The Commissioner Of Income-Tax, Patiala v. M/S Rasan Detergents P. Ltd., Patiala

I.T.R.Nos.203 & 204 of 1995 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Date of Decision:-25.2.2009 The Commissioner of Income-tax, Patiala Versus ---Applicant M/s Rasan Detergents P. Ltd., Patiala ---Respondent CORAM:- HON'BLE MR.JUSTICE J.S.KHEHAR HON'BLE MR.JUSTICE NAWAB SINGH Present:-Ms.Urvashi Dhugga, Advocate for the applicant. Mr.Aman Bansal, Advocate for the respondent. J.S.KHEHAR, J. (ORAL) 1)The instant references place the following proposition of lawfor determination at our hands. “2. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that theassessee is eligible for investment allowance on the newmachinery installed for the manufacturing of washing soapwhereas the article 'Soap' is included in Schedule No.11? The issue of eligibility for deduction as investment allowance on newmachinery is determined under Section 32-A of the Income Tax Act, 1961(hereinafter referred to as “the Act”) So far as the issue referred foradjudication is concerned, sub sections (1) and (2) of Section 32-A of theAct are relevant. The same are accordingly being extracted hereunder:- “32A. (1) In respect of a ship or an aircraft or machineryof plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the I.T.R.Nos.203 & 204 of 1995 2 business carried on by him, there shall, in accordance withand subject to the provisions of this section, be allowed adeduction, in respect of the previous year in which theship or aircraft was acquired or the machinery or plant wasinstalled or, if the ship, aircraft, machinery or plant is firstput to use in the immediately succeeding previous year,then, in respect of that previous year, of a sum by way ofinvestment allowance equal to twenty-five per cent of theactual cost of the ship, aircraft, machinery or plant to theassessee: Provided that in respect of a ship or an aircraft ormachinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words “twenty-fiveper cent”, the words “twenty per cent” had beensubstituted: Provided (further) that no deduction shall be allowedunder this section in respect of-- (a) any machinery or plant installed in any office premises or any residential accommodation, including anyaccommodation in the nature of a guest house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which thededuction by way of development rebate is allowableunder section 33; and (d) any machinery or plant, the whole of the actual cost ofwhich is allowed as a deduction (whether by way of I.T.R.Nos.203 & 204 of 1995 3 depreciation or otherwise) in computing the incomechargeable under the head “Profits and gains of businessor profession” of any one previous year. Explanation-- For the purposes of this sub-section, “actualcost” means the actual cost of the ship, aircraft, machineryor plant to the assessee as reduced by that part of such costwhich has been met out of the amount released to theassessee under sub-section (6) of section 32AB. (2) The ship or aircraft or machinery or plant referred to insub-section (1) shall be the following namely-- (a) a new ship or new aircraft acquired after the 31[st] day ofMarch, 1976, by an assessee engaged in the business ofoperation of ships or aircraft; (b) any new machinery or plant installed after the 31[st] dayof March, 1976--of March, 1976-- (i)for the purposes of business of generation ordistribution of electricity or any other form ofpower; ordistribution of electricity or any other form ofpower; or Explanation-- For the purposes of this sub-section, “actualcost” means the actual cost of the ship, aircraft, machineryor plant to the assessee as reduced by that part of such costwhich has been met out of the amount released to theassessee under sub-section (6) of section 32AB. (2) The ship or aircraft or machinery or plant referred to insub-section (1) shall be the following namely-- (a) a new ship or new aircraft acquired after the 31[st] day ofMarch, 1976, by an assessee engaged in the business ofoperation of ships or aircraft; (b) any new machinery or plant installed after the 31[st] dayof March, 1976--of March, 1976-- (i)for the purposes of business of generation ordistribution of electricity or any other form ofpower; ordistribution of electricity or any other form ofpower; or (ii)in a small-scale industrial undertaking for thepurposes of business of manufacture orproduction of any article or thing; orpurposes of business of manufacture orproduction of any article or thing; or (iii)in any other industrial undertaking for thepurposes of business of construction, manufactureor production of any article or thing not being anarticle or thing specified in the list in the EleventhSchedule:purposes of business of construction, manufactureor production of any article or thing not being anarticle or thing specified in the list in the EleventhSchedule: I.T.R.Nos.203 & 204 of 1995 4 Provided that nothing contained in clauses (a) and (b)shall apply in relation to-- (i) a new ship or new aircraft acquired, or (ii) any new machinery or plant installed, after the31[st] day of March, 1987 but before the Ist day ofApril, 1988, unless such ship or aircraft is acquiredor such machinery or plant is installed in thecircumstances specified in clause (a) of sub-section(8B) and the assessee furnishes evidence to thesatisfaction of the Assessing Officer as specified inthat clause; (c) any new machinery or plant installed after the 31[st] dayof March, 1983, but before the [Ist day of April, 1987], forthe purposes of business of repairs to ocean-going vesselsor other powered craft if the business is carried on by anIndian company and the business so carried on is for thetime being approved for the purposes of this clause by theCentral Government. Explanation—For the purposes of this sub-section andsub-sections (2B), (2C) and (4)- (1) (a) “new ship” or “new aircraft” includes a ship oraircraft which before the date of acquisition by theassessee was used by any other person, if it was not at anytime previous to the date of such acquisition owned byany person resident in India; (b) “new machinery or plant” includes machinery or plant I.T.R.Nos.203 & 204 of 1995 5 which its installation by the assessee was used outside India by any other person, if the following conditions arefulfilled, namely:- (i)such machinery or plant was not, at any timeprevious to the date of such installation by theassessee, used in India;previous to the date of such installation by theassessee, used in India; (ii)such machinery or plant is imported intoIndia from any country outside India; andIndia from any country outside India; and (iii)no deduction on account of depreciation inrespect of such machinery or plant has beenallowed or is allowable under the provisionsof the Indian Income-tax Act, 1922 (11 of1922), or this Act in computing the totalincome of any person for any period prior tothe date of the installation of the machinery orplant by the assessee,respect of such machinery or plant has beenallowed or is allowable under the provisionsof the Indian Income-tax Act, 1922 (11 of1922), or this Act in computing the totalincome of any person for any period prior tothe date of the installation of the machinery orplant by the assessee, (ii)such machinery or plant is imported intoIndia from any country outside India; andIndia from any country outside India; and (iii)no deduction on account of depreciation inrespect of such machinery or plant has beenallowed or is allowable under the provisionsof the Indian Income-tax Act, 1922 (11 of1922), or this Act in computing the totalincome of any person for any period prior tothe date of the installation of the machinery orplant by the assessee,respect of such machinery or plant has beenallowed or is allowable under the provisionsof the Indian Income-tax Act, 1922 (11 of1922), or this Act in computing the totalincome of any person for any period prior tothe date of the installation of the machinery orplant by the assessee, (2)an industrial undertaking shall be deemed to be asmall-scale industrial undertaking, if the aggregatevalue of the machinery and plant (other than tools,jigs, dies and moulds) installed, as on the last dayof the previous year, for the purposes of thebusiness of the undertaking does not exceed-small-scale industrial undertaking, if the aggregatevalue of the machinery and plant (other than tools,jigs, dies and moulds) installed, as on the last dayof the previous year, for the purposes of thebusiness of the undertaking does not exceed- (i) in a case where the previous year ends before the Ist day of August, 1980, ten lakh rupees; the Ist day of August, 1980, ten lakh rupees; (ii) in a case where the previous year ends after the 31[st] day of July, 1980, but before the 18[th]the 31[st] day of July, 1980, but before the 18[th] I.T.R.Nos.203 & 204 of 1995 6 day of March, 1985, twenty lakh rupees; and (iii)in a case where the previous year ends after the 17[th] day of March, 1985, thirty-five lakh rupees,rupees, and for this purpose the value of any machinery or plant shall be- (a) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; andby the assessee, the actual cost thereof to the assessee; and (b) in the case of any machinery or plant hired bythe assessee, the actual cost thereof as in the the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.” A perusal of the aforesaid sub-sections of Section 32-A of the Act make itabundantly clear that a deduction of 25 per cent of actual cost towardsmachinery or plant by an assessee (as in the instant case) was permissible asinvestment allowance. However, it is also apparent from Section 32A (2) (b)(iii) that deduction on account of investment allowance was permissible inrespect of businesses which related to manufacture of products other thanthose depicted in the Eleventh Schedule appended to the Act.2)So far as the Eleventh Schedule referred to here-in-above isconcerned, learned counsel for the rival parties have invited the attention ofthis Court to Item Nos.4, 20 and 21 contained in the list of articles under theEleventh Schedule. Item Nos.4, 20 and 21 are being extracted hereunder:- “4. Tooth paste, dental cream, tooth powder and soap. 20.Organic surface active agents; surface active preparation and washing preparations whether or not containing I.T.R.Nos.203 & 204 of 1995 7 soap. 21.Synthetic detergents. It would however be pertinent to mention that Item Nos.20 and 21 extractedhere-in-above were omitted from the Eleventh Schedule by the Finance Act,1981, with effect from 1.4.1982. For projecting the case of the revenue,learned counsel for the applicant has relied upon Item No.4, whereas forprojecting the case of the respondent-assessee, learned counsel for therespondent-assessee has relied upon the omission of Item Nos.20 and 21 bythe Finance Act, 1981, with effect from 1.4.1982. 20.Organic surface active agents; surface active preparation and washing preparations whether or not containing I.T.R.Nos.203 & 204 of 1995 7 soap. 21.Synthetic detergents. It would however be pertinent to mention that Item Nos.20 and 21 extractedhere-in-above were omitted from the Eleventh Schedule by the Finance Act,1981, with effect from 1.4.1982. For projecting the case of the revenue,learned counsel for the applicant has relied upon Item No.4, whereas forprojecting the case of the respondent-assessee, learned counsel for therespondent-assessee has relied upon the omission of Item Nos.20 and 21 bythe Finance Act, 1981, with effect from 1.4.1982. 3)From the statement of facts disclosed in the reference order, itcan be concluded that the respondent-assessee installed new machineryvalued at Rs.7,39,236/- for manufacturing washing soap during theassessment year 1984-85. The respondent-assessee also installed newmachinery valued at Rs.2,92,110/- for manufacturing washing soap in theassessment year 1985-86. The claim of the respondent-assessee is aimed at adeduction on the basis of the aforesaid investments, as investment allowanceunder Section 32-A of the Act, it on the plea that washing soap which wassought to be manufactured by the machinery installed by the respondent-assessee, does not fall in any of the items contained in the EleventhSchedule appended to the Act. Whilst it is the case of the applicant-revenuethat the manufacture of washing soap must be deemed to fall within ItemNo.4 of the Eleventh Schedule. 4)The first contention of the learned counsel for the applicant-revenue is that term “soap” included in Item No.4 of the Eleventh Schedulewould include all kinds of soaps used for any activity of washing. It istherefore, the submission of the learned counsel for the applicant-revenue I.T.R.Nos.203 & 204 of 1995 8 that washing soap should also be included within the general term “soap”included in Item No.4 of the Eleventh Schedule. 5)So far as the first contention advanced by the learned counselfor the applicant-revenue is concerned, it is the contention of the learnedcounsel for the respondent-assessee that the deletion of Item Nos.20 and 21is of extreme significance. Had it been the intention of the legislature tocontinue to exclude the items reflected through Item Nos.20 and 21, therewould have been no justification whatsoever for the legislature to omitthem, through the Finance Act, 1981 (with effect from 1.4.1982). It is thevehement contention of the learned counsel for the respondent-assessee thatit must be deemed to have been the pointed desire of the legislature toexclude the products depicted in Item Nos.20 and 21 of the EleventhSchedule, and as such, the same must be deemed to have been omitted by aconscious determination. Besides the aforesaid submission, it is also thecontention of the learned counsel for the respondent-assessee that articlesdepicted in Item No.4 could be clubbed together as toiletries, and as such,the term 'soap' included in Item No.4 must be treated as 'soap' which is usedas a toiletry, and for no other purpose. It is therefore, submitted that'washing soap' which is sought to be produced by the machinery purchasedby the respondent-assessee (as has been detailed here-in-above) is an articlenot expressly mentioned in the Eleventh Schedule, and therefore, themachinery purchased by the respondent-assessee is liable to be treated asinvestment allowance for an appropriate deduction in favour of therespondent-assessee. 6)The second contention of the learned counsel for the applicant-revenue is based on Chapter 34 of the Central Excise Tariff Manual. The I.T.R.Nos.203 & 204 of 1995 9 6)The second contention of the learned counsel for the applicant-revenue is based on Chapter 34 of the Central Excise Tariff Manual. The I.T.R.Nos.203 & 204 of 1995 9 description of goods for Tariff Item No.3401, to which our pointedattention was drawn reads as under:- “Soap; organic surface-active products and preparations foruse as soap, in the form of bars, cakes, moulded pieces orshapes, whether or not containing soap, organic surfaceactive products and preparations for washing the skin, inthe form of liquid or cream and put up for retail sale,whether or not containing soap, paper, wadding, felt andnonwovens, impregnated, coated or covered with soap ordetergent Soap and organic surface-active products and preparations,in the form of bars, cakes, moulded pieces or shapes, andpaper, wadding, felt and nonwovens, impregnated, coatedor covered with soap or detergent.” Based on the general acceptance of the user of the soap reflected in TariffItem No.3401, it is the contention of the learned counsel for the applicant-revenue, that the term “soap” in Item No.4 of the Eleventh Schedule, shouldbe interpreted to include “soap” as defined in Tariff Item No.3401 of theCentral Excise Tariff Manual. 7)As against the second submission advanced by the learnedcounsel for the applicant-revenue, it is the vehement contention of thelearned counsel for the respondent-assessee that the second submissionadvanced by the learned counsel for the respondent-assessee cannot beaccepted at all. This contention is based on the submission, that if theEleventh Schedule had been drawn on the basis of the Central Excise TariffManual, then the term 'soap' would not have been bifurcated into different I.T.R.Nos.203 & 204 of 1995 10 items so as to be incorporated in Item Nos.4, 20 and 21. In the aforesaideventuality, “soap” would have been classified as single item as per itsdescription under Central Excise Tariff Manual. 8)We have given our thoughtful consideration to the submissionsadvanced by the learned counsel for the rival parties. First and foremostprinciple of interpretation requires an examination of the statutoryprovisions as they exist. It is not a matter of dispute that the term 'soap' wassought to be distinguished into two different components under theEleventh Schedule, namely 'soap' used as a matter of a toiletry in Item No.4and 'soap' used for purposes of a surface detergent or a washing soap in thenature of a detergent in Item Nos.20 and 21. Having so classified 'soap' intotwo categories referred to here-in-above, the legislature in its wisdomomitted Item Nos.20 and 21 by the Finance Act, 1981 with effect from1.4.1982. Thus viewed, we are satisfied, that the legislature by a consciousapplication of mind while retaining 'soap' as toiletry in Item No.4, excluded'soap' by the omission of Item Nos.20 and 21 vide the Finance Act, 1981.Thus viewed, it is clear that soap as a surface detergent or as washing soapis no longer a part and parcel of the Eleventh Schedule. Investment madetowards plant and machinery for manufacture of surface detergent orwashing soap (as distinct from toilet soap) is liable to be treated asinvestment allowance. Accordingly, we find no merit in the first contentionadvanced by the learned counsel for the applicant-revenue. 9)In so far as the second contention advanced by the learnedcounsel for the applicant-revenue is concerned, we are of the view thatTariff Item No.3401 of the Central Excise Tariff Manual is not relevant foradjudication of the controversy. The same has nothing to do with the 9)In so far as the second contention advanced by the learnedcounsel for the applicant-revenue is concerned, we are of the view thatTariff Item No.3401 of the Central Excise Tariff Manual is not relevant foradjudication of the controversy. The same has nothing to do with the Eleventh Schedule appended to the Act. Had item No.3401 of the CentralExcise Tariff Manual been incorporated in the Eleventh Schedule of theAct, as has been depicted in the Central Excise Tariff Manual, one mayhave examined the issue further. However, so far as the Eleventh Scheduleof the Act is concerned, 'soap' as an item was bifurcated and incorporated inItem No.4 as a toiletry and in Item Nos.20 and 21 as a surface detergent ora washing soap. The exclusion of Item Nos.20 and 21 by the Finance Act,1981 depicts the conscious determination by the Legislative Authority toexclude surface detergents or washing soap from the Eleventh Schedule.Therefore, we find no merit in the second contention as well. 10)Having recorded the aforesaid conclusions, we are satisfied thatthe reference made to this Court has to be answered against the revenue.Ordered accordingly. (J.S.Khehar) Judge (Nawab Singh) 25.2.2009 JudgeAS