Case Note & Summary
The Supreme Court of India was seized of a writ petition under Article 32 of the Constitution of India filed by an association of builders challenging the correctness of the Court's earlier decision in CIT v. N.C. Budharaja & Co. That decision had interpreted Section 32-A(2)(b)(iii) of the Income Tax Act, 1961 and held that the words 'construction, manufacture or production of any article or thing' did not include the construction of a dam, a building, a bridge, a road and the like, because such immovable property could not be brought within the purview of 'article or thing'. The Court in Budharaja & Co. had also held that the use of the word 'construction' in the sub-clause was referable to construction of ships, since ships were among the movable items originally listed in the Ninth Schedule and later covered by the Eleventh Schedule exclusion. In the present writ petition, the petitioner contended that three important circumstances were not brought to the notice of the Court in Budharaja & Co. and that the decision required reconsideration by a larger Bench. The first circumstance concerned the proper reading of the word 'construction' in Section 32-A(2)(b)(iii): the petitioner argued that it should be read independently of the following words 'manufacture or production of any article or thing', and if so read, it would include all types of construction including dams, buildings, bridges and roads. In support, the petitioner relied on a Law Ministry opinion dated 16-2-1984 and a reply of the Minister of State for Finance to an unstarred question in Parliament in December 1987, both of which indicated that plant and machinery used for business of construction was entitled to investment allowance. The petitioner also contended that having accepted the Law Ministry opinion, the Government of India should not have pressed its appeals in Budharaja & Co. The second circumstance was a CBDT circular issued in 1986 with reference to Section 32-AB of the Income Tax Act, which contained identical words and stated that business of construction was an eligible business for the new investment deposit account scheme. The third circumstance was that this Court had in CIT v. Bhageeratha Engg. Ltd. taken a view contrary to Budharaja & Co. on Section 32-A(2)(b)(iii). The Court considered all three contentions and rejected them. On the first contention, the Court held that the word 'construction' could not be read independently, torn from its context. The Court explained that the legislative history of Section 32-A showed that the pre-1978 sub-clause (ii) applied only to articles and things in the Ninth Schedule, all of which were movables, and item 15 of that Schedule related to ships. Since one speaks of construction of ships, not manufacture of ships, the word 'construction' was used. After the 1977 amendment, sub-clause (iii) continued to apply to ships, and that was precisely the reason the word 'construction' was retained. The Court also noted that the Ninth Schedule and the Eleventh Schedule both contained lists of articles or things, all referring only to movable objects. The Court held that none of the three contentions called for reconsideration of Budharaja & Co., and accordingly dismissed the writ petition at the admission stage, reaffirming the earlier interpretation that investment allowance under Section 32-A(2)(b)(iii) was not available for construction of immovable property like dams, buildings, bridges and roads.
Headnote
A) Income Tax - Investment Allowance - Interpretation of Section 32-A(2)(b)(iii), Income Tax Act, 1961 - Word 'construction' cannot be read independently and is referable only to construction of ships, not immovable property - The Court rejected the contention that 'construction' should be read disjunctively from 'manufacture or production' and held that the legislative history of the provision shows the word was retained from the pre-1978 sub-clause because ships are constructed, while all articles or things in the Ninth and Eleventh Schedules are movables; the words 'any article or thing' in the sub-clause refer only to movable objects and cannot include dams, buildings, bridges, roads or the like - Held that the earlier decision in Budharaja & Co. did not require reconsideration (Paras 2-6). B) Income Tax - Administrative Interpretation - Effect of CBDT Circular and Law Ministry Opinion - Section 32-A and Section 32-AB, Income Tax Act, 1961 - Administrative circulars and executive opinions cannot override plain statutory language or binding judicial interpretation - The Court considered the Law Ministry opinion dated 16-2-1984 and the CBDT circular issued in 1986 with respect to Section 32-AB but held that none of these called for reconsideration of Budharaja & Co. because the statutory provision and its legislative history were clear, and the circular related to a different provision - Held that the circular and opinion did not justify a different interpretation of Section 32-A (Paras 3-4). C) Income Tax - Precedent - Conflict of Decisions - Section 32-A, Income Tax Act, 1961 - Contrary decision in CIT v. Bhageeratha Engg. Ltd. did not warrant reference to larger Bench - The petitioner cited CIT v. Bhageeratha Engg. Ltd. as a contrary view on Section 32-A(2)(b)(iii), but the Court held that none of the contentions, including this cited decision, called for reconsideration of Budharaja & Co.; the correct interpretation remained that 'construction, manufacture or production of any article or thing' covered only movable articles or things - Held that Budharaja & Co. continues to hold the field (Paras 3-4).
Issue of Consideration
Whether the decision of the Supreme Court in CIT v. N.C. Budharaja & Co. required reconsideration and reference to a larger Bench in light of three circumstances: (A) the word 'construction' in Section 32-A(2)(b)(iii) should be read independently of 'manufacture or production of any article or thing'; (B) a CBDT circular under Section 32-AB stated that business of construction is eligible for investment deposit account deduction; and (C) the Supreme Court had taken a contrary view in CIT v. Bhageeratha Engg. Ltd.
Final Decision
The Supreme Court dismissed the writ petition at the admission stage, holding that none of the contentions urged by the petitioner called for reconsideration of CIT v. N.C. Budharaja & Co. The word 'construction' in Section 32-A(2)(b)(iii) of the Income Tax Act, 1961 could not be read independently and was referable to construction of ships, not immovable property like dams, buildings, bridges or roads. Accordingly, the earlier decision remained binding.
Law Points
- The words 'construction
- manufacture or production of any article or thing' in Section 32-A(2)(b)(iii) of Income Tax Act
- 1961 do not include construction of dam
- building
- bridge
- road or other immovable property
- 'article or thing' refers only to movables
- the word 'construction' is referable to construction of ships and cannot be read independently or disjunctively
- legislative history of Section 32-A confirms that the word 'construction' was retained because ships are constructed and all items in the Ninth and Eleventh Schedules are movables
- administrative circulars
- Law Ministry opinions
- and a contrary decision in another case do not warrant reconsideration of a binding precedent.
