COMMISSIONER OF INCOME TAX Vs. PRAKASH TRADING COMPANY

JUDGEMENT

(1.) THE assessment years under reference are 1966 -67 and 1967 -68, corresponding to previous years being S.Y. 2021 ending on October 24, 1965, and S.Y. 2022 ending on November 12, 1965, respectively. The assessee is a registered partnership firm carrying on business as general merchants and commission agents in Jamnagar and also manufactures of groundnut oil at Veraval. The assessee -firm has got a solvent extraction plant at Veraval. It exported or sold to exporters de -oiled cakes of the value of Rs. 48,92,902, during the year of account relevant to assessment year 1966 -67. The assessee -firm claimed deduction from income -tax in respect of such exports or sales to the exporters under s. 2(5)(a)(ii) and (iii) of the Finance Act, 1966. Similarly, during the year of account relevant to the assessment year 1967 -68, the assessee -firm exported or sold to exporters de -oiled cakes of the value of Rs. 24,13,040, and claimed deduction from income -tax in respect of such exports or sales to exporters under s. 2(4)(a)(ii) and (iii) of the Finance (No. 2) Act, 1967. It should be noted that the aforesaid two provisions of the respective Finance Acts are in pari materia. The ITO rejected the claim made by the assessee holding that on a plain reading of the relevant exemption clause and s. 2(5)(c) or s. 2(4)(c), as the case may be, of the respective Finance Acts, it was clear that the industry engaged in the manufacturer or production of vegetable oils and vanaspathi was not entitled to exemption. The assessee's claim for exports in the course of the accounting year corresponding to the assessment year 1967 -68 was also rejected for identical reasons. The assessee -firm, therefore, carried the matter in appeal in appeal before the AAC, who by his common order of December 8, 1977, accepted the claim made by the assessee for both the assessment years and accordingly directed the ITO to grant deduction as claimed by the assessee. The revenue, therefore, preferred appeal before the Appellate Tribunal. The Appellate Tribunal, following the decision of the Bombay Bench of the Tribunal in the case of Oudh Sugar 'Mills Ltd., v. ITO (Income -tax Appeal No. 2006 of 1968 -69) and in the case of ITO v. Late Shri Hemumal Alimchand (Income -tax Appeals Nos. 3672 and 3673 of 1971 -72), confirmed the order of the Appellate Assistant Commissioner. At the instance of the revenue, the following two questions of law are, therefore, referred to us for our opinion :

(2.) A neat question of law which arises before us is whether the assessee -firm which is carrying on the industry of manufacturing vegetable oil is entitled to claim exemption as prescribed under s. 2(5)(a)(ii) and (iii) on the turnover of its exports or sales to the exporters of de -oiled cakes. It cannot be disputed that de -oiled cake is a by -product in solvent extraction industry. In order to answer the questions referred to us, we will set out the relevant part of the section which are material for purposes of this reference. We read s. 2(5)(a)(ii) and (iii) as well as s. 2(5)(c) of the Finance Act, 1966, as under :

(3.) IN our opinion, the contentions if the revenue must prevail obviously for the following reasons : We must admit at the outset that the legislative intent is not happily brought out in sub -cls. (ii) and (iii) of clause (a) as well as in clause (c) of s. 2(5) of the Finance Act, 1966. However, on reading the relevant sub -cls. (ii) and (iii) of clause (a) and particularly of clause (c), we are of the opinion that the contentions urged on behalf of the revenue are well founded. Sub -clauses (ii) and (iii) of clause (a) provided for the exemption. The exemption is granted not to all the industries but to those industries which are specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. It is no doubt true that the concession under the said sub -clause is in respect of any of the articles manufactured by the qualified industries. If we look to the First Schedule to the Industries (Development and Regulation) Act, 1951, we find that the said Schedule specified different industries which are sought to be regulated by the said Act. The specified industries are again sub -divided in the said Schedule. As for example, fuel industry is sub -divided into coal, lignite, coke and their derivatives, mineral oil (crude Oil) and fuel gases. Metallurgical Industries are divided into ferrous and non -ferrous and they are further sub -divided accordingly. The items in the First Schedule, therefore, specify industries broadly. The sub -items in the Schedule sub -divide the broad heads of industries. Sub -clauses (ii) and (iii) of clause (a) of s. 2(5) of the Finance Act, 1966, therefore, extend the concession to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, in respect of any articles manufactured in the said industries provided such articles are exported or sold to the first exporters. Clause (c) of s. 2(5), however, attempts to take away this concession or exemption extended by sub -cls. (ii) and (iii) of cl (a). It is no doubt true that the structure of clause (c) is not consistent since, in the very nature of it, the Legislature was trying to exclude certain industries wholly or certain articles only from the concession which it extended in sub -cls. (ii) and (iii) of s. 2(5)(a) to the specified industries. All the terms in clause (c) except items Nos. (5) and (11) refer to the broad heads of industries as specified in the Schedule. The other two items in clause (c), however, refer to the particular parts of industries specified in the sub -items in Sch. I to the industries (Development and Regulation) Act, 1951. On behalf of the assessee, therefore, it was sought to be argued that sub -cls. (ii) and (iii) of clause s. 2(5) of the Finance Act, 1966, extended concession to any articles manufactured by the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, and similarly clause (c) of s. 2(5) also withdraws this concession in respect of the articles specifically mentioned therein. Now, this contention, though it appears to be attractive, does not stand scrutiny, if we look closely to sub -cls. (ii) and (iii) of clause (a) of s. 2(5) of the Finance Act, 1966, and clause (c) of s. 2(5) thereof. As stated above, sub -cls. (ii) and (iii) extend concession to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. Schedule I, it should be recalled, specifies broadly in the items the heads of industries. The sub -items of the said Schedule sub -divide those broad heads of industries having regard to the articles or the commodities that may be manufactured by these industries. Sub -clauses (ii) and (iii), therefore, extend concession to the specified industries, no doubt, with reference to the articles manufactured by such industries. It is no doubt true that item No. 5 or for that matter item No. 11 of clause (c) of s. 2(5) excludes newsprint and cigarettes from the purview of the concession extended under sub -cls. (ii) and (iii) and these two items are not referable to the broad heads of the industries specified in the First Schedule, because newsprint is a part of paper industry while cigarettes are part of miscellaneous industries. To that extent, it may be possible to argue that clause (c) takes away the concession in respect of the articles though we do not intend to express our final opinion on this point because that is not the subject -matter of the questions directly arising before us. It is only for purposes of construction of clause (c) that we are examining this position and even if we agree with the learned advocate for the assessee, it does not follow that in respect of other items mentioned in clause (c) the reference is to the articles and not to the industries. If we compare the broad heads of the industries mentioned in the First Schedule with the heads mentioned in clause (c) we find that all the items except items (5) and (11) refer to the board heads of industries. In the present case, we are concerned with an industry of vegetable oil. It is an admitted position that the assessee is a manufacturer of vegetable oil and for that purpose has got a solvent extraction plant also. It is exporting de -oiled cake which is a by -product in the solvent extraction industry. It is, therefore, claiming exemption under sub -cls. (ii) and (iii), because the industry of vegetable oil is an industry sub -cls. specified in the First Schedule and since it is manufacturing de -oiled cake which has been exported it is entitled to exemption. However, if we look to clause (c), item 8, the exemption in respect of the entire industry of vegetable oil and vanaspathi which is specified in item No. 28 of the First Schedule to the Industries (Development and Regulation) Act, 1951, is taken away. On a plain reading of sub -cls. (ii) and (iii) of clause (a) read with clause (c) of s. 2(5) we are the opinion that the emphasis is on the specified industries and, therefore, if the exemption is taken away by clause (c) in respect of the specified industries, the claim of the assessee to the concession must fail.