I.T.R.Nos.203 & 204 of 1995 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Date of Decision:-25.2.2009 The Commissioner of Income-tax, Patiala ---Applicant Versus M/s Rasan Detergents P. Ltd., Patiala ---Respondent CORAM:- HON'BLE MR.JUSTICE J.S.KHEHAR HON'BLE MR.JUSTICE NAWAB SINGH Present:- Ms.Urvashi Dhugga, Advocate for the applicant. Mr.Aman Bansal, Advocate for the respondent. J.S.KHEHAR, J. (ORAL) 1) The instant references place the following proposition of law for determination at our hands. “2. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the assessee is eligible for investment allowance on the new machinery installed for the manufacturing of washing soap whereas the article 'Soap' is included in Schedule No.11? The issue of eligibility for deduction as investment allowance on new machinery is determined under Section 32-A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) So far as the issue referred for adjudication is concerned, sub sections (1) and (2) of Section 32-A of the Act are relevant. The same are accordingly being extracted hereunder:- “32A. (1) In respect of a ship or an aircraft or machinery of plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the I.T.R.Nos.203 & 204 of 1995 2 business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee: Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub- section shall have effect as if for the words “twenty-five per cent”, the words “twenty per cent” had been substituted: Provided (further) that no deduction shall be allowed under this section in respect of-- (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of I.T.R.Nos.203 & 204 of 1995 3 depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year. Explanation-- For the purposes of this sub-section, “actual cost” means the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee under sub-section (6) of section 32AB. (2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following namely-- (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 1976-- (i)for the purposes of business of generation or distribution of electricity or any other form of power; or (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: I.T.R.Nos.203 & 204 of 1995 4 Provided that nothing contained in clauses (a) and (b) shall apply in relation to-- (i) a new ship or new aircraft acquired, or (ii) any new machinery or plant installed, after the 31st day of March, 1987 but before the Ist day of April, 1988, unless such ship or aircraft is acquired or such machinery or plant is installed in the circumstances specified in clause (a) of sub-section (8B) and the assessee furnishes evidence to the satisfaction of the Assessing Officer as specified in that clause; (c) any new machinery or plant installed after the 31st day of March, 1983, but before the [Ist day of April, 1987], for the purposes of business of repairs to ocean-going vessels or other powered craft if the business is carried on by an Indian company and the business so carried on is for the time being approved for the purposes of this clause by the Central Government. Explanation—For the purposes of this sub-section and sub-sections (2B), (2C) and (4)- (1) (a) “new ship” or “new aircraft” includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India; (b) “new machinery or plant” includes machinery or plant I.T.R.Nos.203 & 204 of 1995 5 which its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely:- (i)such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India; (ii)such machinery or plant is imported into India from any country outside India; and (iii)no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee, (2)an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed- (i) in a case where the previous year ends before the Ist day of August, 1980, ten lakh rupees; (ii) in a case where the previous year ends after the 31st day of July, 1980, but before the 18th I.T.R.Nos.203 & 204 of 1995 6 day of March, 1985, twenty lakh rupees; and (iii)in a case where the previous year ends after the 17th day of March, 1985, thirty-five lakh rupees, and for this purpose the value of any machinery or plant shall be- (a) in the case of any machinery or plant owned by the assessee, the actual cost thereof to the assessee; and (b) in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant.” A perusal of the aforesaid sub-sections of Section 32-A of the Act make it abundantly clear that a deduction of 25 per cent of actual cost towards machinery or plant by an assessee (as in the instant case) was permissible as investment allowance. However, it is also apparent from Section 32A (2) (b) (iii) that deduction on account of investment allowance was permissible in respect of businesses which related to manufacture of products other than those depicted in the Eleventh Schedule appended to the Act. 2) So far as the Eleventh Schedule referred to here-in-above is concerned, learned counsel for the rival parties have invited the attention of this Court to Item Nos.4, 20 and 21 contained in the list of articles under the Eleventh Schedule. Item Nos.4, 20 and 21 are being extracted hereunder:- “4. Tooth paste, dental cream, tooth powder and soap. 20.Organic surface active agents; surface active preparation and washing preparations whether or not containing I.T.R.Nos.203 & 204 of 1995 7 soap. 21.Synthetic detergents. It would however be pertinent to mention that Item Nos.20 and 21 extracted here-in-above were omitted from the Eleventh Schedule by the Finance Act, 1981, with effect from 1.4.1982. For projecting the case of the revenue, learned counsel for the applicant has relied upon Item No.4, whereas for projecting the case of the respondent-assessee, learned counsel for the respondent-assessee has relied upon the omission of Item Nos.20 and 21 by the Finance Act, 1981, with effect from 1.4.1982. 3) From the statement of facts disclosed in the reference order, it can be concluded that the respondent-assessee installed new machinery valued at Rs.7,39,236/- for manufacturing washing soap during the assessment year 1984-85. The respondent-assessee also installed new machinery valued at Rs.2,92,110/- for manufacturing washing soap in the assessment year 1985-86. The claim of the respondent-assessee is aimed at a deduction on the basis of the aforesaid investments, as investment allowance under Section 32-A of the Act, it on the plea that washing soap which was sought to be manufactured by the machinery installed by the respondent- assessee, does not fall in any of the items contained in the Eleventh Schedule appended to the Act. Whilst it is the case of the applicant-revenue that the manufacture of washing soap must be deemed to fall within Item No.4 of the Eleventh Schedule. 4) The first contention of the learned counsel for the applicant- revenue is that term “soap” included in Item No.4 of the Eleventh Schedule would include all kinds of soaps used for any activity of washing. It is therefore, the submission of the learned counsel for the applicant-revenue I.T.R.Nos.203 & 204 of 1995 8 that washing soap should also be included within the general term “soap” included in Item No.4 of the Eleventh Schedule. 5) So far as the first contention advanced by the learned counsel for the applicant-revenue is concerned, it is the contention of the learned counsel for the respondent-assessee that the deletion of Item Nos.20 and 21 is of extreme significance. Had it been the intention of the legislature to continue to exclude the items reflected through Item Nos.20 and 21, there would have been no justification whatsoever for the legislature to omit them, through the Finance Act, 1981 (with effect from 1.4.1982). It is the vehement contention of the learned counsel for the respondent-assessee that it must be deemed to have been the pointed desire of the legislature to exclude the products depicted in Item Nos.20 and 21 of the Eleventh Schedule, and as such, the same must be deemed to have been omitted by a conscious determination. Besides the aforesaid submission, it is also the contention of the learned counsel for the respondent-assessee that articles depicted in Item No.4 could be clubbed together as toiletries, and as such, the term 'soap' included in Item No.4 must be treated as 'soap' which is used as a toiletry, and for no other purpose. It is therefore, submitted that 'washing soap' which is sought to be produced by the machinery purchased by the respondent-assessee (as has been detailed here-in-above) is an article not expressly mentioned in the Eleventh Schedule, and therefore, the machinery purchased by the respondent-assessee is liable to be treated as investment allowance for an appropriate deduction in favour of the respondent-assessee. 6) The second contention of the learned counsel for the applicant- revenue is based on Chapter 34 of the Central Excise Tariff Manual. The I.T.R.Nos.203 & 204 of 1995 9 description of goods for Tariff Item No.3401, to which our pointed attention was drawn reads as under:- “Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap, organic surface active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap, paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent Soap and organic surface-active products and preparations, in the form of bars, cakes, moulded pieces or shapes, and paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent.” Based on the general acceptance of the user of the soap reflected in Tariff Item No.3401, it is the contention of the learned counsel for the applicant- revenue, that the term “soap” in Item No.4 of the Eleventh Schedule, should be interpreted to include “soap” as defined in Tariff Item No.3401 of the Central Excise Tariff Manual. 7) As against the second submission advanced by the learned counsel for the applicant-revenue, it is the vehement contention of the learned counsel for the respondent-assessee that the second submission advanced by the learned counsel for the respondent-assessee cannot be accepted at all. This contention is based on the submission, that if the Eleventh Schedule had been drawn on the basis of the Central Excise Tariff Manual, then the term 'soap' would not have been bifurcated into different I.T.R.Nos.203 & 204 of 1995 10 items so as to be incorporated in Item Nos.4, 20 and 21. In the aforesaid eventuality, “soap” would have been classified as single item as per its description under Central Excise Tariff Manual. 8) We have given our thoughtful consideration to the submissions advanced by the learned counsel for the rival parties. First and foremost principle of interpretation requires an examination of the statutory provisions as they exist. It is not a matter of dispute that the term 'soap' was sought to be distinguished into two different components under the Eleventh Schedule, namely 'soap' used as a matter of a toiletry in Item No.4 and 'soap' used for purposes of a surface detergent or a washing soap in the nature of a detergent in Item Nos.20 and 21. Having so classified 'soap' into two categories referred to here-in-above, the legislature in its wisdom omitted Item Nos.20 and 21 by the Finance Act, 1981 with effect from 1.4.1982. Thus viewed, we are satisfied, that the legislature by a conscious application of mind while retaining 'soap' as toiletry in Item No.4, excluded 'soap' by the omission of Item Nos.20 and 21 vide the Finance Act, 1981. Thus viewed, it is clear that soap as a surface detergent or as washing soap is no longer a part and parcel of the Eleventh Schedule. Investment made towards plant and machinery for manufacture of surface detergent or washing soap (as distinct from toilet soap) is liable to be treated as investment allowance. Accordingly, we find no merit in the first contention advanced by the learned counsel for the applicant-revenue. 9) In so far as the second contention advanced by the learned counsel for the applicant-revenue is concerned, we are of the view that Tariff Item No.3401 of the Central Excise Tariff Manual is not relevant for adjudication of the controversy. The same has nothing to do with the I.T.R.Nos.203 & 204 of 1995 11 Eleventh Schedule appended to the Act. Had item No.3401 of the Central Excise Tariff Manual been incorporated in the Eleventh Schedule of the Act, as has been depicted in the Central Excise Tariff Manual, one may have examined the issue further. However, so far as the Eleventh Schedule of the Act is concerned, 'soap' as an item was bifurcated and incorporated in Item No.4 as a toiletry and in Item Nos.20 and 21 as a surface detergent or a washing soap. The exclusion of Item Nos.20 and 21 by the Finance Act, 1981 depicts the conscious determination by the Legislative Authority to exclude surface detergents or washing soap from the Eleventh Schedule. Therefore, we find no merit in the second contention as well. 10) Having recorded the aforesaid conclusions, we are satisfied that the reference made to this Court has to be answered against the revenue. Ordered accordingly. (J.S.Khehar) Judge (Nawab Singh) 25.2.2009 Judge AS