High Court Of Delhi
CIT vs. Sraya Industries (P) Ltd.
Section 32A, 32A(2A), Sch. XI, item 1
A.K. Sikri & Ms. Reva Khetrapal, JJ.
IT Ref. No. 21 of 1991
28th July, 2010
Counsel Appeared :
Ms. Sonia Mathur, for the Appellant : Krishnan, for the Respondent
JUDGMENT
A.K. SIKRI, J. :
The following question is referred by the Tribunal for the opinion of this Court :
“Whether on the facts and in the circumstances of the case, the Tribunal was right in law to hold that the assessee is entitled to investment allowance under s. 32A subject to other conditions being satisfied ?”
This question is referred in the application of the Revenue made under s. 256(1) of the Act.
2. The matter relates to the claim of investment allowance on plant and machinery used by the assessee. The assessee had claimed that it was eligible for the deduction under s. 32A(2)(b)(iii) of the IT Act which, inter alia, provides for investment allowance in respect of machinery or plant owned by the assessee and wholly being used for the purpose of the business carried on by him in any industrial undertaking and for the purpose of business of construction and manufacture or production of any article or thing not being an article or thing specified in the list in the Sch. XI. Item 1 of the Sch. XI reads as under : “Beer, wine and other alcoholic spirits”
3. The assessee is dealing both in industrial spirits as well as items like Indian made foreign liquor (IMFL), country liquor etc. As per the details furnished by the assessee, the AO confirmed that the sale of denatured spirit during the year amounted to Rs. 68,76,322 only whereas in respect of rectified spirit and country spirit, the sale amounted to Rs. 61,29,630 and Rs. 65,92,665 respectively. The AO was of the view that since the assessee was manufacturing rectified spirit and country spirit i.e., IMFL, its case was fully covered by Item 1 of Sch. XI and on that basis he disallowed the claim of the assessee for investment allowance. The CIT(A) sustained the order of the AO. However, the Tribunal, in further appeal preferred by the assessee accepted the case of the assessee and directed that the assessee be allowed investment allowance.
4. At this stage, we may take note of the rival contentions being advanced by the parties before the authorities below and the manner in which these were considered by the CIT(A) as well as Tribunal. The case of the Revenue was that the moment the assessee starts manufacturing alcohol which is for human consumption entry one of Sch. XI would be attracted and it would disqualify the assessee from claiming the investment allowance in terms of s.32A of the Act. As pointed out above, this contention was accepted by the AO. The case of the assessee on the other hand was that mere production of IMFL would not debar the assessee from claiming the investment allowance. In order to attract the disability, it was also necessary to show that the said production of IMFL was the main activity of the assessee. To put it otherwise, the assessee relied upon sub-s. (2A) of s. 32A of the Act. Its submission was that deduction under sub-s. (1) shall not be denied in case machinery or plant installed and used
‘mainly’ for the purpose of the business of construction, manufacture or production of any article or thing not being an article or thing mentioned in Sch. XI, by reason only that such machinery or plant is also used for the business or construction manufacture or production of any article or thing specified in the said list. Thereafter, the CIT(A) went a step further. It was held by it that even the industrial spirit manufactured by the assessee would come within the ambit of Entry 1 and that was a reason that CIT(A) maintained the order of the AO. The Tribunal, on the other hand, was of the opinion that since the main purpose for which the machinery and plant installed by the assessee was utilized for manufacturing of industrial spirit and this aspect was not disputed, the assessee would be entitled to the investment allowance.
5. We have already reproduced above entry one which mentions “beer, wine and other alcoholic spirits”. The first aspect that would require determination would be as to whether the manufacturing of industrial spirit would come with the ambit of aforesaid item. The learned counsel for the assessee has argued that the words “other alcoholic spirits” have to take colour from the preceding expression used in the item namely “beer and wine”. He submitted that “beer and wine” are meant for human consumption and, therefore, applying the maxim noscitur a sociis, the expression “other alcoholic spirits” is to be interpreted. When interpretation is given effect in this manner, it is only those alcoholic spirits which are meant for the human consumption that would qualify to be included in Entry 1 of the Sch. XI. To buttress this submission, learned counsel relied upon the judgment of Punjab & Haryana High Court in the case of CIT vs. Sangrur Vanaspati Mills Ltd. (2008) 214 CTR (P&H) 432 : (2009) 311 ITR 345 (P&H).
6. We are in agreement with the aforesaid submissions of learned counsel for the respondent. The assessee is manufacturing spirits as well as IMFL spirits. The legislature, while adding Entry 1 to Schedule Eleven never contemplated inclusion of industrial spirits. It is well-known that industrial spirits are mainly used for manufacturing purposes and are not meant for human consumption. The intention cannot be to deny the investment allowance when the machinery is used for said purpose. It is only when the machinery is used for the alcohol which is consumed by the human beings, the bar would be attracted. Reason presumably is that the consumption of alcohol is not treated as good for health and, therefore, this provision distinguishes grant of the investment allowance to such industries which are manufacturing alcohol meant for human consumption.
7. In Sangrur Vanaspati Mills Ltd. (supra), the Punjab & Haryana High Court was concerned with the interpretation of word “soap” mentioned in Entry 4 of the Sch. XI. Entire Entry 4 is worded as under : “4. Toothpaste, dental cream, toothpowder and soap…”
8. The question which arose for our consideration in that case was as to whether washing soap would be covered by the expression “soap” occurring in Entry 4. The High Court, going by the consideration, held that that the word ‘soap’ appears along with tooth paste, dental cream, tooth powder, the intention was to include only that kind of soap which is meant for human hygiene and, therefore, the expression “soap” in the concerned provision would not include washing soap. The relevant discussion in the said judgment is to the following effect : “We find substance in the contentions raised by counsel for the assessee as against the plea of counsel for the Revenue. The principle noscitur a sociis is well accepted principle for interpretation of entries in the taxing statute. Any commodity mentioned in any entry gets its colour from the commodities or things mentioned either before or after the particular item for the purpose of assigning the same a correct meaning. In the present case, the above principle is squarely applicable. In our view, the washing soap manufactured by the assessee will not fall under entry No. 4 as it cannot be included in the term soap used in the entry along with other items mentioned therein, rather it fits in more under entry No. 20 which stood deleted on 1st April, 1982.”
9. The second aspect which arises for consideration is what would be the position in case the machinery is used for both in manufacture of industrial spirits as well as IMFL, which is the case here. Sec. 32A allows investment allowance where machinery or plant is used for the purposes which are specified in sub-s. (2) thereof. However, at the same time, it also stipulates that where plant and machinery is used for the purposes mentioned in the Sch. 11, such investment allowance would not be admissible. In the present case, the plant and machinery is used for manufacturing of IMFL which is one of the activities specified in Item 1 of Schedule Eleven. At this juncture, one has to take note of sub-s. 2A of s. 32A as it relaxes the bar contained in Sch. XI to some extent. It reads as under : “2A. The deduction under sub-s. (1) shall not be denied in respect of any machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Sch. XI, by reason only that such machinery or plant is also used for the purposes of business of construction, manufacture or production of any article or thing specified in the said list.”
10. It is clear from the reading of the aforesaid provision that the deduction admissible under subs. (1) of s. 32A of the Act is not to be denied in case plant and machinery is mainly used for the purposes of business of construction, manufacture or production of any article or thing not being an article or thing specified in the list in Sch. XI. That would mean that even if the machinery is partially used for manufacturing of article or thing specified in the list in Sch. XI, the investment allowance shall still remain admissible and would not be denied if the assessee is able to show that the said plant and machinery is primarily used for the purposes specified in sub-s. (2A) of s. 32A of the Act.
11. The judgment of Allahabad High Court in the CIT & Anr. vs. Radico Khaitan Ltd. (2005) 194 CTR (All) 451 : (2005) 274 ITR 354 (All) would not be of any assistance to the Revenue. No doubt, the facts of that case suggest that the assessee was engaged in manufacturing of industrial alcohol, IMFL, country liquor, fertilizers etc. and the High Court held that the investment allowance was not admissible in respect of the plant and machinery installed for the purpose of manufacture of any of the items mentioned in Sch. XI. However, at the same time, it suggests that it was limited to the distillery unit which was dealing with the manufacturing of IMFL and country liquor only. The question with which we are concerned in the present case did not arise for consideration and, therefore, was not addressed at all namely if the same machinery is used both for the purpose of manufacturing of industrial alcohol as well as for manufacture of IMFL and country liquor etc., whether on such plant or machinery, the investment allowance would be admissible. When such a situation arises, sub-s. (2A) of s. 32A of the Act would be the governing provision.
12. We are supported in our view from the Circular No. 229, dt. 9th Aug., 1977 [1978 CTR (Jour) 26] issued by the CBDT explaining the amendment in s. 32A of the Act by the Finance Act, 1977. The relevant portion of the said circular reads as under : “The Finance (No. 2) Act, 1977, has substituted sub-cls. (ii) and (iii) of cl. (b) of s. 32A(2) referred to above by two new sub-clauses. Under the new provisions, investment allowance will be allowed in respect of new machinery or plant installed for the purposes of business of construction, manufacture or production of all articles or things, except certain articles or things of low priority specified in the list in the new Sch. XI inserted in the IT Act by s. 28 of the Finance (No. 2) Act, 1977. The list of articles or things contained in the new Sch. XI is giving in Annex. II* to this circular. The disqualification arising from the installation of machinery or plant for the purposes of business of manufacture or production of any article or thing specified in the list in the Sch. XI will, however, not apply in respect of machinery or plant installed in small scale industrial undertakings, and such machinery or plant will be eligible for investment allowance even though it used for purposes of business of manufacture or production of any article or thing specified in the said list.
13.2 Under new sub-s. (8A) inserted in s. 32A, the Central Government has been empowered to delete, by notification in the Official Gazette, any article or thing from the list of articles or things specified in the new Sch. XI, if it considers necessary or expedient so to do.
13.3 Sometimes, a machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing not specified in the list in the new Sch. XI may have been partly used for the purposes of business of manufacture or production of any article or thing specified in the said list. As investment allowance is not intended to be denied in such cases, a new sub-s. (2A) has been inserted in s. 32A to provide that investment allowance will not be denied by reason only that machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing not specified in the list in the Sch. XI is also used for the purposes of business of manufacture or production of any article or thing specified in the said list.”
13. In view of the aforesaid, we are of the opinion that the CIT(A) was not correct when he denied the investment allowance on the ground that even when industrial spirit is manufactured by the assessee, the case would come within the ambit of Entry 1 of Sch. 11. The Tribunal has rightly held that if the plant and machinery is mainly used for manufacturing of industrial spirit, the assessee would be entitled to the allowance. The Tribunal, replying upon this interpretation, allowed the investment allowance to the assessee by observing that the assessee was mainly engaged in industrial spirit and it was not disputed. However, there is no discussion in the entire judgment to show that how the assessee was mainly engaged in manufacturing of industrial spirit. Such findings have to be arrived at. The AO had not dealt with this aspect. The CIT(A) also refused to deal with this aspect. Though, detailed arguments were advanced by the assessee in support of its submission that it was mainly manufacturing industrial spirit.
In any case, we also find from the order of the Tribunal that the Tribunal had sent back the case to the AO with the direction to give the investment allowance to the assessee “subject to other conditions being satisfied” and to determine the admissible claim under s. 32A in respect of plant and machinery installed by the assessee. In such circumstances, while remitting back the case to the AO, the Tribunal should have left it for the AO to determine as to whether the plant and machinery is mainly used for manufacturing of industrial spirit or not. However, it may not be necessary to give this direction, in as much as, we are informed that after the case was remanded back to the AO, the AO has gone into this exercise and has passed afresh assessment order. We have (been) given a copy of that order and perusal thereof would demonstrate that the AO has specifically stated that the main activity of the assessee is to manufacture industrial spirit which is also known as ethyl alcohol and rectified spirit. Thus, when the AO, after examining the matter, has arrived at the conclusion that the main activity of the assessee is manufacturing of industrial spirit, it is clear that the assessee would be entitled to the investment allowance. On that basis, the AO has also worked out investment allowance afresh to which the assessee is entitled to.
Accordingly, we answer the reference in affirmative i.e., in favour of the assessee and against the Revenue.
[Citation : 328 ITR 29]
