The Commissioner Of Income-Tax, Tamilnadu-Iv, Chennai-34 v. M/S Soft Beverages (P) Ltd., Vilangudi, Visalakshi Nagar, Madurai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10/12/2010 CORAM THE HON'BLE MR.JUSTICE R.JAYASIMHA BABUandTHE HON'BLE MR.JUSTICE S.R.SINGHARAVELU T.C.No.379 of 2000and T.C.Nos. 380 and 381 of 2000 The Commissioner of Income-tax,Tamilnadu-IV,Chennai-34. ..Applicant -Vs- M/s Soft Beverages (P) Ltd.,Vilangudi,Visalakshi Nagar,Madurai. ..Respondents Tax Case reference under Sec.256 (2) of the Income-tax Act, 1961,against the order of the Income-tax Appellate Tribunal, 'A' Bench, Madras,dated 7.1.1997, made in R.A.No.262 to 264/Mds/97 in ITA No.2510 to2512/Mds/89. !For Applicant : Mr.J.Narayanasamy,Jr. Standing Counselfor I.T. Department. ^For respondent : Mr.S.Balachandran :JUDGMENT (Delivered by R.JAYASIMHA BABU, J.)Investment allowance for the assessment year 1983-84 was denied to theassessee, a manufacturer of aerated waters under the brand name of 'TORINO',such manufacturing activity having been carried on under a licence, on theground that the aerated waters manufactured by it contained blended flavouringconcentrates. The assessee having appealed to the Commissioner against thatview of the assessing officer, the Commissioner accepted the assessee's casethat the original entry without the explanation, did not take in it's foldsynthetic essences which are admittedly used by the assessee and that theexplanation that was added subsequently did not have retrospective effect.That view of the Commissioner has been affirmed by the Tribunal. 2. It is not in dispute that synthetic essences are used by the assessee for the purpose of flavouring the aerated waters. The essence is inthe form of concentrate and is clearly a flavouring concentrate. It issynthetic essence. The very term 'synthetic' denotes a thing which is notnatural. In the making of the synthetic essence more than one ingredient isemployed. The interaction of two or more ingredients is capable of beingbroadly viewed as blending. Synthetic essences, therefore, are clearlyblended flavouring concentrates. 3. Learned counsel for the assessee, however, submitted that alearned single Judge of this Court has, in a case concerning the sameassessee, held that synthetic essence is not a blended flavouring concentrate.Our attention was invited to the case of Soft Beverages Pvt. Ltd., Madurai v.Union of India [1982 E.L.T., 119 (Mad.)]. We find from that judgment that thelearned single Judge had not examined the question as to whether syntheticessence is a blended flavouring concentrate. It has been stated in thatjudgment that there was no dispute that the assessee was not using blendedflavouring concentrate. That was a case which arose under the Central ExciseAct and any concession made therein by the Excise authorities would not bindthe Revenue here. That judgment, in our view, does not lay down the lawcorrectly. 'Blended flavouring concentrates' would take within their foldsynthetic essences which are concentrates used for providing flavour and whichconcentrates are blended. 4. The eleventh schedule to the Income-tax Act contains a list of articles and things for the manufacture or production of which machinery isinstalled which would not be eligible for grant of investment allowance. ItemNo.5 in that eleventh schedule reads thus:- "Aerated waters in the manufacture of which blended flavouringconcentrates in any form are used." An Explanation was added thereunder by the Finance Act 1987 which cameinto force from 1.4.1988, which explanation reads thus:-- "Explanation.-- Blended flavouring concentrates shall include andshall be deemed always to have included, synthetic essences in any form." 5. The amendment that was effected in the year 1988 for the purposeof introducing an explanation under Entry No.5, was introduced, as set out inthe memorandum explaining the provisions of the Finance Bill 1987, thus:- articles and things for the manufacture or production of which machinery isinstalled which would not be eligible for grant of investment allowance. ItemNo.5 in that eleventh schedule reads thus:- "Aerated waters in the manufacture of which blended flavouringconcentrates in any form are used." An Explanation was added thereunder by the Finance Act 1987 which cameinto force from 1.4.1988, which explanation reads thus:-- "Explanation.-- Blended flavouring concentrates shall include andshall be deemed always to have included, synthetic essences in any form." 5. The amendment that was effected in the year 1988 for the purposeof introducing an explanation under Entry No.5, was introduced, as set out inthe memorandum explaining the provisions of the Finance Bill 1987, thus:- "It has been found that certain taxpayers manufacturing aerated watersin which synthetic essence is being used, are claiming the above benefits onthe ground that the synthetic essence cannot be included in the expression"blended flavouring concentrates in any form". As this was never the legislative intent, with a view to counteractingthe tax avoidance and placing the matter beyond doubt, the proposed amendmentseeks to provide that the blended flavouring concentrate appearing in item 5would include synthetic essence in any form." 6. Learned counsel for the assessee emphasised the fact that thisamendment took effect from 1st April, 1988, and submitted that for the purposeof understanding the scope of the original entry the explanation cannot betaken into account. 7. The amendment, despite a particular date having been fixed as thedate from which it will take effect, even when it is not made retrospective,if found to be clarificatory in the sense that even without the aid of thatamendment the un-amended provision was capable of comprehending what wassought to be made clear by the amendment, the amendment made subsequently doesnot have the effect of restricting the meaning of the original entry and thewidth of the entry remains the same. The facet of it's content which hadeither been misconstrued or had not been recognised is only brought out whenthe clarificatory amendment is effected. 8. The fact that this amendment was made effective from 1st April, 1988, therefore, does not in any way have the effect of denuding the originalentry of a part of it's content. The synthetic essence being but one form ofa blended flavouring concentrate was a blended flavouring concentrate beforethe amendment as also after the amendment. The order of the Tribunal holdingthat the assessee, despite being engaged in the manufacture of a product whichis covered by Entry 5 of the eleventh schedule, is entitled to investmentallowance, therefore, cannot be sustained. The same is set aside and theappeal is allowed. Index: YesWebsite: Yes To 1.The Assistant Registrar,Income Tax Appellate Tribunal,Rajaji Bhavan,III Floor, Besant Nagar,Madras-90. (with records) (5 copies) 2.The Secretary,Central Board of Revenue,New Delhi. (3 copies) 3.The Commissioner of Income Tax,Tamil Nadu-IV, Chennai-34. 4.The Deputy Commissioner of Income-tax,(Appeals)-II,Madurai Range,Madurai. 5.The Income-tax Officer,Company Circle, Madurai-2. 6.The Deputy Commissioner of Income-tax,Special Range-II, Madurai. 7.The Commissioner of Income-tax,Madurai. Dev/ �