Income Tax Appellate Tribunal - Allahabad
Kothari Products Ltd. vs Assistant Commissioner Of Income-Tax on 21 February, 1991
Equivalent citations: [1991]37ITD285(ALL)
ORDER
L.N. Aggarwal, Judicial Member
1.It is an appeal filed by the assessee against an order of the learned CIT(A) dated 30th March, 1990 for the assessment year 1988-89. The following grounds have been taken up :-
1. The learned CIT(A) has erred in law as well as on facts in confirming the action of the Assessing Officer resulting in short allowance of deductions under Section 32 AB and 80-1 by holding that "Zarda Yukt Pan Masala" is a tobacco preparation within the meaning of item No. 2 in the Eleventh Schedule and hence not entitled to the said deduction despite there being relevant and cogent evidence on record to the contrary leading to the inevitable conclusion that "Zarda Yukt Pan Masala" is not a "tobacco preparation
2. That the learned CIT(A) completely disregarded the rule of interpretation while construing the meaning of item No. 2 in the said Schedule that entries pertinent to articles or things of every day use which have no statutory definition but are referred to, in any particular statute, have to be construed in their common parlance meaning with which the people are conversant. The learned CIT(A) did not even refer to the authorities cited in support of this proposition. It is submitted in this connection that consumers of "Zarda Yukt Pan Masala" do not consider that they are eating tobacco- they take it as eating Pan Masala mixed with Zarda.
3. That there was no evidence before the learned income-tax Authorities to come to the conclusion that a consumer of "Zarda Yukt Pan Masala" regarded that he was chewing tobacco; on the contrary, the notification under the Excise Act and the clarifications under the Sales Tax Act provided evidence that "Zarda Yukt Pan Masala" is not regarded as tobacco preparation.
4. That the learned Income-tax authorities fell into error in taking the view that the ingredients, in a small measure, of a product could not be regarded as the product itself. The pharmaceutical product in which alcohol is one of the ingredients could be identified only as the particular pharmaceutical preparation and not an alcohol product. It was not appreciated that the appellant was manufacturing only pan masala another variety.
5. That the learned Income-tax authorities also disregarded the well settled rule of interpretation known as ejusdem generis in not noticing that "tobacco preparation" as a genus was followed by clear illustration. The illustrations clearly evidenced the exclusion of "Zarda Yukt Pan Masala" from the category of tobacco preparations.
6. That the learned Income-tax authorities have acted with malice in not considering most of the important contentions as above raised before them, in spite of all the written notes submitted to them in that behalf.
7. That without prejudice to above the learned CIT(A) has further erred in rejecting the contention of the appellant that the profit of the eligible business is to be calculated by taking the value of "Sada Pan Masala" at market value keeping in view the mandatory provisions of Section 80-1(8) while calculating the admissible deduction under Sections 32AB and 80-1. It is further submitted in this connection :
(i) That the necessary evidence being available on record, the reliance of the learned CIT(A) on probabilities and surmises is unwarranted especially where the Assessing Officer has accepted the existence of two separate businesses being carried on one of manufacturing Pan Masala and another of Zarda Yukt Pan Masala; and
(ii) That the learned CIT(A) has erred in not considering the contention of the appellant that by the treatment of Assessing Officer himself the Gross Profit of alleged ineligible business of "Zarda Yukt Pan Masala" Unit has been reduced resulting in short deductions under Sections 32AB and 80-I.
8. That the learned CIT(A) has further erred in confirming the disallowance of Rs. 19,738 being the amount representing the value of goods lost in transit ignoring the method of accounting followed by the appellant.
9. That the learned CIT(A) has grossly erred in confirming the short allowance of deductions under Section 80HHC ignoring the press note dated 22-6-1983 issued by the Central Board of Direct Taxes, which is binding on the revenue authorities.
10. That the order of the learned CIT(A) is arbitrary, unjustified and opposed to law and facts of the case and is thus untenable.
11. The appellant craves leave to add, to alter, amend, or withdraw any Ground of Appeal at the time of, or before the hearing of the appeal.
2. Ground Nos. 1 to 7 involve a common question of fact and thus we dispose of all these grounds together. The brief facts are that the assessee is manufacturing Pan Masala and is having two units within the same premises having different sets and maintaining different accounts. In one unit, Sada Pan Masala is manufactured and in the other unit Zarda Yukt Pan Masala is manufactured. The assessee has claimed deduction under Sections 32AB and 80-1 on both the units. ITO allowed the said deductions on the unit manufacturing Sada Pan Masala but did not allow the said deductions on the other unit which was manufacturing Zarda Yukt Pan Masala on the ground that the said product amounted to a tobacco preparation and which was excluded under the. said sections as the said product was mentioned in XI Schedule. The said order was also confirmed by the learned CIT(A).The assessee being aggrieved has come up in appeal before the Tribunal. The assessee has also taken up alternative pleas without prejudice to his main plea, that is, that even if on the basis of an entry in the XI Schedule, the assessee is held to be uneligible for deductions under Sections 32AB and 80-1, then the second unit being a small scale industrial undertaking, it should be covered under the alleged exemption and thus entitled for the said deductions. The assessee has also taken up a third plea that even if both these pleas are not accepted, still the profits of the second unit should be computed only after calculating the cost of Sada Pan Masala manufactured by the first unit and transferred to the second unit in question at the market price of the said Sada Pan Masala, which is used as the raw material for production of Zarda Yukt Pan Masala.
3. The learned counsel for the assessee has very vehemently stressed on the first plea, i.e., the very product is not a tobacco preparation. He has pointed out that 4 grams pouch of Zarda Yukt Pan Masala contains by weight:
Sada Pan Masala 380 Mgs. (95.17%) Zarda 20 Mgs. (4.83%)
The above constitution by weight is of standard mix which borders between 4% to 5% of Zarda depending upon the freshness of the Zarda used. The valuation of 4 grams of pouch of Zarda in Pan Masala contains Pan Masala and Zarda valued as under:
At Cost M.V. (other than Excise and S.T) Pan Masala per Kg. Rs. 140 Per Kg. Zarda per Kg. Rs. 300 Per Kg.
From the above composition of Zarda Yukt Pan Masala, it has been pointed out that 95.17% as per predominant physical as well as value content the main and major composition of Zarda Yukt Pan Masala is Pan Masala from which it has been stressed that mainly it is not a Zarda product but it is a Pan Masala product which also contains a very small portion of tobacco. He has further pointed out that although tobacco preparation has not been defined in the Income-tax Act and thus, its ordinary and popular meaning has to be understood and taken for deciding the fact as to whether a particular preparation is a tobacco preparation or not. He has relied upon the decision of the Hon'ble Supreme Court in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, in which the Hon'ble Court has given out as under :
Now it is well settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of everyday use. Popular sense means 'that sense which people, conversant with the subject matter, with which this statute is dealing, would attribute to it.
On the basis of the ratio as laid down in the above said case by the Hon'ble Supreme Court, it has been stressed that a tobacco preparation should mean that a preparation of which the main content is the tobacco and it has been made out of the same, while in the present case the main content is Pan Masala and it is out of Pan Masala that the Zarda Yukt Pan Masala has been prepared in which Zarda has been mixed in a small quantity to give it a little different taste which is liked by some people and by no stretch of imagination it can be treated to be a tobacco preparation.
4. He has further pointed out that no other statutes, for instance, Excise duty Act and the Sales-tax Act, where the leviability of tax/duty was concerned of such product denominations, classifications and categorisation, the said Acts treated Pan Masala to be different than tobacco preparations. It has been pointed out that in Notification No. 364/86-CE dated 27th September, 1986, under Central Excise Rules, 1944, copy of which has been filed in the compilation, Pan Masala as well as Pan Masala containing Zarda has been grouped and classified in a separate Chapter No. 24. In the same way, under the U.P. Sales-tax Act, the company has been charged to sales-tax of Zarda Yukt Pan Masala whereas vide Sales-tax Notification No. St/4069/10-960(4) dated 25th November, 1958 (copy filed in the compilation) all tobacco products are totally exempt from U.P. Sales-tax Act.
5. The learned counsel for the assessee has further pointed out that even at the time of presenting the Finance Bill, 1991 according to the Hon'ble Finance Minister, Prof. Madhu Dandavate, in the Chapter containing proposals regarding Union Excise Duties, the classification of Pan Masala has been at item No. 9(1) under the heading "Food products" and grouped together with Pan Masala whereas tobacco products have been specifically grouped separately containing item numbers 11 to 13. Item No. 12 being snuff of tobacco having more than 50% tobacco contents have been lumped as tobacco product. From this it has been pointed out that only such composite products can be brought in law within the ambit of tobacco products and preparations as per entry No. 2 of Schedule 11 of the Income-tax Act, which contain tobacco or the contents of tobacco as the predominant content.
6. He has further pointed out that as per Maxwell's Interpretation of Statutes, the "rule of interpretation" is that the words used by the literature in the denomination of articles should be understood according to common commercial understanding of the term used and not in the scientific and technical sense, for, Legislature does not suppose merchants to be naturally naturalist, cogolist or botanist. He has also relied upon the following judgments of the Hon'ble Supreme Court which lay down the principles of interpretation :-
(1) Krishna Iyer v. State of Kerala [1962] 13 STC 838.
(2) Mineral & Metal Trading Corpn. v. Union of India 2 SCC 620.
7. It has been pointed out that the Hon'ble Supreme Court in the case of Mineral & Metal Trading Corpn. (supra) has observed that it must be remembered that in interpretating items in taxing statutes a result should not be made to be scientific or technical meaning but the meaning attached to them by those dealing in them in their commercial sense.
8. On the other hand, the learned Departmental Representative has relied upon the order of the learned CIT(A). He has pointed out that the interpretation given to tobacco preparation in Sales-tax and Excise Act will not be applicable to the word for Income-tax purpose. He has relied upon the decision of the Full Bench of Patna High Court in Ram Ballabh Pd. Singh v. State of Bihar AIR 1986 Pat. 218 in which the Hon'ble Full Bench had held that it is possible for a section or a provision of different statutes to be in pari materia but to level two different statutes as in pari materia (unless they are pure carbon copy of each other) is inherently erroneous and inferences from such a presumption would necessarily lead to error. It is not correct to say that since the two Acts were similar in scope, they may be called in pari materia. In matters of construction, the similarity is not identity and no presumptions with regard to the purported policy of different statutes can safely be inferred or raised. The learned Departmental Representative has made out a plea that this decision of the Hon'ble Patna High Court clearly lays down that unless two statutes are similar and are in pari materia, the definition of a word given in either of the statutes cannot be construed while interpretating the provisions of the other statutes. He has thus stressed that the argument of the learned counsel for the assessee that the tobacco preparation has been defined and taken up in a particular manner in an Excise Act and in Sales-tax Act cannot be taken to mean that the same meaning be attached to that word for purposes of Income-tax Act. He has further stressed that even the quantum in the mixed product is also not very material for the decision as to whether this product is pure and simply Pan Masala or Zarda preparation as Zarda Masala is used only by those people who liked to have the taste of tobacco. Tobacco is highly intoxicating and its higher contents in the Pan Masala may probably not be tolerated by the public. Any person may use Zarda mixed Pan Masala only to have a taste of Zarda otherwise he would not be going for it and the layman would opt for the Sada Masala and it is also observed that the persons eating Zarda mixed asala gets addicted to it and only use Zarda mixed Masala as they want to have taste of Zarda. Thus, he has made out that Zarda mixed Masala is manufactured, used and purchased by people only because Zarda is a necessary ingredient of the same and thus it should be treated nothing but a Zarda (tobacco) preparation which is specifically provided in XI Schedule for not to be considered for deduction allowable under Sections 32AB and 80-I.
9. We have heard the parties at length and have also perused the entire evidence on record. It is admitted that Zarda Yukt Pan Masala contains Zarda. The only thing to be determined in this case is as to whether this product can be treated as a tobacco preparation or not. In the Income-tax Act, tobacco preparation has not been defined. Only in XI Schedule at item No. 2 it is mentioned as "tobacco and tobacco preparation, such as cigar and cheroots, cigarettes, Biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuffs". Items provided in the XI Schedule are not eligible for deduction allowable under Sections 32AB and 80-I. In absence of any specific definition provided of the words "tobacco preparations" it has to be interpreted by the Taxing authorities. The alterations in the list given no doubt is not exhaustive but it does give an idea and the intention of the Legislature behind the provisions. The words "cigars, cheroots, cigarettes, Biris, smoking mixtures for pipers and cigarettes, chewing tobacco and snuffs" suggest that in all these items, the basic content is tobacco, whether it is prepared with the help of a leaf or with the help of a paper or with some other help. But still the basic ingredients are tobacco. The Hon'ble Supreme Court in the decision in Taj Mahal Hotel's case (supra) has held that where the definition of a word has not been given in the enactment, then it must be construed in its popular sense if it is a word of everyday use. Hence, the meaning of the words 'tobacco preparation' has to be understood as it is commonly understood by the common man. The words 'tobacco preparation' as understood by a common man, is that it must be basically a product prepared out of tobacco and the basic content should be tobacco and not otherwise. In the present case, Zarda Yukt Pan Masala, as pointed out by the learned counsel for the assessee in his argument, is that the tobacco content is hardly 4% to 5% while the basic content is pan Masala which is 95%. It also could not be denied that the man does not purchase this Zarda Yukt Pan Masala for the purposes of Zarda only. In fact, he purchases Pan Masala to use Pan Masala as such but in addition to it, he also uses a little tobacco to make it still more tastier. Now, either it is the consumer who mixes tobacco himself after taking Pan Masala or the manufacture of Pan Masala himself mixes the small quantity in the Pan Masala which is to give convenience to the consumer so that he must not have two different pouch, one for Pan Masala and the other for Zarda for little Zarda Yukt does not, in our opinion, convert Zarda Yukt Pan Masala into a Zarda preparation or a tobacco preparation. The basic fact remains that it is a Pan Masala preparation and remains a Pan Masala preparation even though a very small negligible quantity of Zarda has been mixed in it for the convenience of the public to make it a little more popular.
10. The Hon'ble Judges of the Supreme Court in the case of Mineral & Metal Trading Corpn. (supra) had also held that while interpreting items in taxing statutes, resort should not be made to the scientific or technical meaning but the meaning attached to them by those dealing in them in their commercial sense. By the ratio of the decision of this court, it turns out that Zarda Yukt Pan Masala should be interpreted in the sense as it is understood in the commercial sense by people using the same. For that purpose, we feel inclined to rely on the meaning given to Zarda Yukt Pan Masala under the Excise Act and under the Sales-tax Act. Under the Excise Act and the Sales-tax Act, copies of which have been filed in the compilation and referred to by the learned counsel for the assessee, Zarda Yukt Pan Masala has been grouped under a separate list, while tobacco preparations have been grouped under a separate list. That clearly goes to suggest that even the Government, while levying excise duty and the sales-tax, has been treating Zarda Yukt Pan Masala and tobacco preparations differently for the said purpose. In fact, the Sales-tax Act levies sales-tax on Zarda Yukt Pan Masala while under the said Act tobacco preparations are exempted. This fact clearly goes to suggest that tobacco preparation and Zarda Yukt Pan Masala are two different items as commonly used by common man and also treated as such by the Government while imposing levies on these products. The entire circumstances and the evidence on record, in our opinion, suggest that by no stretch of imagination Zarda Yukt Pan Masala can be said to be a tobacco preparation which hardly contains 4% to 5% of Zarda and the major content is Pan Masala. Even for the purpose of price too the major cost of Zarda Yukt Pan Masala is of Pan Masala and not of Zarda. It is only like making Pan Masala a little more tastier and to be liked by more number of people that small quantity of Zarda is mixed but that mixing, in our opinion, itself does not turn the alleged preparation to be a preparation of sufficiently small quantity of item mixed in it. Likewise, a medicine prepared of alcohol base cannot be said to be an alcoholic preparation but a medicine of which alcohol is a base but that too in a very small negligible quantity. Alcoholic preparations are only beer, wine and other alocoholic spirits but no medicine prepared with a base as alcohol is ever treated either in the common parlance or by any law as alcoholic preparations. With all these facts in the background, we hold that Zarda Yukt Pan Masala is not a tobacco preparation and thus it cannot be taken out of the items for which deductions under Sections 32 AB and Section 80-1 are allowable. Item 2 in the list of tobacco preparation provided in XI Schedule does not apply to the present case. In our opinion, the order to the contrary, passed by the learned CIT(A) is erroneous and based on certain wrong assumptions. We, therefore, set aside the said order and hold that the unit of the assessee, which manufactures Zarda Yukt Pan Masala, is also entitled for deductions under Section 32AB and 80-1. The issues are decided accordingly.
11. As we have decided the preliminary issue in favour of the assessee, we do not think it is necessary to go into the merits of the alternative pleas raised by the assessee, i.e., regarding the plea of small scale industry and the plea of computing the valuation of raw material of Sada Pan Masala supplied by the other unit to this unit, which manufactures Zarda Yukt Pan Masala. In the same way, we do not think it necessary to pass any order on the application of allowing an additional ground sought to be raised by the assessee.
12. The next ground is regarding disallowance of Rs. 19,738 being the amount regarding the value of goods lost in transit. The assessee has claimed the said loss but was not allowed by the ITO and the learned CIT on the ground that the loss is still sub judice and has not been finally decided. The learned counsel for the assessee has pointed at the bar that the said goods have not yet been recovered from the transporter or the loss realised from him. Thus, he has pressed that on the basis of the mercantile system followed by the assessee, it should have been allowed in this very year. Looking to the circumstances of the case, we do not find any infirmity in the order of the learned CIT(A) and held that he was right in rejecting the claim as the loss being still sub judice. However, the assessee will be at liberty to claim the deduction in the subsequent year when the liability is ascertained and the dispute is settled with the transporter.
13. The last ground is that the assessee has contested the short deduction under Section 80HHC. It is alleged and also admitted that the assessee is carrying on trade in Nepal from where sale proceeds are received in non-convertible foreign exchange. The learned counsel for the assessee had failed to point out or file any evidence on record to show that even in any trade with the foreign countries, from where non-convertible foreign exchange is received, it can still be allowed for deduction under Section 80HHC. In absence of the same, we are of the opinion that the learned CIT was correct in holding that in such cases deduction under Section 80HHC cannot be allowed. We, therefore, decide the issue accordingly.
14. As a result, the appeal is partly allowed.