Commissioner of Income Tax vs South India Viscose Ltd.

Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following question for the opinion of this Court under s.

256(1) of the IT Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing to allow development rebate at 20% (Mistake

for 25%) in respect of ""Pulp plant"" as falling under Entry 16 of the Fifth Schedule to the IT Act, 1961 ?

For the asst. yr. 1973-74, in the re-assessment made by the ITO, the ITO reduced the development rebate on the pulp plant machinery to 15%

from the rate of 25% adopted in the original assessment on the ground that the pulp produced by the assessee was for the manufacture of rayon

yarn and, hence, did not fall under Item No. 16 of the list mentioned in the Fifth Schedule. Under Item 16 of the Fifth Schedule of the Act,

machineries manufacturing paper and pulp, including newsprint are entitled to 25% development rebate. In other case, the development rebate

would be 15%. According to the ITO, the pulp produced by the assessee was used for a different purpose, i.e., for manufacturing rayon yarn and

not for manufacturing either newsprint or paper. Therefore, the assessee would not be entitled to higher development rebate of 25%. The ITO,

therefore, allowed development rebate only at the lower rate of 15% on the machineries manufacturing pulp. On appeal, before the CIT(A), the

assessee contended that the meaning of the pulp in Item 16 should not be restricted to paper pulp or pulp for paper manufacture. According to the

assessee, the fact that the assessee is using the bulk of the pulp manufactured by it in the manufacture of rayon, would not disentitle the assessee to

get higher development rebate. According to the assessee, if the assessee manufactures pulp, which is also meant for production of paper, that

would be sufficient to get higher development rebate. Therefore, according to the assessee when the pulp manufactured by it is also useful for

making paper, higher development rebate of 25% should not be denied. The CIT(A) agreed with the submissions made by the assessee and

granted higher development rebate of 25%.

Aggrieved, the Department went in appeal before the Tribunal. The Tribunal confirmed the view taken by the CIT(A) in granting higher

development rebate of 25% on the machineries manufacturing pulp.

Heard the learned counsel appearing for the assessee, who supported the order passed by the Tribunal.

Before us, the learned senior standing counsel appearing for the Department, submitted that inasmuch as the pulp is appearing in between the

''paper'' and ''newsprint'', the pulp should be meant for manufacture of paper only. If it is for any other purpose, the assessee would not get higher

development rebate of 25%. In the present case, inasmuch as the assessee is using the pulp for manufacturing yarn, the assessee is not entitled to

higher development rebate of 25%. In order to support this submission, reliance was placed upon the decision of this Court in Commissioner of

Income Tax Vs. Vasan Publications P. Ltd. and Another, . According to the facts arising in this case, for the asst. yrs. 1965-66 to 1967-68, the

ITO in the original assessment allowed depreciation on the plant and machinery used by the assessee-company at 10%. In the revised assessment

made under s. 147(b) r/w s. 143(3) of the IT Act, 1961, the ITO added back the excess depreciation that was said to have been wrongly allowed

in the original assessment on the ground that the assessee''s weekly magazine Ananda Vikatan cannot be equated with the newspapers, and,

therefore, the rate of admissible depreciation was only 7% as against 10% wrongly allowed. For the asst. yr. 1969-70, the ITO disallowed the

assessee''s claim for depreciation at 10% and held that the rate of admissible depreciation was only 7%. On these facts, a question arose, whether

the Tribunal was right in holding that Ananda Vikatan, a weekly magazine published by the assessee-company is a newspaper and depreciation at

the ate of 10% was therefore, admissible on the plant and machinery of the assessee-company. While answering this question, this Court held as

under :

The whole production apparatus of the newspaper production plant is taken as a unit for the purpose of grant of higher depreciation. The fact that

more or less similar plant and machinery is used for the manufacture of weeklies and other periodicals will not bring them under the definition of

newspaper production plant and machinery. In the matter of tax relief, it is for the legislature to decide which particular industry producing which

particular articles needs special treatment by way of special benefits and, in such a matter, it would not be possible for the Court to place an elastic

interpretation and enlarge the scope of the relief for, in that event, the Court will be legislating in fiscal sphere and granting relief which the

legislature did not expressly grant. In the absence of special definition of ''newspaper'' in the IT Act or the rules, the expression has to be construed

in its popular sense and not in any special or technical sense, i.e., a sense in which the ordinary man in the street understands it. Adopting the

popular meaning of the ''newspaper'', ''weeklies'' whose predominant purpose is not to give news cannot be brought under the expression

''newspaper'', even though they may contain stray items of news value. Further, the fact that the weeklies have been registered as newspaper under

other statutes like Post Office Act and the Press and Registration of Books Act are not quite relevant, for those Acts contain the definition of

''newspaper''. The definition of an expression in one statute cannot be automatically applied to another statute whose object and purpose are

entirely different. Consequently, machinery used for producing the weeklies ''Kumudam'', ''Kalkandu'' and ''Ananda Vikatan'' could not be

comprehended within the term newspaper production plant and machinery and, hence, would not be entitled to depreciation at the higher rate.

Drawing an analogy from the abovesaid decision, the learned senior standing counsel appearing for the Department submitted that the legislature

thought fit to include the word ''pulp'' in between the words ''paper'' and ''newsprint'', the pulp should mean, which is made for making papers. If

the pulp is not meant for making papers, then the assessee would not be entitled to higher development rebate with regard to the machineries,

which is manufacturing such pulp.

But it remains to be seen that in Item 16 of Fifth Schedule, what is stated is the machineries manufacturing paper, pulp and newsprint are entitled

to higher development rebate. Therefore, if the assessee shows that the assessee is manufacturing paper, pulp and newsprint, the assessee is

entitled to higher development rebate. To say that the pulp manufactured by the assessee should be utilised only for the purpose of manufacturing

paper and then alone the assessee is entitled to higher development rebate of 25%, is reading something which is not stated in the Schedule.

Therefore, if the assessee manufactures paper, newsprint along with pulp, the assessee would be entitled to higher development rebate on the

machineries manufacturing the abovesaid three items. After the pulp was manufactured, how it is going to be used is not the concern of the

Department while granting higher development rebate. In fact, according to the facts arising in the present case, the assessee is said to have been

using the major portion of the pulp for manufacturing synthetic fibre and the pulp is also being used for making papers. These facts are found by the

Tribunal in its order.

Under s. 33(1)(b)(B)(i) if the assessee manufactures any one of the items mentioned in the list, mentioned in the Fifth Schedule, the assessee

would be entitled to higher development rebate. As already pointed out, under Item 16 in the Fifth Schedule, three materials are mentioned, viz.,

paper, pulp and newsprint. Therefore, if the assessee''s machineries manufacture any one of the abovesaid three items, the assessee would be

entitled to higher development rebate. Therefore, looking at either on the basis of the facts arising in this case or on the basis of the provisions

contained in s. 33(1)(b)(B) r/w Item 16 of the Fifth Schedule, it cannot be said that the Tribunal was incorrect in confirming the order passed by

the CIT(A) in granting higher development rebate of 25%, since the assessee is manufacturing pulp, as contemplated in the abovesaid provision. In

that view of the matter, we answer the question referred to us in the affirmative and against the Department. No costs.