Brooke Bond India Limited vs Commissioner Of Income Tax

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 AppellateTribunal 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), theAppellate 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.â€​

In an appeal (ITA No.2189 CAL of 1991) of the applicant/assessee for the assessment year 1983-1984, the Income Tax Appellate tribunal “Bâ€

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, theTribunal 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, theTribunal 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?â€​ 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 â€" (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 anresidential 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 byway 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 ofMarch, 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 ofMarch, 1976 ,-

(i) for the purposes of business of generation or distribution ofelectricity 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 ofbusiness 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 â€

(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;]â€​

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 businessâ€.

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 tubewell and weighing machines

do not fall within the meaning of plant.â€​

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 ofâ€

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?â€​

(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 â€

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 â€" II, Calcutta).

The Commissioner of Income Tax vide order dated 08-021991 did not interfere with the assessment order. The assessee preferred an appeal before

the Income Tax Appellate Tribunal, “Bâ€​ 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 19821983.

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 â€" vs- Electronic Research Industries Pvt. Ltd. [192 ITR 20]

ii) Commissioner of Income Tax â€"vs- Oswal Woollen Mills Ltd. (No.1) [257 ITR 737]

iii) Associated Bearing Company Ltd â€" vs- Commissioner of Income Tax [ 286 ITR 341]

iv) Tribeni Tissues Ltd. â€" vs â€" Commissioner of Income Tax [190 ITR 487]

v) R.L. Rajgharia â€" vs â€" Income Tax Officer and Ors. [107 ITR 347]

vi) Income Tax Officer, ‘A’ Ward, District (A) and Ors. â€" vs â€" 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. â€"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.