Commissioner of Income Tax vs Sangrur Vanaspati Mills Ltd.

Following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, ''the Tribunal'') arising out of its order dt. 20th March, 1997 in ITA No. 349/Chandi/1991, for the asst. yr. 1989-90:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing investment allowance on the cost of machinery installed/purchased for the manufacture of soap which as per Item No. 4 of Sch. XI r/w Section 32A of the IT Act is specifically prohibited for the same ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that deduction u/s 80HH be allowed before allowing deduction u/s 32A/32B (sic-32AB) of the IT Act ?

The assessee deals in manufacture and sale of Vanaspati ghee and soap. It claimed deduction u/s 32A/32AB of the IT Act, 1961 (for short, ''the Act'') on the machinery purchased and installed for use in manufacture of soap but the same was disallowed by referring to Sch. XI which contains list of articles or things to the manufacture of which the said deduction was not allowable. Soap was one of the items mentioned at Entry 4 in the said Schedule. The view of the AO, was however, set aside by the CIT(A). It was held that the word "soap" in the entry referred to soap used by human beings for personal use and not soap meant for washing which items were covered by Entries 20 and 21. It was held by the CIT(A) that Items 20 and 21 being no longer in the negative list and the same were eligible for deduction. The above view was upheld by the Tribunal.

The assessee also claimed that deduction u/s 80HH of the Act be allowed before allowing deduction u/s 32A/32AB of the Act. This was rejected by the AO but upheld by the CIT(A). The CIT(A) held that deduction u/s 80HH of the Act should be computed before deduction u/s 32A/32AB of the Act. The Tribunal upheld the said view relying upon judgment of the Orissa High Court in Commissioner of Income Tax Vs. Tarun Udyog, and judgment of Karnataka High Court in Commissioner of Income Tax Vs. H.M.T. Ltd., which was also followed by the said High Court in Commissioner of Income Tax Vs. Siddaganga Oil Extractions Pvt. Ltd., . It was noticed that the contrary view had been taken by the Gujarat High Court in Paushak Ltd. Vs. Commissioner of Income Tax, and Delhi High Court in Gedore Tools (India) P. Ltd. Vs. Commissioner of Income Tax, . The same view was taken by the Delhi High Court in Motilal Pesticides (India) Pvt. Ltd. Vs. Commissioner of Income Tax, . The Tribunal held that since one view was in favour of the assessee, interpretation more favourable to the assessee had to be followed.

We have heard learned Counsel for the parties and perused the findings recorded.

Re :Q. No. 1

Learned Counsel for the Revenue submitted that "soap" was (specifically mentioned in Entry 4 and after deletion of Entries 20 and 21, it could not be held that cleaning soap was not included in the word "soap".

The relevant entries as existing in Sch. XI to the Act relevant to Section 32A of the Act are extracted below:

Tooth paste, dental cream, tooth powder and soap.

xxxxxx

Organic surface active agents; surface active preparations and washing preparations whether or not containing soap.

Synthetic detergents.

It is not disputed before us that items at Entries Nos. 20 and 21 were omitted w.e.f. 1st April, 1982, the assessment year in question is 1989-90. Accordingly, we have to see the effect of Entry No. 4 as is existing in the Schedule referred to above and the Entries Nos. 20 and 21 which stood deleted on 1st April, 1982. A perusal of Entry No. 4 shows that the same contains tooth paste, dental cream, tooth powder and soap, whereas entries at Sl. Nos. 20 and 21, inter alia, contain washing preparations whether or not containing soap, synthetic detergent. A perusal of, what has been mentioned in Entry No. 4 clearly shows that the same are items of personal hygiene of human being, whereas the items mentioned at Sl. Nos. 20 and 21 are in the nature of washing preparations, such as, detergent. The case of the assessee is that it was engaged in the manufacture of washing soap and not the soap which is used by human being for personal hygiene. This would necessarily fall within Entry No. 20 as against the Entry No. 4 referred to above. If that is so, the product being manufactured by the petitioner being not in the negative list as per Sch. XI, it would be entitled to investment allowance in terms of Section 32A of the Act.

We find substance in the contentions raised by the counsel for the assessee as against the plea of the counsel for the Revenue. The principle noscitur a sociis is well accepted principle for interpretation of entries in the taxing statute. Any commodity mentioned in any entry gets its colour from the commodities or things mentioned either before or after the particular item for the purpose of assigning the same a correct meaning. In the present case, the above principle is squarely applicable. In our view, the washing soap manufactured by the assessee will not fall under Entry No. 4 as it cannot be included in the term soap used in the entry along with other items mentioned therein,, rather it fits in more under Entry No. 20 which stood deleted on 1st April, 1982.

Accordingly, for the reasons stated above, the question referred to above is answered against the Revenue and in favour of the assessee while holding that the assessee would be entitled to investment allowance in case of the machinery purchased and installed for the manufacture of washing soap which does not fall under Entry No. 4 of Sch. XI.

Re : Q. No. 2

We find that in the judgment of the Hon''ble Supreme Court in Motilal Pesticides (I.) Pvt. Ltd. Vs. Commissioner of Income Tax, , it was held that the deduction u/s 80IIH of the Act has to be allowed on the net income and not from gross income. Even otherwise definition of term "gross total income" defined for the purpose of Chapter VI-A as contained in Section 80B(5) of the Act clearly provides that for the purpose of this chapter, gross total income means total income computed in accordance with the provisions of this Act before making any deduction under this chapter. It cannot be disputed that the deductions u/s 32A/32AB of the Act are allowed while computing income before any deduction is allowed under Chapter VI-A. The provisions of the Act being quite explicit, there is no scope for taking a view different than what is enumerated therein.

Accordingly, the question referred is answered in favour of the Revenue and against the assessee while holding that the Tribunal was not right in concluding that deduction u/s 80HH of the Act was to be allowed before allowing (deduction) u/s 32A/32AB of the Act.

Accordingly, the question referred is answered in favour of the Revenue and against the assessee.

The reference is disposed of accordingly.