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TMI Blog2012 (5) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 2. Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the assessee company is entitled to investment allowance u/s.32A of the I.T.Act, 1961 for the asst.year 86-87? In R.C.No.77 of 1997 the ITAT referred the following two questions for the opinion of this Court. 1. Whether on the facts and in the circumstances of the case, the ITAT is correct in holding that the article or thing, viz., alcohol including rectified spirit and de-natured spirit manufactured by the assessee-company do not come under the ambit of Eleventh Schedule of the I.T.Act? 2. Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the assessee-company is entitled to investment allowance u/s.32A of the I.T.Act, 1961 for the assessment year 1985-86, 1986-87 and 1989-90 and also deduction under Section 32AB for assessment year 1989-1990? Background facts The assessee filed the return of income for 1986-1987 claiming net loss of Rs.16,54,000/-. By a subsequent return the loss was revised downward to Rs.16,09,450/-. The assessee claimed investment allowance which was allowed by the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 32A of the Act on the ground that under compulsion they were manufacturing arrack which is potable. He would submit that item 1 of Eleventh Schedule has to be construed by applying the principles of Noscitur a Sociis and ejusdem generis. So construed, according to the Counsel, "alcoholic spirits" would only mean those alcoholic beverages which are fit for human consumption and potable. He relies on the decision of the Supreme Court in Siddeshwari Cotton Mills (P) Ltd. v Union of India (1989) 2 SCC 458 : (1989) 75 STC 75 (SC) : AIR 1989 SC 1019 and Commissioner of Income Tax v Sraya Industries P.Ltd (2010) 328 ITR 29 (Delhi). The attention of this Court is drawn to the Circular dated 03.03.1978 of the Central Board of Direct Taxes (CBDT) in support of the contention that rectified spirit is not covered by the Eleventh Schedule of the Act. Point for consideration In the background facts and having regard to the rival consideration the question that would fall for consideration is whether alcohol including rectified/denatured spirit manufactured by the assessee company do not come under the ambit of the Eleventh Schedule of the Act. The relevant provisions 32A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking 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 Eleventh Schedule : (Proviso and Explanation are omitted as not relevant.) (emphasis supplied) THE ELEVENTH SCHEDULE See section 32A, section 32AB, section 80CC(3)(a)(i), section 80-I(2), section 80J(4) and section 88A(3)(a)(i) LIST OF ARTICLES OR THINGS 1. Beer, wine and other alcoholic spirits. (Items 2 to 28 are omitted as not relevant) Principles of interpretation To understand the spirit of a statute, one has to understand its basic script. Literal or strict rule of interpretation is norm. It is golden rule to get at the intention from the language of the provision. If language or the phraseology employed by the legislation is precise and plain, it itself proclaims legislative intent in unequivocal terms, and the same must be given effect, regardless of its effect or hardship that may result (Chief Justice of A.P., v L.V.A.Dikshitulu (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, Farwell, J. said : "Unless the words were so absolutely senseless that I could do nothing at all with them, I should be bound to find some meaning and not to declare them void for uncertainty." (See pages 360 and 361). In Fawcett Properties v. Buckingham County Council, (1960) 3 All ER 503, Lord Denning approving the dictum of Farwell, J. said "But when a Statute has some meaning, even though it is obscure, or several meanings, even though it is little to choose between them, the Courts have to say what meaning the Statute has to bear rather than reject it as a nullity." (Vide page 516). It is, therefore, the Court's duty to make what it can of the Statute, knowing that the Statutes are meant to be operative and not inept and that nothing short of impossibility should allow a Court to declare a Statute unworkable. In Whitney v. Inland Revenue Commissioners, 1926 AC 37, Lord Dunedin said "A Statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction makes that end unattainable." (vide page 52). In Standard Chartered Bank v Directorate of Enforcement (2005) 4 SCC 530 : A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Chemical Industries v Commissioner of Customs AIR 2001 SC 1283 : (2001) 4 SCC 286). In Shriram Vinyl, it was the case where the appellants assembled modernized furnaces partly using imported parts, partly indigenously procured parts and partly serviceable components/parts recovered from the dismantled furnaces in their factory, and claimed benefit of lower rate of duty on imported parts used in the assembly of the furnaces basing on Notification No.155/86-Cus dated 1st March, 1986. The same was denied by the appellate Collector of Customs on the ground that no new furnace emerges in the assembly operation undertaken by them. The Tribunal affirmed the order of Collector. Before the Supreme Court, the appellants contended that the notification did not require that a new article must come into existence, and the Revenue contended that the expression "assembly" was to take colour from the expression "initial setting up", and therefore, without any new article coming into existence, the question of claiming benefit under the notification would not arise. Allowing the appeal, the Supreme Court observed as follows. The three expressions "initial setting up", "assembly" and "manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process" contemplate processes which impart a change of a lasting character to the fabric by either the addition of some chemical into the fabric or otherwise. "Any other process" in the section must share one or the other of these incidents. The expression "any other process" is used in the context of what constitutes manufacture in its extended meaning and the expression "unprocessed" in the exempting notification draws its meaning from that context. The principle of construction considered appropriate by the Tribunal in this case appears to us to be unsupportable in the context in which the expression "or any other process" has to be understood. The rule of ejusdem generis has to be applied with great caution. If the subjects of enumeration belong to a broad based genus as also to a narrower genus, there is no principle that the general words should be confined to the narrower genus. In Uttar Pradesh S.E.Board v Harishanker15 the Supreme Court elucidated this principle as follows. The true scope of the rule of "ejusdem generis" is that words of a general nature following specific and particular words should be construed as limited to things which are of the same nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the concession was to be extended. This made it difficult to explain to those claiming eligibility why some industries had been given the benefit, while it was denied to others. Since there is a need for encouraging generation of internal resources for financing investment, I consider it best to extend the scope of investment allowance to all industries except those which are engaged in the manufacture of specified low priority items such as cigarettes, cosmetics and alcoholic beverages. This measure will be of great benefit to the economy. Further, the CBDT letter, dated 03.03.1978, addressed to the President of the All India Alcohol-Based Industries Development Association clarified that, "industrial alcohol" is not covered by item 1 of the Eleventh Schedule of the Act. Even though the Finance Minister in his speech clarified, to extend the scope of investment allowance to all industries, it was sought to be denied the specified low priority items such as cigarettes, cosmetics and alcoholic beverages. Beverages are the liquids for drinking by the human beings. The rectified spirit or industrial alcohol is not liquid which can be consumed. Therefore, the speech of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otable. Rectified spirit is basic raw material for potable liquors. Investment allowance claimed by the assessee and allowed by the ITO was only on the machinery used for the manufacture of rectified spirit which is not potable liquor like wine or beer which could fall within the scope and ambit of other alcoholic spirits appearing in item 1 of Eleventh Schedule. The main activity of the assessee company is the manufacture of rectified spirit. However, sometimes it was forced by the Govt. to convert the end product viz., spirit into arrack by diluting it with water. Mainly and essentially the appellant was licensed to manufacture rectified spirit and denatured spirit which are not potable. They are called industrial spirits. The learned representative of the assessee brought to our notice clarification dt.3.3.78 issued by the Central Board of Direct Taxes to the effect that industrial alcohol is not covered by item 1 of the Eleventh Schedule of the I.T.Act. The said clarification dt.3.3.78 was issued in F.No.2020/90/77-ITA-II, Govt. of India, Dept. of Revenue (CBDT). Considering the terms of the licence issued to the assessee and the nature of the product manufactured by it and als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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