Calcutta High Court
Brooke Bond India Limited vs Commissioner Of Income Tax on 18 June, 2018
Author: I.P. Mukerji
Bench: Amrita Sinha, I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction (Income Tax)
Original Side
Present :- Hon'ble Mr. Justice I.P.Mukerji
Hon'ble Mrs. Justice Amrita Sinha
ITR No.8 of 2000
Brooke Bond India Limited
Vs.
Commissioner of Income Tax, W.B. - II, Calcutta
For the Appellant :- Mr. P. Pardiwalla, Sr. Adv
Mr. Somak Basu.
For the Respondent :- Ms. Smita Das De.
Judgement On :- 18.06.2018
I.P. MUKERJI, J.:-
I have had the privilege to go through the draft judgment prepared by
my sister Justice Amrita Sinha. I wholeheartedly agree with it. I
would like to add a few observations of my own.
This is a reference under Section 256(1) of the Income Tax Act, 1961.
The Section is as follows:
"Section-256. Statement of case to the High Court.- (1) The
assessee or the Commissioner may, within sixty days of the date upon
which he is served with notice of an order passed before the 1st day of
October, 1998, under section 254, by application in the prescribed
form, accompanied where the application is made by the assessee by
a fee of two hundred rupees, require the Appellate Tribunal to refer to
the High Court any question of law arising out of such order and,
subject to the other provisions contained in this section, the Appellate
Tribunal shall, within one hundred and twenty days of the receipt of
such application, draw up a statement of the case and refer it to the
High Court :
Provided that the Appellate Tribunal may, if it is satisfied that the
applicant was prevented by sufficient cause from presenting the
application within the period hereinbefore specified, allow it to be
presented within a further period not exceeding thirty days.
(2) If, on an application made under sub-section (1), the Appellate
Tribunal refuses to state the case on the ground that no question of
law arises, the assessee or the Commissioner, as the case may be,
may, within six months from the date on which he is served with notice
of such refusal, apply to the High Court, and the High Court may, if it
is not satisfied with the correctness of the decision of the Appellate
Tribunal, require the Appellate Tribunal to state the case and to refer it,
and on receipt of any such requisition, the Appellate Tribunal shall
state the case and refer it accordingly.
(2A) The High Court may admit an application after the expiry of the
period of six months referred to in sub-section (2), if it is satisfied that
there was sufficient cause for not filing the same within that period.
(3) Where in the exercise of its powers under sub-section (2), the
Appellate Tribunal refuses to state a case which it has been required
by the assessee to state, the assessee may, within thirty days from
the date on which he receives notice of such refusal, withdraw his
application, and, if he does so, the fee paid shall be refunded."
In an appeal (ITA No.2189 CAL of 1991) of the applicant/assessee for
the assessment year 1983-1984, the Income Tax Appellate tribunal
"B" Bench, Calcutta (hereinafter referred to as the tribunal), on 20th
October, 1997 disposed of it in the following way:
"The assessee's claim for Investment Allowance of Rs.38,70,590/-
was reduced to Rs.29,05,913/-. On verification of the details the
Assessing Officer found that the assessee had claimed Investment
Allowance on weighing machines and other machinery which were not
directly engaged in the production and so was the case with regard to
computer. The CIT (Appeals) confirmed the assessment order after
observing that no satisfactory explanation was given by the assessee
as to why the claim should be accepted.
At the time of hearing before us, it was submitted that the assessee
was engaged in the manufacturing of packet tea, coffee, instant coffee,
etc, and this was concluded by the Tribunal's Order as also by the
jurisdictional High Court at Calcutta in assessment years 1981-82 and
1982-83. It is further submitted that even in assessment year 1983-84
when revision took place under Section 263 the matter was carried
before the Tribunal and the point was decided in favour of the
assessee.
The learned Departmental Representative submitted that now the
Calcutta High Court in 206 I.T.R 367 in the case of Apeejay Pvt. Ltd Vs.
CIT (Cal) had decided the controversy against the assessee. Faced
with this situation, the learned counsel for the assessee Dr. D. Pal only
submitted only submitted that the decision of the Calcutta High Court
was against the decision of the Supreme Court in 47 S.T.C 124 in the
case of Chowgule and Co. Pvt. Ltd. Vs. Union of India (S.C).
Ongoing through the judgment of Apeejay Pvt. Ltd. (Supra) we find that
the Supreme Court decision in the case of Chowgule and Co. Pvt. Ltd.
has been considered by the Calcutta High Court and thereafter the
controversy is decided against the assessee, where it was held that
blending amounts to processing, but not manufacture or production of
an article and input and output remains tea only and no commercially
new and distinct commodity was brought existence. Apart from this,
the basis on which the Assessing Officer did not grant Investment
Allowance on certain machinery is find that those machinery were not
directly engaged in the production and this finding is not in any way
rebutted by bringing to our notice appropriate material. Even before the
CIT (Appeals) similar was the position and that is why he observed
that there was no satisfactory explanation. We are, therefore, not
inclined to interfere with the appellate order."
The applicant/assessee made an application before the tribunal (RA
659/CAL/1997) under Section 256(1) of the said Act, for reference of,
inter alia, the following questions of law to this Court:
"iii) Whether on the facts and in the circumstances of the case, the
Tribunal was justified in holding that the blending of tea or coffee does
not amount to manufacture or production of an article or thing.
iv) Whether on the facts and in the circumstances of the case, the
Tribunal was justified in law in not allowing investment allowance on
weighing machines, computers and electrical appliances, etc. on the
ground that they were not directly engaged in the production of an
article or thing.
The tribunal in its statement of case made the reference, modifying
the questions of the assessee as follows:
"i) Whether, having regard to the fact that both the Assessing Officer
and the Commissioner of Income Tax (Appeals) had treated the
assessee as being engaged in the manufacture and/or production of
packet tea, coffee and instant coffee, etc., and that the Department had
not challenged the said findings of the lower authorities in any appeal
filed by it, the Tribunal was justified in raising the said issue as to
whether the blending of tea coffee amounts to manufacture and/or
production and deciding the questions against the assessee.
ii) Whether, on the facts and in the circumstances of the case, the
Tribunal was right in holding that blending of tea and/or coffee does
not amount to manufacture or production of an article or thing and in
that view in upholding the order of the lower authorities not granting
investment allowance on weighing machines, computers and electrical
appliances, etc.?
iii) Whether, on the facts and in the circumstances of the case, the
Tribunal was right in upholding the order of the lower authorities in not
granting investment allowance on weighing machines, computers and
electrical appliances, etc. also on the ground that these items of plants
and machineries were not directly engaged in the production of an
article or thing?"
They were referred to this Court by its Order dated 7th January,
2000.
At the outset I would like to state that the tribunal had no
jurisdiction to reopen the closed issue that blending of tea was
equivalent to manufacture or production of an article, which was
finally decided by it in the affirmative in favour of the assessee by its
order dated 30th November, 1992 in the previous two assessment
years 1981-82 and 1982-83. The tribunal exceeded its jurisdiction in
trying to disapply the ratio of the Supreme Court in Chowgule & Co.
Pvt. Ltd. & Anr Vs. Union of India & Others (SC) reported in 47
STC 124. It did not adopt the correct approach by following the view
of this Court in the case of Apeejay Pvt. LTd. Vs. CIT (Cal) reported
in 206 ITR 367 that blending of tea was not manufacture or
production, even after being shown the case of Chowgule & Co. Pvt.
Ltd. & Anr Vs. Union of India & Others (SC) reported in 47 STC
124, which held the contrary. When the above decision of the
Supreme Court supported the finding of the tribunal in the previous
years, it ought not to have departed from it, by its order dated 20th
October, 1997 for the assessment year 1983-1984 in ITA 2189 (Cal)
of 1991. Therefore, the tribunal ought to have proceeded on the
footing that blending of tea and coffee amounted to manufacture and
production.
Now, the next question to be answered by this Court is whether
under Section 32A(2) (b) (iii) of the said Act weighing machines,
computers, electrical appliances, etc. installed after 31st March, 1976
are machinery or plant used for the purpose of business of
manufacture or production of any article or thing not being an article
or thing specified in the list in the eleventh schedule of the said Act.
The material parts of Section 32A are inserted below:
"Section 32A.:- Investment allowance - (1) In respect of a ship or an
aircraft or machinery or plant specified in sub- section (2), which is
owned by the assessee and is wholly used for the purposes of the
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 percent", 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 an
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 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:]
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 1st 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;]"
One of the earliest decisions, if not the earliest, trying to give a
definition of the expression "plant" was rendered by Lord Lindley
in Yarmouth v. France [1887] 19 QBD 647. The Court was defining
Section 1(1) of the English Employer's Liability Act, 1880 "There is no
definition of plant in the Act; but in its ordinary sense it includes
whatever apparatus is used by a businessman for carrying on his
business, not his stock-in-trade which he buys or makes for sale; but
all goods and chattels, fixed or movable, live or dead, which he keeps
for permanent employment in his business". Inter alia, relying on this
decision a division bench of this Court presided over by Mr. Justice
Ajit K. Sengupta, in Tribeni Tissues Ltd. Vs. CIT (Cal) reported in
190 ITR 487 held as follows:
"In our view, tube-wells and weighing machines form part of the plant
of the assessee in the production of paper. These are necessary in the
various stages of production. It is not necessary that, to constitute
plant, the asset should be directly engaged in the manufacture of
articles. Having regard to the facts and circumstances of the case, we
are of the view that the Tribunal fell in error in holding that the tube-
well and weighing machines do not fall within the meaning of plant."
Following the above ratio a division bench of the Bombay High Court
presided over by Mr. Justice V. C. Daga observed that calculators
were part of the plant and machinery. So were water coolers, as held
in Associated Bearing Co. Ltd Vs. Commissioner of Income-Tax
reported in (2006) 286 ITR 341 (Bom).
The above ratio was followed by a Division Bench of the Punjab and
Haryana High Court in Commissioner of Income-Tax Vs. Oswal
Woollen Mills Ltd. (No.1) reported in (2002) 257 ITR 737, and a
Division Bench of the High Court of Karnataka in Commissioner of
Income Tax Vs. Electronics Research Industries Pvt. Ltd.
reported in 192 ITR page 20. In this case the internal telephone
system of the assessee engaged in the manufacture of electric
equipments was treated as plant.
The wording of Section 32(A) (2) (b) (iii) is also very important. It
refers to any new machinery or plant installed "for the purpose of"
manufacture or production of any article or thing. The phrase "for the
purpose of" has to be given some meaning. It does not always refer to
an article or thing used directly in manufacture, as is the mistaken
view. It refers to the use of the plant or machinery for the purpose of
manufacture or production. Now, in my opinion "for the purpose of"
has to be given a wide and liberal interpretation so as to include
every article used in connection with manufacture or production not
being stock-in-trade, whether employed directly or indirectly. On the
mistaken notion that in order to qualify as plant a machinery had to
be directly used in the manufacture of an article or thing, the
tribunal has upheld the order of the authorities below refusing grant
of investment allowance on weighing machines, computers and
electrical appliances, etc. In any opinion they are eligible for this
allowance.
The questions mentioned in the statement of the case are answered
accordingly.
We direct the Registrar General of this Court to send a copy of this
Order to the Tribunal which shall pass the necessary orders to
dispose of the case being ITA 2189 (Cal) 1991 for the assessment
year 1983-1984 decided by it on 20th October, 1997, in accordance
with the above observations resulting in answering the reference on
the said points in favour of the assessee. The said part of the Order of
the tribunal dealing with the Section 32A allowance is set aside.
We request the tribunal to dispose of the appeal within three months
of communication of this order.
(I.P. MUKERJI, J.)
Amrita Sinha, J.:-
(1) This is a Reference Application under section 256 (1) of the
Income Tax Act 1961 at the instance of the assessee company.
(2) The Income Tax Appellate Tribunal : 'B' bench, Calcutta
referred the RA No. 659/Cal/1997 arising out of ITA No.
2189/Cal/1991 for the assessment year 1983-1984 to this Hon'ble
Court on 7th January, 2000 for consideration of the following
questions of law :-
i) Whether, having regard to the
fact that both the Assessing
Officer and the Commissioner
of Income Tax (Appeals) had
treated the assessee as being
engaged in the manufacture
and/or production of packet
tea, coffee and instant coffee,
etc., and that the Department
had not challenged the said
findings of the lower
authorities in any appeal filed
by it, the Tribunal was
justified in raising the said
issue as to whether the
blending of tea/coffee
amounts to manufacture
and/or production and
deciding the questions against
the assessee.
ii) Whether, on the facts and in
the circumstances of the case,
the Tribunal was right in
holding that blending of tea
and/or coffee does not
amount to manufacture or
production of an article or
thing and in that view in
upholding the order of the
lower authorities not granting
investment allowance on
weighing machines, computers
and electrical appliances, etc.
?
iii) Whether, on the facts and in
the circumstances of the case,
the Tribunal was right in
upholding the order of the
lower authorities in not
granting investment allowance
on weighing machines,
computers and electrical
appliances, etc. also on the
ground that these items of
plants and machineries were
not directly engaged in the
production of an article or
things?"
(3) The assessee is a Company where public are substantially
interested. It is a blender and packer of finished tea and coffee. It
also manufactures and processes tin meat and marine products. The
assessee has claimed for investment allowance under section 32 A of
the Income Tax Act on weighing machines, electrical equipments,
other machineries and computers.
(4) The Inspecting Assistant Commissioner, Assessment, Range -
II, Calcutta vide order dated 18-03-1987, rejected the claim of the
Assessee company for investment allowance in respect to the items of
plants and machinery on the ground that they were not directly
engaged in production. Deduction for computer was also disallowed
since it was not engaged in production.
(5) The assessee challenged the order of the Inspecting Assistant
Commissioner before the Commissioner of Income Tax (Appeals - II,
Calcutta). The Commissioner of Income Tax vide order dated 08-02-
1991 did not interfere with the assessment order. The assessee
preferred an appeal before the Income Tax Appellate Tribunal, "B"
Bench Calcutta, who vide its order dated 20-10-1997 refused to
interfere with the appellate order.
(6) Aggrieved by the order of the Tribunal dated 20-10-1997, the
assessee filed an application under S. 256(1) of the Income Tax Act,
1961 before the Income Tax Appellate Tribunal: 'B' Bench, Calcutta
and sought its reference of five questions of law for decision before
the Hon'ble High Court at Calcutta. In response to the said reference
application, the Income Tax Appellate Tribunal referred the aforesaid
three out of five questions, after modifying the same slightly, for
consideration by this Hon'ble High Court.
(7) At the time of hearing, it has been strenuously contended by
the Learned Senior advocate representing the appellant that the
assessee company was entitled to the benefit of investment allowance
on weighing machines, electrical equipments, other machineries and
deduction for computers as all the aforesaid items were engaged and
required in the production of the finished goods. It was further
contended that blending of tea/coffee amounted to production and
accordingly the appellant was entitled to investment allowance. It has
been submitted that the nature of activity of the assessee company
has already been finally decided by the decisions of the Income Tax
Appellate tribunal for the assessment years 1981-1982 and 1982-
1983. The decision of the tribunal not being reversed and the nature
of activity of the assessee company not being rebutted by the
Revenue, the issue as to whether the blending of tea/coffee
amounted to manufacture and/or production was no longer open for
scrutiny.
(8) The Learned Senior advocate referred to the following
judgements in support of his case:
i) Commissioner of Income Tax - vs- Electronic Research
Industries Pvt. Ltd. [192 ITR 20]
ii) Commissioner of Income Tax -vs- Oswal Woollen Mills Ltd.
(No.1) [257 ITR 737]
iii) Associated Bearing Company Ltd - vs- Commissioner of
Income Tax [ 286 ITR 341]
iv) Tribeni Tissues Ltd. - vs - Commissioner of Income Tax
[190 ITR 487]
v) R.L. Rajgharia - vs - Income Tax Officer and Ors. [107 ITR
347]
vi) Income Tax Officer, 'A' Ward, District (A) and Ors. - vs -
R.L. Rajghoria. [119 ITR 872]
(9) In Commissioner of Income Tax vs. Electronic Research
Industries Pvt. Ltd. (supra) the question that arose for consideration was
whether the internal telephone system should be considered as 'plant' of
the assessee factory and investment allowance u/s 32 A Income tax Act
1961 to be granted. While deciding the issue, the court referred to the
decision passed by the Supreme Court of India in Taj Mahal Hotel's case,
82 ITR 44 wherein the Supreme Court had observed that the word 'plant'
will have to be liberally understood. The court held that the definition of
'plant', being an inclusive one, will include articles like books etc. It further
held that the concept of 'plant' would be the same whether it fell under
section 32 A or 33(1) and that the principles applicable under section 33
would be equally applicable to cases falling under section 32 A.
(10) In Commissioner of Income Tax vs. Oswal Woollen Mills Ltd.
(No.1) (supra)the Court observed that from the bare perusal of the
provisions of section 32 A, it was clear that it was not necessary that each
individual machine should manufacture or produce any article or thing. A
machinery or equipment can be used directly for the manufacturing
process, yet for running such a machine, certain accessories may be
required. The expression 'for the purpose of business of manufacture or
production' was much wider in scope than the expression 'for the purpose
of manufacture'. The Court held that every new machinery installed in a
business of manufacture or production of any article or thing qualifies for
deduction under section 32 A unless it falls under any of the exceptions
mentioned therein.
(11) In Associated Bearing Company Ltd. vs.Commissioner of Income
Tax (supra), it has been held that it is well settled that the word 'plant'
must be given a very wide meaning, as held by the Supreme Court in a
catena of cases. It was further held that the Act nowhere provided that
each item of the plant should be linked with manufacture or production. It
was sufficient that the plant is for the purpose of business and the
business must be ofmanufacture or production of some article. In arriving
at the aforesaid conclusion the Court relied upon several judgements of
various courts wherein a series of articles and machineries were held to be
'plant' entitled to investment allowance.
(12) In Tribeni Tissues Ltd. -vs- Commissioner of Income Tax (supra),
it has been held that the word 'plant' has not been defined in the Act. The
Court applied the test referred to in IRC vs. Barclay Curle and Company
Ltd. reported in 76 ITR 62 (HL) that: does the article fulfil the function of
plant in the assessee's trading activity? Is it a tool of his trade with which
he carries on his business? If the answer was in the affirmative, it would
be a 'plant'. The Court held that it was not necessary that to constitute
plant, an item must fulfil an active role. It was a tool of business which
was used in the course of business or manufacture of production, although
by itself it may be having a passive role. The Court conclusively held that
weighing machines formed part of the plant and the same was necessary in
the various stages of production.
(13) In R.L. Rajghariavs. Income Tax Officer and ors. (supra) it was
held that the Tribunal was not entitled and not competent to enlarge the
controversy and decide the issue not before it.
(14) An appeal carried against the aforesaid order had been decided in the
case of Income Tax Officer and ors. vs. R.L. Rajgharia, (supra)wherein
the Hon'ble division bench held that the jurisdiction of the Tribunal is only
confined to the subject matter of the appeal.
(15) Per contra the Ld. Advocate appearing on behalf of the Revenue
contended that the Tribunal had rightly upheld the order of the lower
authorities by not granting investment allowance on weighing machines,
electrical appliances and other machineries and not allowing deduction on
computers on the ground that these items were not directly engaged in
production and/or manufacture of any article or thing. It was further
submitted that the Tribunal was justified in raising the issue whether the
blending of tea/coffee amounted to manufacture or production.
(16) After hearing the submissions made on behalf of both the parties and
upon perusal of the materials on record, we find that the matter has not
been rightly adjudicated by the appellate authority.
(17) As regards the question number 1, the Tribunal was wholly
unjustified in enlarging the scope of the appeal in as much as the issue as
to whether the blending of tea/coffee amounted to manufacture and/or
production never fell for consideration before the Tribunal. The lower
authorities never had an occasion to deal with the said issue and the
Tribunal exceeded its jurisdiction in framing a new issue and deciding the
same. The jurisdiction or the Tribunal was totally confined to the subject
matter of the appeal only and the Tribunal exceeded its jurisdiction in
raising fresh issues not raised in the memorandum or the grounds of
appeal. Accordingly the question number 1 is answered in favour of the
assessee accompany and against the Revenue.
(18) From the judgements cited herein above, it is well settled that as per
provisions of section 32 A Income Tax Act, weighing machines, electrical
equipments and other machineries, though not directly used in the
production/manufacture of the finished goods, even then these articles are
accessories which are integral to the business and without which it may
not be possible for effective production/manufacture of the final products.
The articles in question, namely, the weighing machine, the electrical
equipments, other machineries are such that without the same the
manufacturing concern will not be able to manufacture/produce the
finished goods. Accordingly the above articles deserved to be considered as
'machinery wholly used for the purpose of the business' and is entitled to
the investment allowance in accordance with the provisions of section 32 A
of the Income Tax Act.
(19) In modern times computers play a very pivotal role in everybody's
daily life. It is practically impossible to carry on day to day activities
without the use of modern technology including computers. The benefit of
using computers in running a business is immense. It is logical and
practical to reap the benefits of technological advancement for achieving
the required level of production of goods in a plant. The use of machinery
and computers has to be considered as 'wholly used for the purpose of
business. It is well settled that the expressions 'wholly used for the
purpose of business' is largely wide in scope. The concept of 'plant' cannot
be limited to the actual installation of the machinery which produces goods
by itself. In these circumstances, we hold that the questions numbered 2
and 3 are answered in the affirmative in favour of the assessee company
and against the Revenue.
(20) ITR No. 8 of 2000 is accordingly disposed of in the above terms.
There will however be no order as to costs. The ordering portion is as per
the order of brother Mukerji, J.
(21) Urgent photo certified copy of this judgment, if applied for, be supplied to the parties or their advocates on record expeditiously in compliance of usual legal formalities.
(Amrita Sinha, J.)