1999 P T D 3518
[Lahore High Court]
Before Mian Allah Nawaz and Ch. Ijaz Ahmad; JJ
Messrs SHAHI BOTTLERS LIMITED, LAHORE
Versus
THE C.I.T., CENTRAL ZONE, LAHORE
Civil Tax Reference No. 13 of 1987, decided on 28/04/1999.
(a) -Income-tax Act (XI of 1922)----
----First Sched., Part II-A, proviso (V) [as modified by Finance Act (XX of 1977) and Finance Act (XLVII of 1976)]---Soft drink prepared with sugar is an item of "food" within the contemplation of First Sched., Part II-A, proviso (V), Income-tax Act, 1922 [as amended by Finance Act, 1976 and Finance Act, 1977] and is entitled to the benefit of rebate in super-tax accordingly---Principles.
Expression "food" is not the term of art. It means material consisting of carbohydrate, fats, proteins, supplementary substances (as minerals, vitamins) and is taken and absorbed into the human body for sustaining the growth, repair and all vital processes and furnishes energy for the activities of various processes taking place in human body. The term' "food" and soft drinks; that if the soft drinks/beverages supply carbohydrates, fats, proteins, supplementary substances (as minerals and vitamins) and energy within human body, the same can be conveniently classified as items of food.
R.C. Cola is aerated water. It comprises of water, sugar and a concentrate prepared by the company. It is soft drink, which when taken in human body, generates energy which is utilized by human body in its various functions. This being the position, it can be safely concluded that R.C. Cola, despite being a drink, is a food within the terms of proviso under clause (V), Part II-A, First Schedule as given in the Finance Act, 1976. R.C. Cola prepared with sugar, is an item of 'food' within the contemplation of proviso (V) of Part II-A, First Schedule to Finance Act, 1976.
In order to avail of rebate in super-tax, the assessee had to show that it had made effective arrangements, as prescribed by the Central Board of Revenue in this behalf for declaration and payment in Pakistan of dividends payable out of such profits and gains. This proviso is in the form of exception to main provision:
Royal Crown Cola when prepared with sugar, water and R.C. concentrate is an item of food and the assessee is entitled to the benefit of rebate in super-tax under clause (v) of proviso to sub-para. (2) of Part II of First Schedule to Finance Acts, 1976 and 1977 subject to conditions enumerated in the proviso. This question, however, will not cover drinks prepared by Royal Crown Cola which are diet and do not use sugar in order to give calories to human body.
1991 PTD (Trib.).404; Commissioner of Income-Tax Companies-II, Karachi v. National Food Laboratories 1992 SCMR 687 = 1992 PTD 570; 1997 PTD (Trib.) 36; Webster's Third International Dictionary, published by Merriam-Webster Inc., Springfield, U.S.A.; Nock v. Coca-Cola Bottling Works of Pittsburgh 156 A.537, 538, 102 Pa. Super 515; Commonwealth v. Kebort, 61-A, 895, 896, 212 Pa. 289; Black's Medical Dictionary by William A. R. Thomoson, M.D., 26th Edn., published by London Adam & Charles Black, 1965; Jasper Guy Woodroof, Ph.D. published by AVI Publishing Company, Inc., Westport, Connecticut, USA; Construction of Statutes Law by Craies and Clay Center State Bank v. Me. Kelvie (19) Fed.(2) (308) ref.
(b) Interpretation of statutes---
---- Proviso to an enactment---Function.
Proviso excepts and deals with a case which otherwise would have fallen within the language of main enactment; that for the purpose of its construction the whole of the Act is to be taken into consideration and a strict construction is to be accorded to proviso which should keep it within the ambit of substantive provisions.
Construction of Statutes Law by Craies and Clay Center State Bank v. Me. Kelvie (19) Fed.(2) (308) ref.
Muhammad Iqbal Hashmi for Petitioner
Muhammad Ilyas Khan for Respondent.
Date of hearing: 26th October, 1998.
JUDGMENT
MIAN ALLAH NAWAZ, J.---The only question, which falls for our consideration/answer in this reference under section 136(1) of Income Tax Ordinance, 1979, is as follows:---
"Whether on the facts and in circumstances of the case the Tribunal was right by majority decision in omitting to allow the assessee at rebate of 10% under clause (v) of proviso to sub-para. (2) of Part-11 of First Schedule to Finance Act, 1976 in respect of processing of Beverage, commonly known as 'R.C. Cola' as a food item."
This reference has been sent to us by income-tax Appellate Tribunal 'on an application of M/s. Shahi Bottlers /assessee.
2. Material undisputed facts, briefly, stated, giving rise to this reference are these. M/s. Shahi Bottlers Ltd./assessee is a Private Limited Company. It derived/derives income from preparation and sale of beverages known as 'R.C. Cola'. In year 1976-77, the Income Tax Officer calculated super tax, payable by assessee, at the rate of 20%. However, he was not satisfied with that assessment and thereafter, proceeded under section 35(1) of Income-tax Act, 1922, rectified it and calculated super tax, payable by assessee, at the rate of 30% holding that the beverage 'R.C. Cola' was not an item of food and so assessee was not entitled to concession of 10% rebate under proviso (5) in Part II of 1st Schedule of Finance Act 1976-77. Feeling aggrieved, the assessee filed appeal which was allowed by the learned Appellate Assistant Commissioner on 15-3-1978 on the conclusion that 'RC Cola' was a beverage and for all practical intents and purposes was an item of food. He relied upon a certificate of Government Public Analyst and Circular No. IT of 1968 C.No.4 (257) T-1/67 of Central Board of Revenue. Feeling discontented, department filed second appeal. Judicial Member, and Accountant Member of Tribunal differed with each other. The former took the view that the meaning of expression 'Food', contained m sub-clause (9) of section 2 of West Pakistan Pure Food Ordinance, 1960 was applicable to word 'Food' embodied in proviso (5) in part-II of First Schedule to Finance Act, 1976, while the latter opined that the R. C. Kola was not the item of food; that the definition of this expression in West Pakistan Pure Food Ordinance, 1960 was inapplicable to above expression, employed in proviso (5) in part-II First Schedule of Income-tax Act, 1922. In view of the above, the matter was referred to 3rd Member who agreed with the opinion of Accountant Member. In result, the order of Appellate Assistant Commissioner, dated 15-3-1978 was set aside and order passed by the First Assessing Officer, pertaining to year 1976-77, was restored.
3. Feeling dissatisfied, assessee moved an application under section 136(1) of Income Tax Ordinance, 1979/seeking reference to this Court for the answer of the abovenoted question. The Income Tax Appellate Tribunal allowed it vide order, dated 19-12-1984 and so the above mentioned question was referred to this Court for answer.
4. Learned counsel, for the assessee, relied on phrase 'Food' as embodied in sub-clause (9) of section 2 of West Pakistan Pure Food Ordinance, 1960 to contend that any article used as drink for human consumption was food. He further argued that the contents of R.C. Cola comprised of 60% of sugar mixed with concentrate and its one bottle of 7 ounces generated in human being 112 calories. On this line of argument, it was canvassed that R.C. Cola was an item of food. Continuing, he explained that initially sugar was mixed in water so as to make syrup which was then purified from dirt and bacterial by use of activated carbon filter and thereafter, syrup was missed with R.C. Cola concentrate and syrup, so made was pumped into a machine for chilling it at freezing point from whereafter the chilled syrup was carbonated; so the soft drink so processed was canned and bottled for sale. This process, according to the learned counsel, amounted to processing within the terms(v) proviso Item-A in Part-II in First Schedule issued under section 3 of the Income-tax Act, 1922 vide Finance Act, 1976 and 1977. Strength was sought from Department v. Assessee 1991 PTD (Trib.) 404. Commissioner of Income-Tax Companies-II, Karachi v: National Food Laboratories 1992 SCMR 687 = 1992 PTD 570 and 1997 PTD (Trib.) 36. Commissioner of Income-tax Companies-II, Karachi v. Messrs National Food Laboratories 1992 SCMR 687.
5. Mr. M. Ilyas Khan, learned counsel for department reiterated the arguments advanced before the Income-tax Appellate Tribunal and stated that the third Member had comprehensively examined the question referred to this Court and agreed with the Accounting Member who had held that R.C. Cola was not an item of food and so the assessee was not entitled to any rebate in Super Tax. On this line of approach, he submitted that the reference was not based upon any tenable ground.
6. Amongst all the universal truths, the foremast one is that human body, in many respects, is akin to a machine and needs fuel to maintain its muscles and carry on its activities. The human body is subject to losses, which needs to be repaired. This fuel is provided by food. This expression, as defined by Webster's Third International Dictionary published by Merriam-Webster Inc., Springfield, U.S.A., as under:---
"Food material consisting of carbohydrates, fats, proteins, and supplementary substances (as minerals, vitamin) that is taken or absorbed into the body of an animal in order to sustain growth, repair, and all vital processes and to furnish energy for all activity of the organism (any population is limited by the available supply of food); esp: parts of the bodies of the animals and plants consumed by the animals: Provendor, Provisions, Viands (acres devoted to growing food) (Longings for the foods of her homeland)-- supplementary substances (as minerals, vitamin) that is taken or absorbed into the body of an animal in order to sustain growth, repair, and all vital processes and to furnish energy for all activity of the organism (any population is limited by the available supply of food); esp: parts of the bodies of the animals and plants consumed by the animals: Provendor, Provisions, Viands (acres devoted to growing food) (Longings for the foods of her homeland)--
Compare Metabolism, Nutrition b: simple inorganic substances that are absorbed by plants in gaseous form (as nitrates, phosphates) plant nutrients C: Complex organic substances constructed within bodies of green plants by photosynthesis or other processes for use directly as building material and a source of energ3 for growth and reproduction 2.a: nutriment in solid form-opposed to drink b: the Chief substance of regularly taken meals as distinguished from candy appetizers, or condiments 3 a: something that nourishment or develops (spiritual food) (Intellectual food) or sustains (praise was her favourite food-Eden Phillpotts) b: something that supplies a process or activity (food for thought) 4 Obs: the act of eating 5 foods pl: stocks or bonds or food companies."??????
The aforesaid phrase was examined in Nock v. Coca-Cola Bottling Works of Pittsburgh 156 A.537,538, 102 Pa. Super 515 and Commonwealth v. Kebort, 61-A, 895, 896, 212 Pa. 289 and it was held:---
"`Food' is a nutritive material absorbed or taken into the body of an organism for purposes of growth, or repair and for the maintenance of the vital processes, and, while the words 'food' and 'drink' are, in common usage and understanding, complementary and associate terms, they are far r synonymous, and import a plain and fundamental distinction. Purchaser of beverage in which there was form could not base action on statutory implied contract that 'food' is wholesome, since 'food' does not include beverage. 69 P.S. &123 note.
The words 'food' and 'drink', in common usage and understanding are complementary and associate terms, denoting the two prime necessities of life, but they import a plain and fundamental distinction. as universal as language and as old as the human race. No tongue is so primitive that it lacks different words to express the sensations of want of them, as hunger and thirst. Act June 26 1895 P.L 31 7, entitled 'an act to provide against the adulterating of food and providing for the enforcement thereof,' which defines in section 2 the term 'food' to include 'all articles used as food or drink by man, whether simple, mixed, or compound, is unconstitutional, as applied to drink, in not stating the subject of the act in the title, as required by P.S. Const. Art. 3, & 3."
The aforesaid meaning of the expression 'food' were approved by Supreme Court' of Pakistan in Commissioner of Income-Tax Company's II, Karachi v. Messrs National Food Laboratories (1992 SCMR 687) while considering, as to whether 'spices' were items of food or not. It was held that these were items of food. In medical language, the word 'food' is equivalent to diet. This is explained by Black's Medical Dictionary by William A. R. Thomoson. M.D. 26th Edition published by London Adam & Charles Black 1965, as follows:--
"Diet: is a subject of the greatest importance. Information as to the change in diet necessary in special cases will be found in the section on 'these diseases, and what will be said here refers to general principles of feeding. Details regarding the diet of young children? are given under Infant Feeding."
Dietetic principles were enumerated in following terms:-
"The body is, in many respects, comparable to an engine. Like a piece of machinery it requires fuel to supply the muscles, etc., with energizing power for the various bodily activities, and it likewise needs building materials to repair loss from wear and tear. For the latter purpose, food containing nitrogen is necessary, the protein of which the muscles and other tissues are composed being replaceable only by fresh nitrogen-containing protein. For the necessary supple of energy on the other hand, protein would suffice; but, as its use for this purpose would thrown up kidneys and other:? excretory, organs the necessity of getting rid of large residue, facts and carbohydrates (including starch and sugar), which contain only carbon, hydrogen, and oxygen, are more convenient for the purpose. In addition to these three varieties of food, water must be taken in sufficient quantity to make up for the loss by the urine, sweat, etc., and also various salts, of which, however, there is always a surplus in the food. Certain substances known as vitamins, which are present in small quantities in a variety of foods, are also essential, as are certain materials.
The daily protein requirement of the average man lies between 70 and 100 grams a day, or a bit more than I gram of, protein for every Kilogram of body weight a day. Growing children require; in proportion to their weight, a greater allowance of protein than the adult.
The scientific mode of expressing the food requirements is stated in terms of energy-producing power. 'Kilo calory is the name applied to the amount of heat necessary to raise the temperature of a kilogram of water (2 pounds) I centigrade, and of these calorie$ of energy 4.1 are obtainable by burning a gram of protein or of carbohydrate, and 9.3 by combustion of the same amount of fat. In estimating the energy expended by an individual in -climbing a mountain, doing his daily work, etc., one expresses it as so many 'calories', while the amount of food-which is burned up in the body by the process may be similarly stated."
7. From whatever has been examined above, it is quite clear that expression "food" is not the terms of the art. It means material consisting of carbohydrate, fats, proteins, supplementary substances (as minerals, vitamins) and is taken and absorbed into the human body for sustaining the growth, repair and all vital processes and furnishes energy for the activities of various processes faking place in human body. The term food' and soft drinks; that if the soft drinks/beverages supply carbohydrates, fats, proteins supplementary substances (as mineral and vitamins) and energy-within human body, the same can be conveniently classified as item of food.
8. Before proceeding 'further; we find it pertinent to say a few words about R.C. Cola which is an abbreviation of Royal Crown Cola. This Company was floated in year 1934 with an object to prepare soft drinks under the title 'Nehi'. The soft drinks, made by it, became so popular that it extended its operations and changed its corporate name from 'Nehi' to Royal Crown Cola. It- continued preparing soft drink with sugar, Cola and concentrated water. In short, the company's product became so popular that it extended its operation in the every nook and corner of entire globe. R.C. Cola, by this probe has come to Pakistan too. (See Beverage Carbonated and Non-carbonated, revised edition, by Jasper Guy Woodroof, Ph.D. published by AVI Publishing Company, Inc. Westport, Connecticut, USA)
9. From the foregoing, it is thus clear that R.C. Cola, is aerated water. It comprises of water, sugar and a concentrate prepared by the Company. It is soft drink, which when taken in human body, generates energy which is utilized by human body in its various functions. This -being the position, it can be safely concluded that R.C. Cola despite being a drink, is a food within the terms of proviso under clause (v) Part-II-A First Schedule as given in the Finance Act, 1976, our answer to questions referred is thus in positive. We accordingly, hold that R.C. Cola prepared with sugar, is an item of ' food' within the contemplation of, proviso (v) of Part-II-A First Schedule to Finance Act, 1976.
10. While parting with this order we would like to express that neither Deputy Commissioner Income-tax, nor Appellate Authority, nor, second Appellate Authority have examined the question as. To whether the assessee was/is entitled to benefit of-rebate tinder proviso.(v).Part II-A First Schedule to Finance Act, 1976 and 1977. The relevant proviso of Part-II-A First Schedule is reproduced as under:
"A. In the case of company,---
| (1) | on the? total income, excluding such part of the total income as consists of dividends or bonus or bonus shares to which sub-paragraphs (3) and (4) apply, where such company is a company to which' paragraph C of Part I applies. | 35 percent, of such income in the case of banking company and 30 per cent of such income in the case of a company. |
| (2)?????? | on the total income excluding'????????????????? such part of the total income as consists of bonus or bonus shares to which sub-paragraph (4) applies where?? such company is a company to which sub-paragraph (1) does not apply. | 35 per cent of such other than a banking income in the case of a banking company and 30 per cent of such income in the case of a banking company. |
Provided that where a company, in respect of the profits and gains liable to tax under the Income-tax Act, 1922 (XI of 1922), has made such 'effective arrangements as may be prescribed by the Central Board of Revenue in this behalf for the declaration and payment in Pakistan of dividends payable out of such profits and gains and for the deduction of tax from such dividends, rebate shall be allowed as follows :--
(i)---------------------------
(ii) ---------------------------
(iii) ---------------------------
(iv)---------------------------
(v) a rebate of 10 per cent, to such company in respect of its income, profits, and gains to which subsection (9) of section 10 of the Income-tax Act, 1922 (XI of 1922), applies or which are derived by it in Pakistan from processing, freezing, preserving and canning of food vegetable fruit, grain, meat, fish and poultry;"
In order to avail of rebate in Super Tax, the assessee had to show that it has made effective arrangements, as prescribed by the Central Board of Revenue in this behalf, for declaration and payment in Pakistan of dividends payable `out of such profits and gains. This proviso is in the form of exception to main provision. Dealing with this, Craies in his celebrated work, The Construction of Statutes Law has enumerated the following principles.
"The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it; and such a proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing it to that effect.
'When one finds a proviso to a section', said Lush, J. in Mulins v. Treasurer of Surrey, 'the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the provision."
Dealing with this question in Clay Centre State Bank b. Mc. Kelvie (19) Frd.(2) (308), it was held:-- .
"Its grammatical and logical scope is confined to the subject-matter of the principal clause .... While it in sometimes used to introduce independent legislation, the presumption is that it is used in accordance with its primary purpose and refers only to the provision to which it is attached."
In another case, Mobile Liners Vs. Mc.Council (220 Ala 562, 126 to 626), it was held ,
"If there is any doubt about an exception or proviso in that statute that must be judged on the assumption that the rule is broader than the exception. All doubts and implications should be resolved in favour of the rule. "
And the possible effect of extending the scope of a proviso is pointed out in Dunn V. Bryan (77 Utah 604, 299 PAC 253).
"Since the office of a proviso is not to repeal the main provision of the Act but -to limit their application, no proviso should be so construed as to destroy those provisions."
In Surinder Kumar v. State of Haryana (1979) 81 Punjab LR 331 (FB) it was held:
"If a proviso is capable of a wider connotation and is also capable of a narrower connotation, and if the narrower connotation brings it within the purview of the section then the Court must prefer the narrower connotation rather than the wider connotation; of the two possible interpretations, the Court should prefer that one which brings it within the purview of the section. "
11. From the foregoing examination, the following principled for the interpretation of proviso emerge; that proviso excepts and deals with a case which otherwise would have fallen within the language of main enactment; that for the purpose of its construction the whole of the Act is to be taken into consideration and a strict construction is to be accorded to proviso which should keep it within the ambit of substantive provisions.
12. From the foregoing discussion, our answer to afore-noted question is that Royal Crown Cola when prepared with sugar, water and R.C.I concentrate is an item of food and the appellant is entitled to the benefit of rebate in Super Tax under clause (v) of proviso to sub-para. (20 of Part-11 of First Schedule to Finance Act, 1976 and 1977 subject to conditions enumerated in the proviso. This question, however, will not cover drinks prepared by Royal Crown Cola which are diet and do not use sugar in order to give calories to human body. The Registrar of this Court shall send a copy of this judgment under seal of the Court and its signatures to Income-tax Appellate Tribunal, which shall thereafter pass order on the appeal filed by Revenue in consonance with aforesaid answer.
C,M.A./M.A.K./S-401/L???????????????????????????????????????????????????????? Reference answered.