Case Note & Summary
These appeals by the assessee, a registered partnership firm engaged in the manufacture of groundnut oil at Veraval and operating a solvent extraction plant there, arose from a reference made by the Income Tax Appellate Tribunal under Section 256(1) of the Income-tax Act to the Gujarat High Court. The dispute concerned the assessee's claim for additional income-tax deduction under Section 2(5)(a)(ii) and (iii) of the Finance Act, 1966 and Section 2(4)(a)(ii) and (iii) of the Finance Act, 1967, in respect of de-oiled cakes exported or sold to exporters during the accounting years relevant to assessment years 1966-67 and 1967-68. The Finance Acts of 1966 and 1967 provided an additional export incentive to manufacturers engaged in industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. Sub-clauses (ii) and (iii) allowed further deduction where such articles were exported or sold to an exporter. Clause (c) of the respective sections, however, excluded certain specified articles from the additional deduction, enumerating items such as fuels, fertilizers, textiles, sugar, vegetable oils and vanaspati. The assessee had exported or sold to exporters de-oiled cakes of the value of Rs. 48,92,902 and Rs. 24,13,040 respectively and claimed the additional deduction. The Income Tax Officer disallowed the claim by invoking clause (c), treating de-oiled cakes as a product of the vegetable oil industry under item 28 of the First Schedule. The Appellate Assistant Commissioner reversed that view, holding that clause (c) referred to articles as such and not industries, and since de-oiled cake was not mentioned in clause (c), the assessee was entitled to the deduction. The Tribunal affirmed the appellate order. At the instance of the Revenue, the Tribunal referred the two questions to the High Court, which answered them in favour of the Revenue. The sole question before the Supreme Court was whether clause (c) referred to the articles mentioned therein or to industries engaged in the manufacture of those articles. The Court examined the scheme of the provisions and observed that sub-clauses (ii) and (iii) spoke of articles manufactured in an industry specified in the First Schedule. Clause (c), being an exception to those sub-clauses, had to follow the same pattern. The Court noticed that the First Schedule used headings for items and sub-headings for sub-items, and clause (c) adhered to the same pattern by sometimes referring to entire items like fuels and fertilizers, and sometimes only to sub-items like jute textiles. The descriptions of articles in clause (c) were identical to those in the First Schedule. Therefore, the Court concluded that clause (c) referred to articles, not industries. Since de-oiled cakes fell within the description of vegetable oils and vanaspati under item 28 of the First Schedule, they were excluded from the additional deduction. Accordingly, the Supreme Court agreed with the High Court, dismissed the appeals, and ordered no costs.
Headnote
A) Income Tax - Export Incentive Deduction - Interpretation of Exception Clause - Finance Act, 1966, Section 2(5)(a)(ii), (iii), (c); Finance Act, 1967, Section 2(4)(a)(ii), (iii), (c); Industries (Development and Regulation) Act, 1951, First Schedule, Item 28 - The assessee, a manufacturer of groundnut oil with a solvent extraction plant, exported or sold to exporters de-oiled cakes and claimed additional deduction under sub-clauses (ii) and (iii) of clause (a) for assessment years 1966-67 and 1967-68. The Income Tax Officer disallowed the claim under clause (c) of the respective Finance Acts, which excluded specified articles including vegetable oils and vanaspati from the additional deduction. The question was whether clause (c) referred to the listed articles or to industries manufacturing those articles. The Court held that clause (c), being an exception to sub-clauses (ii) and (iii), had to follow the same pattern as those sub-clauses and the First Schedule to the IDR Act, all of which referred to articles only, not industries. Since de-oiled cakes fell within the description of vegetable oils under item 28, they were excluded from the additional deduction. Held that the assessee was not entitled to the additional deduction and appeals were dismissed.
Issue of Consideration
Whether clause (c) of Section 2(5) of the Finance Act, 1966 and the corresponding clause (c) of Section 2(4) of the Finance Act, 1967 refers to the articles mentioned therein or to industries engaged in the manufacture of those articles for purposes of exclusion from additional export deduction
Final Decision
Appeals dismissed. The Supreme Court agreed with the High Court and held that clause (c) of Section 2(5) of Finance Act, 1966 and corresponding Section 2(4) of Finance Act, 1967 refers to articles, not industries. De-oiled cakes fell within the excluded item of vegetable oils and vanaspati under item 28 of the First Schedule to the Industries (Development and Regulation) Act, 1951, and thus assessee was not entitled to additional deduction. No costs.
Law Points
- Clause (c) of Section 2(5) of Finance Act
- 1966 and Section 2(4) of Finance Act
- 1967 is an exception to sub-clauses (ii) and (iii) and follows the same pattern by referring to articles
- not industries
- the First Schedule to Industries (Development and Regulation) Act
- 1951 specifies articles under items and sub-items
- description of articles in clause (c) is identical to First Schedule entries
- de-oiled cakes fall within vegetable oils and vanaspati under item 28 and are excluded from additional export deduction
