the mind of the respondent assessee which is a public sector undertaking in the guise of raising a question as to interpretation of a provision which admits of no doubt. We, therefore, decline reference on the second question.
In the result, we direct reference only on the first question. We direct the Tribunal to draw up the statement of case and refer the first question of law extracted above for the opinion of this Court. The income?-tax case is partly allowed. No costs.
M.B.A./1217/FC???????? ?????????????????????????????????????????????????????????? Appeal partly allowed.