High Court Of Delhi
CIT vs. Orissa Cement Ltd.
Sections 32(1), 35(2)(iv), 80-I
Asst. Year 1972-73
S.B. Sinha, C.J. & A.K. Sikri, J.
IT Ref. No. 25 of 1980
29th November, 2001
Counsel Appeared
R.C. Pandey and Ajay Jha, for the Petitioner : Ms. Radha Rangaswamy, for the Respondent
JUDGMENT
S.B. SINHA, C.J. :
At the instance of the Revenue, two questions, which are in the following terms, have been referred by the Tribunal for opinion of this Court, under s. 256(1) of the IT Act, 1961 (in short ‘the Act’) :
“Whether on the facts and in the circumstances of the case and having regard to the provisions of s. 35(2)(iv), the Tribunal was justified in holding that the assessee was entitled to claim depreciation in the asst. yr. 1972-73 in respect of scientific equipment of the value of Rs. 1,47,305 purchased during the immediately preceding year after the expenditure in respect thereof had been allowed in full under s. 35(2) in that preceding year.”
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was engaged in the business of production of limestone and was hence entitled to deduction under s. 80-I of the Act ?
Although the questions are required to be answered separately, it may be profitable to note facts of the matter at the outset. The respondent is company engaged in the business of manufacture of cement production for which limestone has to be extracted. It has its own refractories division. The company during the asst. yr. 1972-73 claimed depreciation on the scientific equipment of the value of Rs. 1,47,305. The said claim was allowed. In relation thereto the first question has been referred to this Court for its opinion. As regards the question it may be noticed that there is no dispute with regard to the fact that the respondent-industry is a priority industry. Its claim for relief under s. 80-I of the Act r/w item No. 12 of Sch. VI appended thereto have been rejected on the ground that said provision was not applicable.
On appeal, the AAC pointed out that no doubt the profits of the assessee had not arisen from the sale of cement but the profits of the assessee for commercial purpose should be computed at the various stages of production, namely, production of limestone and thereafter the profits should be taken for the purpose of ascertaining the final profit by way of sale of cement and cement products. Emphasis was laid by the assessee on the fact that its business was also production of limestone and manufacture and sale of cement. The AAC allowed the said claim of the assessee against which an appeal was preferred before the Tribunal. A contention was raised before the Tribunal that the respondent did not sell limestone produced by it, but only utilised the same for its own business for manufacturing purposes and thus, it was not entitled to the relief in terms of s. 80-I of the Act. We may at this stage, refer to the order of the learned Tribunal dt. 1st March, 1977, which is in the following terms : “I have carefully considered the arguments advanced by the learned counsel and the reasons given by the ITO for disallowance and the relevant cases cited with reference to the two cases reported in Anil Starch Products Ltd. vs. CIT (1966) 59 ITR 514 (Guj) : TC 25R.1207 and Tata Iron & Steel Co. Ltd. & Ors. vs. State of Bihar (1963) 48 ITR 123 (SC). The assessee was entitled to the relief under s. 80-I when cement was in existence in the VIth Schedule. The only change that took place was that cement was deleted from VIth Schedule whereas limestone as in the past continued to exist and the activity of the assessee was not only confined to sale cement but production of limestone and manufacture of cement and it was not a question of selling goods to oneself at a profit at one stage but it was a question of allocating the final profit to the various processes involved in obtaining the final product. The profits of the assessee no doubt finally arose from the sale of cement but the profits of the assessee for commercial purposes should be computed at the various stages of production namely production of limestone and thereafter, profits are taken for purpose of ascertaining the final profit by way of cement and sale thereof. The assessee had also filed an audited statement ascertaining the profits as a result of production of limestone by applying the market rate. That it was possible to compute profits on the basis of the transfer of the limestone to the final stages at the market price was, therefore, clear. It is, therefore, the contention of the learned counsel that profits could undoubtedly be computed separately in respect of the two activities carried on by the assessee which was already in existence in earlier year. Business of the assessee itself was production of limestone and manufacture and sale of cement. In the light of the principles laid down in the various cases cited by the learned counsel and in particular the two decisions, one in the case of Tata Iron & Steel Ltd. (supra) and the other of Gujarat High Court in the case of Anil Starch Products Ltd. vs. CIT (supra). I am of the view that the assessee was entitled to relief under s. 80-I and the claim made by the assessee should have been allowed by the ITO accordingly. The ITO will now compute the admissible relief on the basis of claim made by the assessee.”
Mr. Pandey, learned counsel appearing on behalf of the Revenue, would submit that having regard to the provisions contained in s. 35(1)(iv) of the Act as the assessee had taken benefit thereof, the question of claiming depreciation, therefore, in terms of s. 35(2)(iv), which was inserted by the amending Act of 1979, w.e.f. 1st April, 1972, item No. 12, did not arise.
The question, therefore, which arose before the Tribunal was whether, having regard to the amendment in the aforementioned provision, the claim could have been allowed in favour of the assessee. The said question appears to be now covered by a decision of the apex Court in the case of CIT vs. Indian Telephone Industries Ltd. (1991) 94 CTR (SC) 175 : (1991) 187 ITR 181 (SC) : TC 15R.385. We may notice that the Karnataka High Court in the case of CIT vs. Indian Telephone Industries Ltd. (1980) 19 CTR (Kar) 398 : (1980) 126 ITR 548 (Kar) : TC 15R.386 held that the assessee could claim the said amount by way of incentive. The apex Court reversed the said decision keeping in view the amendment brought about by reason of Act 2 of 1980 stating that as the amendment having been brought with retrospective operation, the appeals were to be allowed. The learned counsel appearing on behalf of the respondent would submit that despite the aforementioned decision of the apex Court, the Bombay High Court, having regard to the hardship of the Act, having been faced by the assessee, by reasons of its being a retrospective effect and retrospective operation, held the said provision to be ultra vires and unconstitutional in the case of CIT vs. Hico Products (P) Ltd. (1991) 91 CTR (Bom) 91 : (1991) 187 ITR 517 (Bom) : TC 15R.400 and CIT vs. S.H. Kelkar & Co. (P) Ltd. (1991) 96 CTR (Bom) 18 : (1991) 191 ITR 612 (Bom) : TC 15R.402. We are afraid that in an exercise of jurisdiction under s. 256(2) of the Act, we cannot go into the aforementioned question. The jurisdiction of this Court is limited. In any event, the question of vires of the said Act had not been raised before us. We therefore, are unable to go into the said question herein in this manner.
Question No. 1 must, therefore, be answered in negative and in favour of the Revenue.
Question No. 2 : Mr. Pandey, learned counsel appearing on behalf of the Revenue, would submit that the said question also stands covered by a recent decision of Division Bench of this Court in the case of CIT vs. Dalmia Cement (Bharat) Ltd. (Case No. IT Ref. No. 87 of 1991) disposed of on 13th Sept., 2001 [reported at (2001) 171 CTR (Del) 250] Mr. Pandey would contend that like the said case, in the instant case also there is no material on record that there is some integrated and/or continuous process from which both lime and limestone came out.
Ms. Rangaswamy, learned counsel appearing for the respondent, on the other hand, would submit that in view of finding of facts arrived at by the learned Tribunal as also the AAC, it is clear that mining of quarries of limestone and manufacture of cement constitute an integrated process. The learned counsel would urge that the said question stands squarely covered by a Supreme Court decision in the case of Tata Iron & Steel Ltd. & Ors. vs. State of Bihar (1963) 48 ITR 123 (SC) as also decisions of Gujarat High Court in the case of CIT vs. Saurashtra Cement & Chemical Industries Ltd. (1973) 91 ITR 170 (Guj) : TC 27R.358, Calcutta High Court in the case of CIT vs. Hindustan Motors Ltd. (1980) 19 CTR (Cal) 44 : (1981) 127 ITR 210 (Cal) : TC 28R.388 and Madras High Court in the case of CIT vs. Chitram & Co. (P) Ltd. (1991) 91 CTR (Mad) 7 : (1991) 191 ITR 96 (Mad) : TC 25R.421.
8. The fact that in the instant case, the assessee had been carrying on the mining operation of limestone for the purpose of manufacture of cement is not in dispute. From the order of the AAC, it stands admitted that not only a finding of fact has been arrived at to the effect that the activity of the assessee is not only confined to sale of cement but also production of limestone and manufacture of cement. It has further been found that it was not a case where the question arose as regard to earning of profit by the assessee at one stage but it was a matter where final profits were required to be allocated to various processes involved in obtaining the final profit. An audited statement has also been filed by the assessee for the purpose of showing that the profit as a result of production of limestone by applying the market rate can be ascertained. The authority had also arrived at a finding that profit on the basis of transfer of limestone to the final stages at the market price could be computed. In the case of Tata Iron & Steel Co. Ltd. (supra), the apex Court, although it was interpreting the provisions of ss. 5,6 and 72 of the Bengal Cess Act, 1880, observed :
“In other words, is it the position that if there is loss of that identity the concept of “a profit” arising from the production of that commodity also disappears ?
We find it difficult to appreciate the ratio behind the contention that if the mined ore is processed, and the processed product commercially goes under another name, because the processing results in extensive modifications of the raw material, then the sale of the finished product can in law yield no “profit” from the working of the mine.”
The apex Court took into consideration the fact that mine ore is processed and the processed product commercially goes under another name but the erosion thereof, it cannot be said that the sale of the finished product can in law yield no profit from the working of the mine. It was held that : “That even in cases where the profit resulting from an ultimate activity is brought to tax there could be an apportionment if there were an exemption in respect of the profits resulting from distinct activities at earlier stages is illustrated by the provisions of the Indian IT Act itself. Thus, in the case of, say, a sugar mill, which grows its own cane, in the absence of any exemption for the income derived from agriculture, i.e., from the production of the cane, the entire profit of the mills from the sale of the sugar would have to be included in the taxable profits under s. 10 of the IT Act. But s. 4(3)(viii) exempts agricultural income as defined in s. 2(1). The result, therefore, is that there is a disintegration or dichotomy of the “incomes, profits or gains” of the business and of agricultural income, so that there has to be an apportionment between the two in order to determine the taxable income of an assessee. It is on account of this situation that s. 59(2) of the IT Act provides for rules being made for prescribing the manner in which and the procedure by which incomes derived in part from agriculture and in part from business shall be arrived at.”
9. We may notice that the learned Tribunal categorically held that the decision of the Supreme Court in Tata Iron & Steel Co. Ltd. (supra) fully covers the case of the assessee. It proceeded to hold : “Since it is common ground that the assessee excavates and produces limestone from its quarries, this is a business activity in which the assessee was engaged for purposes of earning profit. Sec. 80B(7) does not require that the business of producing an article or thing mentioned in the sixth Schedule should be an independent business by itself and that it should not be an adjunct of some other business carried on by the assessee. We are, therefore, of the view that the production of limestone is an activity incidental to the assessee’s business and, therefore, the assessee has to be held to be engaged in the business of producing limestone.”
10. The matter has received the attention of the Gujarat High Court and the Calcutta High Court while considering the question as to whether it started the activity of extraction at different stages for the purpose of manufacturing and in result, depreciation allowance and development rebate could be granted as held in the case of CIT vs. Saurashtra Cement & Chemical Industries Ltd. (supra) and in the case of CIT vs. Hindustan Motors Ltd. (supra). In Saurashtra Cement (supra) Bhagwati. C.J. (as his Lordship then was) in no uncertain term stated that the extraction of limestone constituting the first stage of the business was as important an activity of the business as utilisation of limestone in the manufacture of cement. In Hindustan Motors Ltd. (supra), Sabyasachi Mukharji, learned C.J. (as then was) held that relief provisions must be strictly construed and observed as under : “But in construing the provisions of the relief, if the logical conclusion is, in some context, the assessee might be entitled to relief in respect of part of the units which is utilised for its production, it does not become disentitled to it, is now fairly well settled.”
The Court in support of the said conclusion relied upon various decisions including Tata Iron & Steel Co. Ltd. (supra). The Court again in the case of CIT vs. Standard Motor Products of India Ltd. (1980) 17 CTR (Mad) 317 : (1981) 131 ITR 300 (Mad) : TC 25R.414 held that : “Thus, if an assessee can carry on business of manufacturing other goods and still be eligible for the relief, there is no reason why the assessee cannot use the listed item produced by him in making other goods. The taxing authorities are required to see whether the profits attributable to the manufacture of any one or more of the listed articles form part of the taxed income. If so, the assessee would be eligible for the rebate. The contention to the contrary by the learned counsel for the CIT has thus neither logic nor language to commend it.”
11. In the case of CIT vs. Chitram & Co. (P) Ltd. (supra) the said decision was followed by Division Bench of Madras High Court wherein it was clearly observed :
“We are of the view that the principle of this decision would squarely stand attracted to this case as well and the Tribunal was, therefore, quite right in holding that the manufacture of gears by the assessee which formed a component part in the cranes and winches manufactured by the assessee would entitle the assessee to relief under s. 80-I of the Act in respect of the portion of the profits attributable to such manufacture.”
12. In the aforementioned backdrop, the unreported decision of the Division Bench of this Court in Dalmia Cement (Bharat) Ltd. (supra) has to be considered. Before this Court a contention was raised that the assessee’s business in quarrying the limestone was not covered by the activity envisaged under s. 80-I of the Act. It was contended that what was utilised in the manufacture of cement is lime and admittedly limestone was not the product, which goes into the composition of cement. On the basis of material on record, the Bench came to the conclusion that the assessee’s activity was quarrying of the limestone and there was no material on record as there was some integrated and/or continuous process from which both lime and limestone came out. It is on the aforementioned ground alone that the decision of the Calcutta High Court in the case of CIT vs. Satna Stone & Lime Co. Ltd. (1982) 26 CTR (Cal) 343 : (1982) 138 ITR 37 (Cal) : TC 25R.340 was distinguished.
13. However, in this case, as noticed hereinabove, the AAC as also the Tribunal had arrived at a finding of fact, which had not been disputed by the Revenue, that the production of limestone is done at a stage for the purpose of manufacture of cement. As noticed hereinabove, it was further held that from the audited statement, it was possible to compute the profits on the basis of the transfer of limestone to the final stages at the market price. The decision of the Division Bench of this Court in Dalmia Cement (supra) is, therefore, distinguishable on facts. Keeping in view the decision of the apex Court in the case of Tata Iron & Steel Co. Ltd. & Ors. vs. State of Bihar (supra) and the decisions of the other High Courts following the same, we are of the opinion that the Division Bench of this Court in Dalmia Cement cannot be considered to have constituted a precedent. We may notice that in the case of Regional Manager & Anr. vs. Pawan Kumar Dubey AIR 1976 SC 1766 the apex Court has clearly held that : “It is the rule deductible from the application of law to the facts and circumstances of a case which constitutes its ratio decidendi and not some conclusion based upon facts which may appear to be similar. One additional or different fact can make a world of difference between conclusions in two cases even when the same principles are applied in each case to similar facts.”
For the reasons aforementioned, we are of the opinion that the second question must be answered in the affirmative.
[Citation : 254 ITR 412]
