Income Tax Appellate Tribunal - Delhi
Hilton Rubbers (P.) Ltd. vs Income-Tax Officer on 31 May, 1996
Equivalent citations: [1982]1ITD106(DELHI)
ORDER
Shri D. S. Meenakshisundaram Judicial Member
1. The appellant is a private limited company carrying on business in the manufacture of rubber belting. This appeal relates to its assessment for 1977-78 for the previous year ended 31-3-1977.
2. The first objection in this appeal is to the disallowance of the appellant's claim for investment allowance under section 32A (1) of the Income-tax Act., 1961("the Act"). The appellant claimed before the ITO that it was entitled to such investment allowance under section 32A of the Act in respect of additions to plant and machinery of the value of Rs. 1,31,456 during the previous year. This claim of the appellant was based on the ground that it was a small-scale industrial undertaking within the meaning of section 32A (2) (b) (ii). The appellant claimed before the ITO that the value of two items of machinery, namely, "tensile tester" and "humidity control cabinet", amounting to Rs. 56,180, should be deducted from the value of plant and machinery, amounting to Rs. 10,29,524, as disclosed in the balance sheet as on 31-3-1977 and that if the value of the said two items was excluded, the value of the plant and machinery would be Rs. 9,73,344 only and that the appellant would be entitled to be treated as small-scale industrial undertaking to which the benefit of section 32A (1) would be admissible. It was the argument of the appellant that these two items "tensile tester" and "humidity control cabinet" should not be considered as plant and machinery, but should be considered as machine tools.
3. The ITO, however, did not accept these contentions of the appellant. He pointed out that these two items of machinery, namely, "tensile tester"and "humidity control cabinet" were considered by the appellant himself as part of its plant and machinery, as disclosed in its balance sheet, which also had a separate head for Tools and Equipments, the value of which was disclosed at Rs. 1,15,867 as on 31-3-1977. The ITO, therefore, rejected the appellant's claim that it was a small-scale industrial undertaking and held that it was not entitled to the deduction of investment allowance under section 32A (1).
4. On appeal, the appellant reiterated its submissions that were urged before the ITO. The Commissioner (Appeals), however, did not accept these contentions. He found that apart from the ledger account headed "Plant and Machinery", the appellant had in its account several other account of assets which really constituted machinery and plant, as defined under section 43(3) of the Act, which definition was specifically applicable to section 32A, as could be seen from the opening words of section 43A, and Para (III), part I of Appendix I of the Income-tax Rules. The Commissioner (Appeals) found the value of these items numbering 10, such as, air-conditioning plant, air-conditioners, cars, typewriters, electric fans and equipments, office equipments intercom, cooler, refrigerators and cycles, amounted to Rs. 1,89,257 as on 31-3-1977, and that if these items were also included in the value of plant and machinery, the appellant could not be considered as a small-scale industrial undertaking. The Commissioner (Appeals) pointed out that the appellant did not object to his finding that the above items, costing Rs. 1,89,257, were machinery and plant. He rejected the appellant's contentions in the following works in paragraph 2.5 of the order :
"2.5 After careful consideration, I am unable to accept the contention raised. The proviso to section 32A (1), by plain reading as well as recognized rules of interpretation, operates only in relation to sub-section (1). Its purpose is merely to specify the types of assets all of which clearly fall under the head 'Machinery and Plant' referred to in sub-section (1) on which no deduction of investment allowance shall be given. The purpose of section 32A (2) is entirely different. It fixes two things -
(i) the date beyond which only new machinery and plant would have to be installed in order to qualify for grant of the allowance; and
(ii) the type of industrial undertakings which alone would be eligible for the allowance.
In accordance with Government's policy to encourage the development of small-scale industrial undertakings as a means of alleviating poverty and unemployment in the country and also to ensure that large-scale industrial undertakings, which produce specially low-priority or luxury goods, do not become entitled to any special tax concession at the cost of the common man, section 32A (2) defines what is a small-scale industrial undertakings and allows such undertaking the tax concession irrespective of what it produces, but proceeds to state that all other industrial undertakings would be eligible for the concession only if they produce the articles listed in the Ninth Schedule. The criterion fixed to determine whether an industrial undertaking is small-scale or not is 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, and the line has been drawn at Rs. 10 lakhs. The expression "machinery and plant" in section 32A (2) is qualified only by the exclusion of tools, jigs, dies and moulds as clearly specified in the sub-section itself and I see no justification to exclude anything else, in the absence of either words to that effect in the provision or anything else repugnant to a plain interpretation of the provision. If the learned representative's contention were to accepted, undertakings which are really not small-scale industrial undertakings, as the Legislature contemplated, would walk away with investment allowance which was not meant for them. Logically and in the context of the provision, the scale or magnitude of an industrial undertaking is more properly measured by the aggregate value of its entire machinery and plant than only a portion of such value which would vary from case to case. The exclusion of tools, etc., is based on the principle that such assets are generally short lived and serve only ancillary purpose in the processes of manufacture and production and also may need frequent replacement."
The Commissioner (Appeals), therefore, held that the aggregate value of the assessee's plant and machinery, as prescribed in section 32A (2), exceeds Rs. 10 lakhs and that, consequently, the appellant was not a small-scale industrial undertaking and that the ITO was correct in rejecting its claim for deduction of investment allowance. The Commissioner (Appeals) then proceeded to examine the appellant's claim that the two items of machinery, namely, "tensile tester" and "humidity control cabinet" were tools within the meaning of section 32A (2). We also examined the appellant's claim that lathes, costing Rs. 55,602, included under the head "Plant and machinery" should also be treated as tools. In other words, the appellant's claim was that the total cost of these three items amounting to Rs. 1,11,783 should be excluded from the value of plant and machinery, as they were tools within the meaning of section 32A (2). After examining the dictionary meaning of the word "tools", in paragraph 2.8 of its order, the Commissioner (Appeals) held that these three items should be treated as tools, as contended by the appellant. He, however, held that this would not help the assessee in getting investment allowance as against the deduction of Rs. 1,11,783 from the cost of machinery and plant amounting to Rs. 10,29,524, an amount of Rs. 1,89,257 would have to be added, thus taking the aggregate cost well above the limit of Rs. 10 lakhs. He, therefore, upheld the ITO's action in rejecting the appellant's claim for deduction of investment allowance.
5. Before us, Shri C. S. Aggarwal, the learned counsel for the appellant, submitted that the items of machinery and plant, in respect of which the appellant claimed investment allowance, did not fall under any of the four clauses (a) to (d) of the proviso to section 32A (1) and that the appellant was a small-scale industrial undertaking within the meaning of section 32A (2) (b) (ii) read with its Explanation. He argued that the Commissioner (Appeals) was not justified in including the 10 items, the cost of which was Rs. 1.89,257, while excluding the cost of three items of tools amounting to Rs. 1,11,783. The learned counsel contended that what was contemplated in section 32A (2) for determining the nature of a small-scale industrial undertaking was only machinery and plant used in the actual manufacture or production of articles to determine their ceiling of Rs. 10 lakhs specified in clause (2) of Explanation to section 32A (2). According to Mr. Aggarwal, this was the meaning of the words "for the purposes of business of manufacture or production of any article or thing", specified in section 32A (2) (b) (iii). Shri Aggarwal submitted that these words do not comprehend other activities in the business of appellant. He, therefore, argued that on the findings recorded in paragraphs 2.8 and 2.9 of his order, the Commissioner ought to have held that the appellant was a small-scale industrial undertaking and accordingly directed the ITO to allow investment allowance under section 32A (1).
6. On behalf of the revenue, Shri Eradi, the learned departmental representative, laid emphasis on clause (2) of the Explanation to sections 32A (2) and submitted that the interpretation sought to be placed by the learned counsel omits to take into account the words appearing in the main section and also in clause (2) of the Explanation. Shri Eradi argued that there was no justification for the narrow construction sought to be placed by the learned counsel, as what was contemplated for the purpose of deduction of investment allowance was any new machinery or plant installed after 31-3-1976 for the purposes of business of manufacture or production of any article or thing in a small-scale industrial undertaking. The learned departmental representative invited our attention to the identical language employed in all the three sub-clauses of clause (b) of section 32A (2) and also in section 32A (1) and submitted that the construction placed by the learned counsel would render the words "of business" in each of the three sub-clauses meaningless. He therefore, argued that the Commissioner (Appeals) had rightly included all the other items of machinery which were omitted to be considered by the ITO in his order, while examining the appellant's claim for investment allowance as a small-scale industrial undertaking. Shri Eradi further objected to the findings of the Commissioner in paragraphs 2.8 and 2.9 of his appellate order holding that the three items of machinery, the cost of which was Rs. 1,11,783 should be excluded, as they represented tools within the meaning of clause (2) of Explanation to section 32A (2). Shri Eradi submitted that there was no warrant for adopting the dictionary meaning to interpret the word "tools" ignoring the context and setting in which the said word had been used by the Parliament in clause (2) of Explanation to section 32A (2). The learned departmental representative, therefore, submitted that the findings of the Commissioner on this point should be reversed.
7. The appellant's claim for deduction of investment allowance is purely base on its contention that it is a small-scale industrial undertaking contemplated in section 32A (2). The question, therefore, for our consideration is whether the appellant is such a small-scale industrial undertaking which qualifies for the deduction of investment allowance contemplated in section 32A (1). We set out below section 32A (2) with its Explanation for facility of reference :
"(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.
Explanation : For the purposes of this sub-section and sub-sections (2B) and (4) -
(1) 'new ship' or 'new aircraft' or 'new machinery or plant' shall have the same meanings as in the Explanation to clause (vi) of sub-section (1) of section 32;
(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 ten 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."
8. From a perusal of the above provision of law, it would be clear that an industrial undertaking is regarded as a small-scale industrial undertaking with reference to the total value of the plant and machinery installed as on the last day of the previous year for the purposes of its business. The ceiling on the total value of such machinery and plant is fixed at Rs. 10 lakhs by the statute to enable an industrial undertaking to qualify as a small-scale industrial undertaking.
9. In the present case, there is no dispute that the actual cost of machinery and plant as on 31-3-1977, as per the assessee's books of account, amounted to Rs. 10,29,524. There is also no dispute about the cost of the following ten items of the plant and machinery as on 31-3-1977, as set out in paragraph 2.3 of the Commissioner's order :
Item Cost as on 31-3-1977
Rs.
Air-conditioning plant 48,291
Air-conditioners 35,260
Cars 30,031
Typewriters 26,993
Electric fans and equipments 17,764
Office equipments 16,425
Intercom 5,654
Cooler 4,143
Refrigerator 3,445
Cycles 1,251
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1,89,257
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It is the contention of the learned counsel that these ten items of machinery and plant, though used for the purpose of the business of the appellant, were not utilized in the actual manufacture or productions of the rubber belting manufactured by the assessee and as such, they should be left out of the consideration to determine the total value of plant and machinery specified in clause (2) of Explanation to section 32A. We are unable to accept this contention of the learned counsel. Clause (2) of the Explanation specifies only four items to be excluded from the value of machinery and plant to compute the aggregate value of the machinery and plant installed in a small-scale industrial undertaking. They are "tools, jigs, dies and moulds". Apart from these four items, no other item of machinery or plant installed in a small-scale industrial undertaking should be excluded. Further, if the Parliament intended that only such of those items of machinery and plant which were actually used in the manufacture or production of any article or thing should be considered the language of section 32A (2). and its Explanation would have been entirely different. We find that the emphasis is laid on the utilization been entirely different. We find that the emphasis is laid on the utilization of the new machinery and plant installed for the purposes of four types of business, specified in section 32A (2). They are the following :
(i) business of operation of ships or aircrafts;
(ii) business of generation or distribution of electricity or any other form of power;
(iii) business of manufacture or production of any article or thing in a small-scale industrial undertaking;
(iv) business of construction, manufacture or production of any article or thing other than an article or thing specified in the list in the Eleventh Schedule, by any other industrial undertaking.
We are unable, to agree with the learned counsel that the Parliament has used the words "for purposes of business" in these various clauses with out any significance or meaning. On the contrary, construction placed by the learned counsel omits to give any meaning to these words and further narrows down the scope and meaning of the words used in the section. In our view, there is no justification or warrant for such an interpretation placed by the learned counsel. Accordingly, we reject the submission of the learned counsel in this regard.
10. We may further point out that the expression "for the purposes of the business" has been judicially interpreted by the Supreme Court in CIT v. Malayalam Plantations Ltd. (1953) 53 ITR 140 as follows :
"The expression 'for the purposes of business' is wider in scope that the expression 'for the purpose of earning profits'. Its range is wide : it may take in not only the day-today running of the business but also the rationalisation of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and properties from expropriation, coercing process or assertion of hostile items; it may also comprehend payment of statutory dues and tax, imposed as a pre-condition to commerce or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business."
The expression construed by the Supreme Court occurs in section 37(1) of the Act. The same expression is used by the Parliament in section 32A, with which we are presently concerned. If the intention of the Parliament was to include only the machinery or plant which is actually used for the manufacture or production of any articles or things, the Parliament would have expressly stated so. By accepting the assessee's contention, we will be re-writing section 32A (2) (b) (ii) in the following manner :
"In a small-scale industrial undertaking for the purposes of manufacture or production of any article or thing".
In our view, there is no warrant for such an interpretation and it is not open to us to omit any words used by the Legislature in a provision of law, while interpreting the section.
11. In CIT v. Shahzada Nand & Sons (1966) 60 ITR 392, the Supreme Court held that in a taxing Act, one has to look merely at what is clearly stated, and in a case or reasonable doubt, the construction most beneficial to the subject is to be adopted and that even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. The Supreme Court further held that the underlying principle is that the meaning and intention of a statute must be collected from the plain and unambiguous expression used therein, rather than from any notions, which may be entertained by the Court as to what is just or expedient and that the expressed intention must guide the Court.
12. Respectfully following these principles laid down by the Supreme Court, we hold that there is no warrant for omitting the two words "of business" in the expression "for the purposes of business of manufacture or production of any article or thing" in section 32A (2) (b) (ii). We, therefore, reject the submissions of the learned counsel and agree with the reasoning and conclusion of the Commissioner (Appeals) in paragraph 2.5 of his order, which we have have extracted above.
13. At the same time, we are unable to accept the findings of the Commissioner (Appeals) for the exclusion of the three items of machinery, namely, "tensile tester", "humidity control cabinet" and "lathes" as tools within the meaning of that word appearing in clause (2) of Explanation to section 32A (2). In paragraph 2.5 of his order, which we have quoted above, the Commissioner has properly and correctly explained why tools are excluded for determining the ceiling of the value of plant and machinery by this Explanation in the following words :
"The exclusion of tools, etc., is based on the principle that such assets are generally short-lived and serve only ancillary purposes in the processes of manufacture and production and also may need frequent replacement".
Having rightly brought out the true nature, purpose and use of the tools excluded by the Explanation, the Commissioner has erred in construing these three items of machinery as "tools".
14. In CGT v. N. S. Getty Chettiar [1971] 82 ITR 599 the Supreme Court has held that words in a section of a statute are not to be interpreted by having those words on one hand and the dictionary in the other; and that in spelling out the meaning of a word in a section, one must take into consideration the setting in which those terms are used and the purposes intended to serve. When we apply these tests to the facts of the present case, we are unable to agree with the learned counsel that these three items of machinery should be classified as tools.
15. The functions of the "tensile tester" and "humidity control cabinet" have been described by the assessee in the following manner before us :
"Functions of the tensile tester - It is an equipment to test the breaking strength of the fabric of finished belting when tested in the manner described in the specifications. If the breaking strength of any individual fabric ply of the finished belting is found less than 30% of the average specified, the belting shall be considered to have failed to comply with the tensile test requirement.
Functions of the humidity control cabinet-The samples before testi ngare required to be conditioned for a specified period at 27+2 deg. C and 65+ relative humidity. To achieve these conditions, a hum iditu chamber is employed. Thus by the humidity contral cabinet, an artifical temperature is created in the laboratory for the purpose of testing the strength of fabric. It would thus be seen that these two items of machinery cannot be regarded as mere tools in the ordinary sense of the word. Similar is the position in regard to the "lathes". It is not the case of the assessee that these three items of machinery have a short span of life and that they need frequent replacements. We, therefore, accept the contentions of the revenue on this aspect of the case and reverse the findings of the Commissioner (Appeals) in paragraph 2.9 of his order and hold that these three items of machinery should also be included for purposes of determining the ceiling specified in clause (2) of the Explanation to sction 32A (2) (b).
16. For the reasons discussed above, we confirm the order of the Commissioner (Appeals) rejecting the assessee's claim for deduction of investment allowance under section 32A (1), as a small-scale industrial undertaking. We may also state that in view of the finding on this aspect of the case, none of the authorities below, nor ourselves have gone into the question whether the assessee satisfies the other conditions laid down in section 32A for allowance of the deduction of investment allowance, as the same is unnecessary.
17 & 18. (These paras are not printed here as they pertain to minor issues.)
19. In the result, the appeal is dismissed.