Calcutta High Court
Commissioner Of Income-Tax vs Madgul Udyog on 20 January, 1992
Equivalent citations: [1994]208ITR541(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference made at the instance of the Revenue, the following common question of law has been referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961, to this court for its opinion for the assessment years 1975-76 and 1978-79 to 1980-81:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the activity of the construction of multi-storeyed buildings consisting of flats is nothing but manufacture and production of flats which are articles within the meaning of Clause (iii) of Sub-section (4) of Section 80J of the Income-tax Act, 1961, and in that view in further holding that the assessee is entitled to relief Under Section 80J for the assessment years 1975-76 and 1978-79 to 1980-81 ?"
2. Shortly stated, the facts are that the assessee is a partnership firm. At all material times during the relevant previous years corresponding to the assessment years under reference, the assessee-firm was engaged in the business of constructing multi-storeyed buildings for sale of apartments contained therein. The assessee-firm claimed deduction in respect of profits and gains derived from its aforesaid activity under Section 80J of the Income-tax Act, 1961. The assessee's claim for deduction under Section 80J was negatived by the Assessing Officer on the ground that the construction of multi-storeyed buildings could not amount to manufacture or production of any "article".
3. But the Commissioner of Income-tax (Appeals) for the assessment years 1978-79 to 1980-81 and the Appellate Assistant Commissioner of Income-tax for the assessment year 1975-76 allowed the said deduction treating the assessee as an industrial undertaking manufacturing or producing an "article" being the multi-storeyed building to qualify for the deduction.
4. The Tribunal concurred with the view and allowed the relief to the assessee under Section 80J of the Income-tax Act, 1961,
5. The entire question hinges on the interpretation of Clause (iii) of Sub-section (4) of Section 80J as the question itself purports. It is necessary to keep in mind that Section 80J allows deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business subject to satisfaction of the conditions that circumscribe the grant of the relief by way of deduction from income exigible to tax. Apart from being a newly established industrial undertaking, a claimant of the relief has, inter alia, to satisfy Sub-section (4) of the said Section 80J. The only question that arises for consideration in this case is as to whether the activity of constructing multi-storeyed buildings and selling flats therein comes within the purview of the expression "manufactures or produces articles" as contained in Section 80J(4)(iii) of the Income-tax Act, 1961. Clause (iii) of Sub-section (4) of Section 80J, which is material for our purpose, is set out as under :
"5. 80J(4)(iii) : it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles to operate such plant or plants, at any time within the period of thirty-three years next following the first day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking ;"
6. We are concerned here with the expression "it manufactures or produces articles". The Revenue's contention is that when the provisions require the undertaking to manufacture or produce articles as a condition precedent to the entitlement to the deduction, construction of multi-storeyed buildings could not come within the sweep of this expression. Buildings could not be construed to be "articles". Nor could buildings be understood as being manufactured or produced when they are constructed. The decisions from which the Revenue has drawn inspiration are fairly numerous. The latest decision that buttresses the Revenue's contention is CIT v. Oricon Pvt. Ltd. [1989] 176 ITR 407 (Bom), which again followed some earlier decisions. The decisions are urged as relevant though they concern the definitions of "industrial company" under the Finance Act. The question is, however, of a like nature though arising from a different part of the tax law, viz., the concessional tax rate for an "industrial company". There is a fundamental unity in that both the provisions confer benefit on industry of specified segments. In this decision of the Bombay High Court, a company engaged in construction works for buildings was not treated as an industrial company within the definition of the expression "industrial company" appearing in Section 2(7) of the Finance Act. The decision is, as indicated, the reaffirmation of the same view taken by the Bombay High Court earlier in CIT v. N. U. C. (P.) Ltd. [1980] 126 ITR 377 (Bom).
7. The definition of industrial undertaking in the Finance Act has been consistently as follows :
"' Industrial company' means a company which is mainly engaged in the, business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining."
8. What is of special note is the distinction maintained in the definition between the activities of "construction" and the activities of "manufacture or processing". The definition keeps the two parts in a discreet manner. The Bombay High Court held that the definition of industrial company covers only that construction company which is engaged in the construction of ships and by implication excludes from it a company engaged in the construction of anything other than ships. Therefore, the making of doors, window-frames and concrete beams and slabs was admittedly in the process of construction of buildings. These components of a building are manufactured but the manufacturing constitutes activity ancillary to the building construction. It could be argued that the making of doors and window-frames, concrete beams and slabs comes within the word "manufacture". But there was no scope for dividing the business of construction of buildings into two parts. For, neither the frames nor the slabs nor the beams were manufactured or prepared independently of the building or sold as such in the market as independent goods. They are only components of the building or ancillary to the construction of the building and, therefore, a company engaged in constructing buildings could not fall within the definition of the industrial company. Thus a company engaged in the construction of buildings was held not to be an industrial company.
9. This particular view has been restated by the Bombay High Court in CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696 (Bom).
10. This view that the activity of construction of a building and theactivity of manufacturing goods are not amenable to equation is also shared by the Delhi High Court in CIT v. Minocha Brothers P. Ltd. [1986] 160 ITR 134. Incidentally, the company may manufacture the components such as doors, window-frames, concrete beams and slabs for such construction. But it was not that the company was wholly or mainly engaged in the manufacture or processing of goods. The business was that of constructing buildings. The activity of manufacture as could be present was only an ancillary or incidental activity of the main activity of construction of buildings. Such feeding activity cannot lend to the company the character of an "industrial company".
11. This court also took the same view in CIT v. Unit Constructions, Income-tax Reference No. 19 of 1979 and Income-tax Reference No. 599 of 1979 in a judgment delivered on February 23, 1989.
12. Mr. N. K. Poddar, learned counsel for the assessee, however, distinguished the cases relied upon by learned counsel for the Revenue on the ground that those decisions are rendered in different contexts. Therefore, they cannot afford a matching answer to the question, whether constructing a building is equivalent to producing or manufacturing an "article". He urged that the definition of "industrial company" is on a different plane. It refers to manufacturing or processing of goods while Clause (iii) of Sub-section (4) of Section 80J of the Income-tax Act, 1961, speaks of producing or manufacturing "articles". The use of the word "article" in contradistinction to the word "goods" makes all the difference and the decisions cited by the Revenue in the context of the definition of "industrial company" are contended to be of no relevance. According to him, the word "article" is a word of more generic nature than the word "goods". He cites in support the statement of the meaning of the word "article" as appearing in the Shorter Oxford English Dictionary. According to it, "article" means "a commodity, a piece of goods or property". He lays the foundation for his case on the occurrence of the word "property" in the dictionary meaning. The fundamental point in his argument is that "article" being synonymous with "property" can embrace within its connotation all immovable properties including a building.
13. He seeks to fortify his case by citing the decision of the Orissa High Court in CIT v. N. C. Budharaja and Co. [1980] 121 ITR 212. There, the Orissa High Court held that a firm engaged in the business of construction of dams was entitled to the benefit of deduction under Section 80HH of the Income-tax Act, 1961, since, according to the High Court, the argument that a dam could not be an article is not warranted. The word "article" need not be confined to movable property. Learned counsel for the assessee sought to impress on us that since the provisions of Section 80HH are substantially in pari materia with the provisions of Section 80J with the only difference that the relief under Section 80HH is available to a new industrial undertaking in a backward area, the decision of the Orissa High Court should apply here. In the words of the learned judges of the Orissa High Court there would be no justification to hold that a dam is not an "article" which according to the dictionary meaning of the term is a piece of property.
14. The Orissa High Court was of the view that it is not the intention of Parliament in Sub-section (2)(i) Of Section 80HH (substantially similar to Sub-section (4)(iii) of Section 80J) to exclude industrial undertakings which did not manufacture or produce articles from the benefit of the section and even if there was an industrial undertaking not engaging itself in manufacture or production of article it could have the benefit if the work has begun on the specified date in a backward area.
15. This latter part of the judgment, however, creates difficulty. We do not, in fact, find any distinction between Clause (iii) of Sub-section (4) of Section 80J and Clause (i) of Sub-section (2) of Section 80HH. Both the provisions use the identical words "manufacture or produce articles". So, production or manufacture of articles is the sine qua non. It is hard to reconcile our perception of the provisions of Section 80HH to the view taken by the Orissa High Court. Anyway, with great respect, we express our inability to subscribe to the conclusion that manufacture or production of "articles" is not material or that the word "article" can denote an immovable property like a building.
16. With regard to the view that the word "articles" is too wide to warrant exclusion from its scope of immovable property, we are of the opinion that the mere fact that the dictionary meaning of "article" includes "a piece of property" has no impelling force to conclude that the word also denotes an immovable like a building. The meaning of a good many words has such variegation as lends them to obscurity unless viewed and construed in the proper light and in the context. "Property" is one such word whose meaning has a variety of shades. But the decision in CIT v. N.C. Budharaja and Co. [1980] 121 ITR 212 (Orissa) on the whole rests on this legal construction of the word "article". We shall address ourselves to this question later.
17. The next case relied upon by learned counsel for the assessee is CIT v. Pressure Piling Co. (India) P. Ltd. [1980] 126 ITR 333 (Bom). This case is of a different strain. Here the assessee was not, in fact, constructing any building. It was making concrete mixture subject to certain process under pressure along with iron bars to serve as piles for the foundation on which the building to be constructed is to stand. Each pile was considered by the Bombay High Court as an object having independent existence to constitute an article. The mere fact that all the activities for manufacturing the piles had been carried on at the site of the construction works and that the piles became part of the structure put up on them does not alter the character of the piles being independent products. It was not a case where the construction of the building was held by the Bombay High Court on par with manufacturing an article. Therefore, the decision in this case relied upon by learned counsel of the assessee does not stand him in good stead.
18. The next case cited is the decision of the Madras High Court in CIT v. M. E. Gopal [1965] 58 ITR 598. The reliance on this case is also misplaced, because the decision in the case was that the assessee could be said to be producing or manufacturing articles where he converts boulders into small stones with the aid of machinery. The meaning of the word "manufacture" is by, now well-settled. It implies any process of altering some raw materials or any other product into another product known as a distinct and separate commodity from what it is converted from and is identified by a different name in the market. It is not the case that the Madras High Court held that the assessee by constructing a building manufactures an article. The decision is correct on its own facts and is of no aid to us.
19. We may now proceed to examine the cardinal question whether "article" can include an immovable property and, therefore, land and building. It is now well-settled that the words which are not applied to any particular science or art are to be construed as they are understood in common language. The obvious and popular meaning of the language should be followed. If a statute contains language which is capable of being construed in a popular sense, such a statute is not to be construed according to the strict or technical meaning of the language contained in it, but it is to be construed in its popular sense that people conversant with the subject-matter with which the statute is dealing could attribute to it. In deciding the ordinary and natural meaning of the words, one must take into account the ordinary reasonable implications of the words. What the ordinary man would infer without special knowledge has generally been called the natural and the ordinary meaning of the words. That is also regarded as part of their natural meaning.
20. The question, therefore, is whether a layman would use the word "article" to mean a building. In our view, in the popular acceptation of the word "article", it would be ludicrous to suggest that an immovable property is an article. In common parlance article only refers to a movable property. It is no doubt true that when the word has not been statutorily defined or judicially interpreted, the court may take the aid of the dictionary to ascertain the meaning of a word, in common parlance, bearing in mind that a word is used in different senses according to the context and a dictionary gives all the meanings of a word and the court has, therefore, to select the particular meaning which is relevant to the context in which it has to interpret that word.
21. When the Shorter Oxford English Dictionary defines "article" to include as one of its meanings "a piece of property", it merely implies movable property. The word "a piece of property" cannot be generalised to connote any and every kind of property. But Webster's Third International Dictionary defines "article" as "piece of goods : commodity".
22. Therefore, the view of the Orissa High Court that the word "article" does not preclude immovable property, with respect, is not the sense in which the word "article" is understood in popular parlance. Even the lawmakers have never associated immovable property with the word "article". This is clear from the fact that the founding fathers of our Constitution have clearly equated "article" only with "goods". In Clause (12) of Article 366 of the Constitution of India, the word "goods" has been defined as follows :, "'Goods' includes 'all materials, commodities and articles'."
23. From this definition, it can be formidably argued that all "articles" are "goods", according to the Constitution of India. That being so, it is idle to say that the word "articles" could be separated from the word "goods" or the use of the word "goods" in place of "articles" or vice versa could make any difference. Learned counsel for the assessee had drawn a distinction between the use of the word "goods" in Section 2(7)(d) of the Finance Act and the use of the word "articles" in Clause (iii) of Sub-section (4) of Section 80J on the ground that in the former what is to be manufactured is "goods" while in the latter the ultimate product is "article". In our view, this is of no consequence. If we go by the definition of "goods" in Clause (12) of Article 366 of the Constitution of India, it is immaterial whether the object of manufacture or production has been referred to as "goods" or "articles".
24. Learned counsel for the assessee sought to make much capital of the fact that the dictionary meaning of the word "article" (vide the Shorter Oxford English Dictionary) includes the word, "property". The expression "property" is a highly abstract concept. It is of no aid unless it is specifically indicated that the property referred to also includes immovable property. There are various classes of properties. In the present day world of technology even the expertise and technical know-how, data, designs, patents and copyrights are accepted as intellectual property but on that score, such property could not be an "article".
25. The word "article" also occurs in the Indian Standards Institution (Certification Marks) Act, 1952. Section 2(c) of that Act defines the Indian standard as the standard established and published by the Indian Standards Institution in relation to any article or process, indicative of the quality and specification of such article or process. Here, the word "article" refers to "goods". The word "article" is also defined in Section 2(a) of that Act. The term in that Act means any substance, artificial or natural or partly artificial or partly natural, whether raw or partly or wholly processed or manufactured.
26. In regard to designs, the term means any article of manufacture and any substance, artificial or natural or partly natural and partly artificial, vide Section 2(2) of the Patents and Designs Act, 1911.
27. We have referred to these statutes only to explain that the word "articles" of manufacture for trade, in its common acceptation, refers to goods and commodity. The word cannot but mean movables and excludes immovables. With respect, we differ from the view of the Orissa High Court wherein it includes in the meaning of the word immovable property like a building.
28. Even abroad, the meaning of "articles" in the commercial sense is the same as the meaning of the word "goods". For example, the Constitution of the United States of America in the interests of the Federating States prohibits levy of tax or duty on interstate movement of goods in, the following words : "No tax or duty shall be laid on the articles exported from any State ; vide Article I, Section 9".
29. There could, of course, be some expansiveness in the expression "articles" in contrast to the word "goods". But in the context of manufacturing or producing articles and deriving profits of business, articles should be synonymous with the word "goods".
30. Learned counsel for the assessee has conceded before us that "goods" do not and cannot include immovable property. This view is unexception able. It is the core of the whole matter. But it is equally true that "goods" being a word interchangeable for the word "article" and vice versa in the commercial sense, the word "article" cannot likewise include immovable property including house property.
31. That apart, we have already observed, the use of the word "construction" in contrast and contradistinction to the words "manufacturing and processing" in the definition of "industrial company" in the Finance Act. The construction is used as an activity separate and distinct from manufacturing and in the definition of an "industrial company" it is only construction of ships which is included and no other construction. This also, to our mind, carries an important message, i.e., "construction" and "manufacture or production" are different denominations in the industrial activity.
32. We have earlier referred to the principle of interpretation of words conformable to common parlance. Here also the suggestion to a layman that a building is manufactured will simply hit him with a shock of surprise. It makes sense to him if the building is said to be constructed.
33. The use of the verbs "producing" or "manufacturing" and the conspicuous absence of the word "constructing" anything whatsoever makes it clear that the word "article" in Sub-section (4) of Section 80J of the Income-tax Act, 1961, can never embrace within its import a building or a house property.
34. We are of the opinion that the expression "manufactures or produces articles" cannot comprehend a case of construction of a building or apartments in a building. The Tribunal was not correct in holding that the activity of the construction of multi-storeyed buildings consisting of flats is nothing but manufacture and production of articles within the meaning of Clause (iii) of Sub-section (4) of Section 80J of the Act. We, therefore, answer the question in the negative and against the assessee.
35. There will be no orders as to costs.
Shyamal Kumar Sen , J.
36. I agree.