TMI Blog2007 (8) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... the view in Kothari Products Ltd. v. Asstt. CIT [1991] 37 ITD 285 that 'Zarda Yukta Pan Masala' (pan masala containing tobacco) is not a 'tobacco preparation' under Item No. 2 of the Eleventh Schedule and that the deduction under sections 32AB and 80-I of the Income-tax Act could not, therefore, be denied to the assessee on the ground that the said pan masala was a tobacco preparation within the meaning of Item No.2 in the Eleventh Schedule in the Income-tax Act. In its application seeking the constitution of a Special Bench, the assessee further pointed out that a Division Bench of this Tribunal at Pune has, however, taken a contrary view in the assessee's own case for the assessment years 1994-95 and 1995-96 and has held that Gutkha manufactured by the assessee is a tobacco preparation within the meaning of Item No. 2 in the Eleventh Schedule and thus not eligible for deduction under section 80-I/80-IA. Since two Division Benches of this Tribunal have taken divergent views, the matter was referred by the Division Bench at Pune to the Hon'ble President of this Tribunal for constitution of a special Bench to resolve the controversy. Accepting the reference made by the Division Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akes the colour of tobacco preparation inasmuch as 7 per cent tobacco mixed with Supari in Gutkha/pan masala has the injurious effect to converting it into a tobacco preparation." Relevant provisions of the Income-tax Act. 5. For better appreciation of the facts of the case and the issues involved in the light of the relevant provisions of law, it may be useful at the outset itself to reproduce the relevant portions of section 80-IA and the Eleventh Schedule to the Income-tax Act as they stood on 1-4-1997. They read as under:- "80-IA. Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases.- (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular (such business being hereinafter referred to as 'the eligible business'), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer examined the case of the assessee. Following the order passed by the ld. Commissioner of Income-tax under section 263 on 4-1-1996 for assessment year 1993-94 and his assessment order for assessment year 1995-96, the Assessing Officer denied deduction claimed by the assessee under sections 80-I and 80-IA of the Income-tax Act. He held that Gutkha manufactured by the assessee was a tobacco preparation within the meaning of Item No. 2 in the List of Articles or Things appearing in the Eleventh Schedule to the Income-tax Act and hence, the assessee was not entitled to claim deduction under sections 80-I and 80-IA. 7. It is evident on perusal of the assessment order that the Assessing Officer has followed the order passed by the ld. CIT under section 263 on 4-1-1996 for assessment year 1993-94. The said order passed by the ld. Commissioner under section 263 is the subject-matter of appeal by the assessee (ITA No. 203/PN/1996) before this Tribunal and is also under consideration in this bunch of appeals. It may, therefore, be useful to briefly refer to the order passed by the ld. Commissioner under section 263. Relevant portion of the said order reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt tobacco is mixed in plain pan masala or Gutkha it changes the effect of the product and it can no longer be taken by an ordinary person who is not addicted to tobacco and, therefore, I am of the opinion that it takes the colour of a tobacco preparation. The example which the assessee has cited is altogether different than the mixing tobacco with Pan Masala or with Gutkha. e.g., if tobacco is mixed in betel leaves it becomes a different preparation and only one who is addicted to tobacco can eat it and not other persons. In view of above, I am of the opinion that once 7 per cent tobacco is mixed in Gutkha or pan masala it changes its effect and it becomes tobacco preparation. I have gone through the decision of the Kothari product as cited by the assessee and I am of opinion that above points have not been considered by ITAT while deciding this issue. Apart from that the classification with reference to Central Excise Act is not relevant to Income-tax Act. Under these circumstances. I am of the opinion that the order of Assessing Officer is erroneous in the eyes of law and prejudicial to the interest of revenue and. therefore. I direct the Assessing Officer to withdraw the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee does not, according to the ld. CIT(A), have close resemblance with the specific products listed in Item No. 2. He has also considered the consumption chart of the raw materials in preparation of Gutkha and noted that consumption of tobacco in the preparation of Gutkha was only 6 to 7 per cent while the percentage of consumption of betel nut was 78 to 80 per cent. He has, therefore, held that Gutkha can, at the best, be considered as a betel nut preparation and not as a tobacco preparation. According to the ld. CIT(A), tobacco, cardamom, perfumes etc., are used in the preparation of Gutkha to enhance its taste. He has thus concluded that tobacco in Gutkha acts only as a taste enhancer. (ii) The ld. CIT(A) has applied the rule of ejusdem generis for coming to the conclusion that the words 'tobacco preparations' in Item No. 2 should take colour from the particular words/products following them. (iii) Referring to the Maxwell on the Interpretation of Statutes and the judgment of the Hon'ble Supreme Court in CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC), the ld. CIT(A) has held that while interpreting items in a taxing statute, resort should not be had to the scientific or technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of certain companies. He emphasized that the focus of deduction under the said section 80-I was on the profits and gains derived from specified priority industries and not on non-priority industries. He submitted that section 80E was replaced, for and from assessment year 1968-69, by section 80-I. The focus of section 80-I as it existed then, according to him, was again on making the deduction available in respect of the profits and gains from priority industries in the case of certain companies. He re-emphasized that the focus of section 80-I, like section 80E, was on giving the deduction in respect of profits and gains from priority industries alone. Section 80-I was on the statute book in that form till assessment year 1972-73. He pointed out that the said section 80-I was omitted for and from assessment year 1973-74. He submitted that the present section 80-I was inserted by the Finance (No. 2) Act, 1980 with effect from 1-4-1981, i.e., for and from assessment year 1981-82, and sub-section (2) thereof specifically provided that section 80-I would apply to an industrial undertaking on the fulfilment of certain conditions enumerated therein. One of the conditions laid down i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g but pan masala with tobacco, which was prepared before hand and put in pouches in ready to use form and further that tobacco was added to the pan masala to create intoxicating effect. According to him, it was well-known that tobacco caused intoxicating effect and, therefore, the inclusion of tobacco as a constituent of Gutkha was intended to produce intoxicating effect. He contended that it was not the quantum or percentage of tobacco, which was relevant but its potency in causing intoxicating effect that was relevant in judging whether Gutkha was a tobacco preparation. He submitted that these facts were so widely known that no scientific evidence was needed to prove that the quantity of tobacco added in pan masala or gutkha was sufficient to cause the same intoxicating effect as would be caused by consumption of tobacco and that the consumers understood it very well and, therefore, preferred Gutkha or pan masala containing tobacco to other pan masalas without tobacco as they preferred to consume tobacco which was the most potent ingredient in Gutkha or pan masala containing tobacco otherwise they would prefer other forms of pan masala without tobacco. According to him, the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing general words and not general words following particular words. He pointed out that the words 'tobacco preparations' were general words while the words following 'tobacco preparations' were particular/specific words. His next argument was that the word 'tobacco' in 'tobacco preparations' was an adjective and would include any preparation in which tobacco was used. Without prejudice to the aforesaid submission, he further submitted that Gutkha was 'chewing tobacco' in Item No. 2 of the Eleventh Schedule and, therefore, was very much covered by the aforesaid specific denomination also. 12. Referring to the specific words following the words 'tobacco preparations' in Item No. 2 in Eleventh Schedule, the ld. Departmental Representative submitted that the Eleventh Schedule was appended to the Income-tax Act in 1977 when Gutkha was not known and it was for this reason that it could not be included in the list of specific preparations in Item No. 2 as the Legislature could not have foreseen various other forms of tobacco preparations which would come to use after the Eleventh Schedule was appended in 1978. He contended that the law has to keep pace with the latest changes and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive was not right in his submissions that the deductions available thereunder were intended in respect of the profits and gains of the priority industries. He contended that the provisions of sections 80-I and 80-IA being incentive provisions should be interpreted liberally so as to promote industrial production. He argued that the purpose of sections 80-I and 80-IA was not to ban or discourage the production of tobacco and tobacco preparations, Gutkha, etc., as the second proviso to clause (iii) of sub-section (2) of section 80-I itself extended the deduction to small scale industries manufacturing or producing the articles or things including tobacco and tobacco preparations specified in Item No. 2 of the Eleventh Schedule. He submitted in the same breath that the Income-tax Act was not a social welfare scheme and therefore, the admissibility of deduction or otherwise needed to be examined with reference to the relevant provisions of law and not with reference to the social objectives. 16. Inviting our attention to Item No. 2 in the Eleventh Schedule to the Income-tax Act, the ld. counsel submitted that the emphasis in Item No. 2 was on tobacco in both the expressions, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in any product if it constituted a substantial portion in the overall composition of the preparation either in terms of quantity or value or base. According to him, tobacco constituted about 6 to 7 percent of Gutkha in terms of quantity and 1 percent in terms of value and that the base of the Gutkha was also not tobacco. He submitted that the aforesaid facts clearly established that tobacco was neither a dominant nor substantial ingredient in Gutkha and hence, Gutkha manufactured by the assessee could not be said to be a tobacco preparation. He contended that a 'tobacco preparation' was not something which simply contained tobacco but a preparation, which had tobacco as its main, substantial or dominant ingredient similar to the seven specific products enumerated in Item No. 2. He reiterated that mere presence of small quantity of tobacco in Gutkha would not convert Gutkha into a tobacco preparation. In this connection, he took us through the Explanation to Item No. 5 in the Eleventh Schedule to the Income-tax Act, which defines 'Blended flavouring concentrates'. According to the said Explanation, 'Blended flavouring concentrates shall include, and shall be deemed always to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as one of its ingredients, the Legislature has said so in specific terms. According to him, the Legislature has neither included pan masala nor Gutkha in Item No. 2 in the Eleventh Schedule nor said that pan masala or any chewing material having tobacco as one of its ingredients would be called tobacco preparation and hence, it was not possible to import such a meaning to the expression 'tobacco preparations' in Item No.2 in the Eleventh Schedule. 20. He submitted that tobacco and pan masala have been dealt with differently in the legislations dealing with the levy of Central Excise and Sales Tax and, therefore, they were perceived even by the Government to be different from each other and that Gutkha was not treated as a tobacco preparation even under those legislations. In this connection, he took us through the orders passed by the Sales Tax Authorities. Referring to The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003, the ld. Sr. counsel submitted that the term 'tobacco products' has been defined in section 2(p) of the said Act as meaning the products specified in the Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed strictly so as to deny the incentive only to those industrial undertakings, which, in terms of strict construction, manufactured or produced those very articles or things, which are specified in the Eleventh Schedule. In other words, the submission of the ld. counsel was that while incentive provisions should be construed liberally, the exclusion clause should be construed strictly. Relying on the aforesaid provisions, the ld. counsel submitted that all the seven specific products following 'tobacco preparations' should be construed strictly and not liberally so as to include a product what is not strictly including in the said seven products within the meaning of 'tobacco preparations'. For this proposition, he relied on the decision of Hon'ble Andhra Pradesh High Court in CIT v. Progressive Engg. Co. [1998] 230 ITR 729. 22. The ld. counsel for the assessee submitted that identical issue has been considered and decided by a Division Bench of this Tribunal at Allahabad in Kothari Products Ltd.'s case in which it has been held that Zarda Yukta Pan Masala (i.e., pan masala containing tobacco) was not a tobacco preparation within the meaning of Item No. 2 of the Eleventh S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kothari Products Ltd.'s case stood approved by the Hon'ble Allahabad High Court and Hon'ble Supreme Court, the ld. Departmental Representative submitted that the superior courts declined to interfere with the order passed by the Tribunal in the said matter on the sole ground that no question of law was involved in the matter and, therefore, the orders passed by them should not be taken as endorsement or confirmation of the reasoning given by the Allahabad Bench of this Tribunal on merits. He further submitted that mere dismissal of SLP would not mean declaration of law: Nawab Sir Mir Usmal Ali Khan v. CWT [1986] 162 ITR 888 (SC). In this connection, he invited our attention to the judgment dated 24-7 -2006 of the Hon'ble Bombay High Court in the assessee's own matter (Income-tax Appeal Nos. 118 and 119 of 2005) by which the Hon'ble High Court has set aside the orders passed by the Division Bench of this Tribunal at Pune for assessment years 1994-95 and 1995-96 and restored the appeals relating to the aforesaid assessment years for disposal afresh by this Tribunal. He submitted that the issue, therefore, needed consideration de novo in the light of the materials available on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature (early) death worldwide. 28. As stated earlier, use of tobacco can be either in the form of smoking tobacco or in the form of smokeless tobacco. Smokeless tobacco (ST) can either be chewed in the mouth or sniffed in the nose. After tobacco was introduced in India in or around the 17th century, it became an ingredient of the betel quid. Through its association with a socially accepted practice, namely, betel chewing, smokeless use of tobacco as an ingredient in betel preparation found its way and became widespread due to its intoxicating effect and the 'buzz' that it created on its use. Currently almost all habitual users of betel quid use it with tobacco. The most recent, variant of betel quid is pan masala, a manufactured item containing areca nut and other ingredients common in betel quid; some brands contain dehydrated and powdered betel leaves also. Four types of pan masalas are available in the domestic market, namely, plain pan masala; sweet pan masala; pan masala containing tobacco and gutka. Pan masalas of all variants are generally sold under the same brand name and so is Gutkha. 'Gutkha' is also spelled guttkha, guthka or Gutka. 29. Gutkha is a preparation of cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement positions. Pouches and sachets of smokeless tobacco are becoming more common in public places including schools and colleges as also places of worship. It is visible even to the naked eyes. Driven 'by massive advertisement, another factor responsible for the popularity of pan masala is the perish-ability of the betel leaf, a fresh green leaf from the betel vine, in which various ingredients of the quid are smeared and wrapped. The tenderness and freshness of the leaf are highly prized and, therefore, betel leaf does not last for more than a few days. Betel vine is said to be a delicate plant, requiring much care and attention, and cannot be grown everywhere. The leaf is thus difficult to obtain in places distant from betel-growing areas. Third reason for the popularity of pan masala containing tobacco or gutkha is the difficulty in detecting its use. It is easy to spot and detect the user of betel leaves, cigarettes, snuff, etc., but it is not so easy to spot the user of pan masala containing Gutkha or Gutkha. In other words, it is far easy and convenient to use pan masala containing tobacco or gutkha without the fear of detection by the parents, guardians, teachers, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opular brand in the various forms of tobacco use. The purpose of the aforesaid discussion is two-fold: one, to highlight various well-known forms and aspects of tobacco use for proper understanding of the expressions 'tobacco', 'tobacco preparations' and 'chewing tobacco' used in Item No. 2 of the Eleventh Schedule; and, two, to highlight as to how the pan masala containing tobacco and gutkha are treated by the cross-sections of the society and also by all those who are actively involved in dealing with pan masala containing tobacco and gutkha, as tobacco preparations. Only those individuals who are addicted to or want to taste the tobacco would use gutkha or pan masala containing tobacco. Those who do not want to consume tobacco do not use gutkha. Gutkha and pan masala containing tobacco are thus consumed for the reason that it has tobacco. Other ingredients are added to tobacco in Gutkha and pan masala containing tobacco to provide better flavour, taste, etc. It is for this reason that consumers prefer gutkha to other forms of tobacco use. By its very nature, tobacco has a very unpleasant taste and hence, other ingredients are added to provide taste to the tobacco. Tobacco being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tobacco use. It has also to be kept in view that the quantity and rate of absorption of nicotine present in chewing tobacco is much higher, faster and far more effective than in the use of smoking tobacco as the chewing tobacco is absorbed directly and immediately in the body in full quantity through extremely sensitive mouth tissues. 34. As stated earlier, tobacco has a very unpleasant taste and, therefore, it is orally consumed better when it is mixed with other ingredients. That is why the Legislature has taken care to include 'tobacco preparations' together with 'tobacco' in Item No. 2. Tobacco, in the form of processed leaves, is never the only constituent in spit or chewing tobacco. It is neither possible nor practicable to orally consume tobacco, i.e., processed leaves for several reasons. First is the lethal effect of the nicotine. A very small quantity of nicotine can prove to be lethal if it is orally consumed. Besides, it is not possible for anyone to orally consume purest form of tobacco, i.e., processed leaves or nicotine, without mixing it with other agents. As stated earlier, tobacco contains nicotine, which is absorbed from the respiratory tract, and through mou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantity of such an ingredient is used in the preparation than the quantities of other ingredients. The success of pan masala industry lies in the fact that the pan masala containing tobacco and gutkha produced by it are extremely palatable, tasty and carry the same strength or potency of tobacco as in other forms of tobacco use and it is for this reason that it is so popular even amongst the school children and also amongst those who would not have used smoking tobacco or other forms of smokeless tobacco due to its unpleasant taste or odour. Gutkha having tobacco content of 5 to 7 per cent carries the same pharmacology of nicotine and causes the same physiological and psychological effect as any other tobacco preparation or product individually specified in Item No. 2. Other ingredients are added to make the spit or chewable tobacco, i.e., Gutkha taste pleasant and palatable and this is what is exactly done in the manufacturing of gutkha, and pan masala containing tobacco. As stated earlier, the pharmacology of nicotine, the physiological and psychological effects of nicotine are intact in the tobacco added to other ingredients in the Gutkha and pan masala containing tobacco in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tobacco preparation. Thus, qualitative aspect of a preparation and the popular perception of all those who deal with the preparation will ultimately decide the true nature of preparation. If both the aforesaid tests are applied to Gutkha, then there can be no manner of doubt that Gutkha and pan masala containing tobacco ate tobacco preparations notwithstanding the fact that they may have 5-7 per cent of tobacco in them. We hold accordingly. 36. Besides, the expression 'tobacco preparations' has to be understood in contradistinction to a 'tobacco-less preparation'. As a 'tobacco-less preparation' cannot become a 'tobacco preparation', a 'tobacco preparation', by the same logic, cannot become 'tobacco-less preparation'. It cannot be said that 'Gutkha' is a tobacco-less preparation'. 37. Learned senior counsel has vehemently contended that the seven items 'enumerated in Item No. 2, namely, cigars and, cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff were quite exhaustive and, therefore, would restrict the scope of 'tobacco preparations' to those seven products alone. The learned senior counsel contended that there was, therefore, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid forms of tobacco use must be included under the expressions 'tobacco' and 'tobacco preparations' and that none of them must be excluded from their purview. Therefore, listing of the seven items in Item No. 2 is not intended to convert the smokeless use of tobacco like 'Gutkha' from being a 'tobacco preparation' into a 'tobacco-less preparation'. Without prejudice to the aforesaid, if the aforesaid seven items were still to be treated as exhaustive or limiting/restricting the meaning of the words 'tobacco preparations', then the limitation/restriction placed by them would be that the expression 'tobacco preparations' would extend to cover the use of tobacco either as smoking tobacco or smokeless tobacco and to no other form of tobacco use. In that case also, the smokeless use of tobacco will cover Gutkha manufactured by the assessee and thus fall under the expression 'tobacco preparations'. 38. The learned senior counsel, however, contends that the words 'such as' in Item No. 2 are always words of limitation. We are unable to agree with him. At page 3129 in the second volume of 'The New Shorter Oxford English Dictionary' (1993 Edition), the meaning of the words 'such as' is gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll known that Gutkha and pan masala containing tobacco are chewed and would, therefore, also fall under the expression 'chewing tobacco' which is one of the items denominated in Item No. 2 of the Eleventh Schedule. It is not the case of the assessee that 'Gutkha' is chewed sans tobacco in it. Tobacco in Gutkha is also chewed. As stated earlier, other ingredients are added to tobacco in Gutkha to make the use of tobacco pleasant. We have also noted earlier in this Order that chewing tobacco, e.g., Gutkha carries with it the same pharmacology of nicotine and same physiological and psychological effects of nicotine as smoking tobacco or other forms of tobacco use. Gutkha is thus nothing but a different form of tobacco use through mouth. Gutkha belongs to the genus 'chewing tobacco' as also 'tobacco preparations'. Thus, Gutkha and pan masala containing tobacco will be covered not only by the expression, namely, 'tobacco preparations' but also by the specific denomination, namely, 'chewing tobacco' in Item No. 2 of the Eleventh Schedule. In this view of the matter, the submission of the learned senior counsel that Gutkha is not a tobacco preparation because it is not specifically covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islature was well aware, when the Eleventh Schedule was inserted in the Income-tax Act, about the various forms of tobacco use and therefore, included all the forms of tobacco use prevalent at that time, namely, smoking tobacco and smokeless tobacco specifically including 'chewing tobacco' in Item No. 2 in the Eleventh Schedule. Widespread use of Gutkha is a recent phenomenon. It nevertheless falls within the ambit of 'tobacco preparations' as also within the ambit of 'chewing tobacco' in Item No. 2 of the Eleventh Schedule. Let us pause here for a while. If a manufacturer of 'cigarette' retaining the properties of 'tobacco' had named it as 'Rose', would the cigarettes so manufactured have ceased to be 'tobacco preparations' and become a 'rose' not falling under Item No. 2 of the Eleventh Schedule? The answer is emphatic 'No'. It is for this reason that the Courts all over the world have time and again declined to be bound by labels and have always tried to look through the substance in order to determine the true nature of a preparation or product. Besides, latest developments, which go well with the phraseology of the statute, cannot be ignored. It is fairly well settled that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to treat it as current law'." 41. As already stated above, Gutkha and pan masala containing tobacco fall under the expression 'chewing tobacco'. The mere fact that they have not been individually specified in Item No.2 of the Eleventh Schedule does not mean by itself that they would fall outside the scope of 'chewing tobacco' or 'tobacco preparations' only because of the fact that they came to be widely used after the Eleventh Schedule was inserted in the Income-tax Act. 42. The ld. counsel has strongly relied upon the provisions of the Acts dealing with Central Excise and Sales Tax in support of his submission that pan masala, Gutkha, tobacco preparations have been treated by them differently. In our view, reference to the aforesaid Acts is neither necessary nor warranted. It has been held in CIT v. Venkateshwara Hatcheries (P.) Ltd. [1999] 237 ITR 174 (SC) that 'the meaning assigned to a particular word in a particular statute cannot be imported to a word, used in a different statute'. Besides, the Acts relating to Central Excise and Sales Tax deal with the structure of duty and taxes in respect of various goods, articles and things classified by them. Classification for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the expressions 'tobacco preparations' as well as 'chewing tobacco' within the meaning of Item No. 2 of the Eleventh Schedule. 44. Both the parties have argued as to how the provisions of section 80-I/80-IA and more particularly the words used in Item No. 2 of the Eleventh Schedule should be construed. The ld. Departmental Representative submitted that they should be construed strictly while the ld. senior counsel contended that the incentive provisions should be construed liberally but the exclusion or restrictive clauses and words should be construed strictly. In our view, the task of interpretation hardly arises in the present case. The meaning of the words 'tobacco preparations' and 'chewing tobacco' are fairly well known and clear. We have simply endorsed what is popularly believed to be the true nature of Gutkha and pan masala containing tobacco as 'tobacco preparations' and 'chewing tobacco'. It may be relevant to mention that the name of the assessee-company itself was 'Dhariwal Tobacco Products Private Ltd.'. This shows as to how the assessee itself treated its own products. We are conscious that the assessee has since changed its name. But that does not alter the perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gutkha is not one of the items individually enumerated in Item No. 2 of the Eleventh Schedule does not mean that it does not fall under the expressions 'tobacco preparations' and 'chewing tobacco' used therein. Courts have time and again declined to be bound by labels and have always tried to look through it and reach to the substance. In substance, Gutkha is well covered by the aforesaid expressions and hence, absence of its individual denomination in Item No. 2 of the Eleventh Schedule is not material. This is more so as Gutkha was not widely used at the time when the Eleventh Schedule was inserted in the Income-tax Act. (v) In popular sense also, Gutkha is used for its tobacco content the taste of which is further enhanced by other ingredients present in Gutkha. Those who are not interested in tobacco would never use Gutkha for the reason that other variants of pan masala without tobacco are available in the market and, therefore, persons interested in using the other ingredients of Gutkha would use them for the sake of taste of other ingredients and not Gutkha. Besides, the name of the assessee, namely Dhariwal Tobacco Products Private Ltd., indicates that the assessee treats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the Department is allowed. ITA No. 865/PN/2002 : assessment year 1998-99 : Departments appeal 47. Grounds taken by the Department read as under:- "(1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing deduction under sections 80-I and 80A of the Income-tax Act, to the assessee-company, without appreciating the fact that Gutkha is a tobacco preparation and will fall within Item-2 of the Eleventh Schedule to the Income-tax Act. (2) On the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate the fact that Gutkha takes the colour of tobacco preparation inasmuch as 7 per cent tobacco mixed with Supari in Gutkha/pan masala has the injurious effect to converting it into a tobacco preparation." 48. The issue raised by the Department in the aforesaid appeal is identical with the one raised by it in its appeal for assessment year 1997-98 which we have already considered and decided in favour of the Department. Following the same, appeal filed by the Department for assessment year 1998-99 is allowed. ITA Nos. 961 960/PN/2003 : assessment years 1999-2000 2000-01: Departments a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d appeals are identical and read as under:- "(1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in allowing the deduction under section 80-I of the Income-tax Act without appreciating the fact that Gutkha is a tobacco preparation and will fall within Item 2 of the Eleventh Schedule to the Income-tax Act. (2) On the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate the fact that Gutkha takes the colour of tobacco preparation inasmuch as 7 per cent tobacco mixed with supari in Gutkha/Pan masala has the injurious affect of converting it into a tobacco preparation." 54. The aforesaid appeals filed by the Department were earlier disposed off a by Division Bench of this Tribunal at Pune by its Order dated 20-7-2004. The said order was challenged before the Hon'ble Bombay High Court. By its Order dated 24-7-2006, the Hon'ble High Court has set aside the aforesaid order of this Tribunal and restored the appeals for a fresh disposal together with other appeals bearing ITA Nos. 203/PN/1996; 864/PN/2002; 865/PN/2002; 960/PN/2003; and 961/PN/2003 to ensure uniformity in decision without expressing any opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid appeal has been filed by the assessee against the order passed by the ld. CIT(A) under section 263 of the Income-tax Act, 1961 on 4-1-1996 on the ground that the assessment order passed by the Assessing Officer was erroneous in the eyes of law and prejudicial to the interest of the revenue. After having held so, the ld. Commissioner further directed the Assessing Officer to withdraw the deduction amounting to Rs. 8,01,315 allowed by the Assessing Officer to the assessee under section 80-I of the Income-tax Act. 57. Facts of the case, in brief, are that the assessment under section 143(3) was completed by the Assessing Officer on 30-12-1994 assessing the total income of the assessee at Rs. 18,69,740 after allowing deduction amounting to Rs. 8,01,315 under section 80-I to the assessee. Bare perusal of the assessment order shows that there is no discussion of any kind in the assessment order regarding the aforesaid claim made by the assessee. The ld. Commissioner called for the records, examined them and issued a show-cause notice dated 5-12-1995 calling upon the assessee to explain as to why he should not take suitable action under section 263 of the Income-tax Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. 60. We have considered the rival submissions. We have perused the assessment order. Para 2 of the assessment order reads as under:- "2. The assessee derives income from manufacturing activities of various kinds of pan masala. It has undertaken activities of trading also. The assessee runs the business at different centers i.e., Indore, Bombay and Pune. A consolidated account is kept at head office at Pune. Books of account kept are cash book, ledger, petty cash books, sales and purchases register, debit note, credit note register and production register. The books of account are closed and adjusted. Copies of trading account, P L A/c. balance sheet and relevant extracts are filed. The books are audited and necessary reports in Form Nos. 3CA and 3CD are filed. The assessee has filed necessary compliances as called for from time to time. 3. During this year, total sales are made to the tune of Rs. 6,09,94,887 against which GP worked out at Rs. 1,77,18,636 which gives 29 per cent. During last year, sales took place at Rs. 2,38,38,790 and GP was shown at Rs. 28,10,253 which gives 11.79 per cent. The sales and purchases are entirely billed and verifiable. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally accepted what the assessee wanted him to accept without any application of mind or enquiry. It is because of such non-consideration of the relevant issues on the part of the Assessing Officer that the deduction claimed by the assessee under section 80-I stood automatically allowed without any scrutiny and on erroneous presumption that the profit on which the deduction was being claimed was from the manufacturing of various kinds of pan masala. The assessment order placed before us is clearly erroneous and prejudicial to the interest of the revenue, as it has been passed without proper examination or enquiry or verification or objective consideration of the relevant issues. The Assessing Officer has completely omitted the relevant issue, namely, whether gutkha manufactured by the assessee falls under 'tobacco preparation' and 'chewing tobacco' so as to deprive the assessee from claiming deduction under section 80-I. It is not a case where the Assessing Officer has taken a possible view as he could have taken a possible view only if he had examined the relevant issues. It is thus a case of total non-application of mind on the part of the Assessing Officer while passing the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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