Dy. Commissioner Of Income Tax, ... vs M/S U.P.Cooperative Sugar ...
2012 Latest Caselaw 3451 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

AFR
 
RESERVED
 

 
Case :- INCOME TAX APPEAL No. - 33 of 2004
 

 
Petitioner :- Dy. Commissioner Of Income Tax, Lucknow
 
Respondent :- M/S U.P.Cooperative Sugar Factories Federation Ltd. Lucknow
 
Petitioner Counsel :- D.D. Chopra
 
Respondent Counsel :- R.A. Shankhdhar
 

 
Hon'ble Devi Prasad Singh,J.

Hon'ble Vishnu Chandra Gupta,J.

(delivered by Hon'ble Justice Devi Prasad Singh)

1.Instant appeal under Section 260 A of the Income Tax Act 1961 (in short hereinafter referred as the Act) has been preferred against the judgement and order dated 14.12.2003 passed by Income Tax Appellate Tribunal, Lucknow Bench, Lucknow (in short hereinafter referred as Tribunal) in income tax appeal for the assessment year 1991-92.

2.We have heard Shri D.D.Chopra, learned counsel for the appellant and Shri Sanjeev Shankhdhar, learned counsel for the respondents. Appeal was admitted by a Division Bench of this Court on the following substantial question of law:-

"Whether the Learned Income tax appellate Tribunal was, in law, justified in holding that the assessee was eligible for deduction u/s 80 1 of the Income Tax Act, 1961 from its profit in respect of its Majhola & Anoop Shahar Distilleries, even though the Industrial alcohol, it was manufacturing was covered by the list of articles or things prohibited under the Schedule XI of the Income Tax Act, 1961 and as such deduction u/s 801 was not available in view of provision of 801 (2) (iii) of the Income Tax Act, 1961."

3. The aforesaid substantial question of law, on which the appeal was admitted, co-relate with the interpretation of Entry-1 of the Schedule 11 of the Act. Under Section 80 I of the Act deduction is permissible in respect of profits and gains from industrial undertaking after certain dates. While computing the total income of the assessee under Section 80 1 of the Act deduction is permissible from the profits and gains to the extent of 20 percent thereof. Admittedly, the assessee was entitled for deduction subject to rider imposed by Sub-section 2 of Section 80 I. Clause 3 sub-section 2 of Section 80 -I required condition which are to be fulfilled by the industry and one of them is contained in Clause 3 which provides that in case, industry manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce article or things or to operate such plant or plants, at any time within the period of 10 years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the official Gazette, specify with reference to any particular industrial undertaking.

4. Item 1 of Schedule 11 of the Act, for convenience is reproduced as under:-

"1. Beer, wine and other alcoholic spirits."

Whether industrial alcohol is covered by the word "other alcoholic spirit" is the question requires adjudication by this Court.

5. The assessee is the cooperative society and also runs distilleries at Majhola (Pilibhit), Nanauta (Saharanpur) and Annop Sahar as well as possessed foreign liquor shops. Return of income was filed by the assessee on 31.10.1989 indicating loss of Rs. 1,4081830/-. The assessment was completed at an income of Rs. 52,62,255/-. The assessing authority allowed deduction under Section 80 1 amounting to Rs. 1,55,945/- and Rs. 12,82,628 with regard to Anoop Shahar and Nanauta Distilleries respectively from its profit. However, at later stage, assessing authority sought to withdrawn the deduction given under Section 80-1 and issued notices for rectification under Section 154 computing the total income of Rs. 67,64,600/-. It was claimed by the assessee that distilleries in question were producing industrial alcohol which is not fit for human consumption as wine or alcohol drugs without its further processing. It was further claimed that industrial alcohol is sold to synthetic Rubber and chemical factories as raw material besides to other distilleries for manufacture of wine and alcoholic drink after processing, hence, deduction under Section 80-1 was correctly claimed and allowed. The assessing officer had not accepted the contention and held that item 1 of Schedule 11 where beer, wine and other alocohlic spirits have been specified it also covers industrial alcohlic because of use of word "other alcohlic spirits". This finding was recorded on the ground that beer wine as well as industrial alcoholic is spirit and division is because of its usage.

6. Decision of Assessing Officer dated 17.10.1995 was confirmed by CIT Appeal by an order dated 20.8.1996. However, the tribunal reversed the finding holding that industrial alcohol does not fall within the species of beer and wine hence, the revenue preferred the instant appeal.

7. While assailing the impugned award, learned counsel for the appellant has submitted that there should be strict construction of taxing law and nothing to be read and nothing to be implied. A plain meaning should be given to the language used in the Act or schedule. He also submits that the principle "ejusdem generis" shall not be applicable while construing Item 1 of the Schedule 11 of the Act. He relied upon a judgement reported in 274 ITR 354 CIT Vs. Radico Khaitan Ltd. and would submit that industrial alcohol shall be covered by Item 1 schedule 11 of the Act.

8. On the other hand, Shri Sanjeev Shankhdhar, learned counsel for the respondents would submit that beer, wine as species are different than industrial alcohol, hence, under doctrine of 'ejusdem generis' the industrial alcohol shall not be covered under Item 1 of Schedule 11. He would submit that under the word beer, wine the other beverages like whisky, rum, country liquor etc. may be covered but in any case the industrial alcohol shall not be covered by Item 1 of schedule 11.

9. Learned counsel for the respondents relied upon the cases reported in 2010 328 ITR 29 (Delhi) CIT Vs. Sraya Industries P. Ltd and a case decided on 27.1.2012 by Andhra Pradesh High Court i.e. CIT Vs. M/s O.R. Distileries Ltd. as well as cases reported in AIR 1960 SC 610, 1978 (4) SCC 16.

10. Sub-section 8 of Section 3 of U.P. Excise Act defined the word "spirit" means any liquor containing alcohol obtained by distillation, whether it is denatured or not.

11. U.P. Excise Act, defines the 'denature' under the provision contained in Sub-section 9 of Section 3. It also defined the words "beer" and "liquor" which are reproduced as under:-

"Denatured "means" rendered unfit for human consumption in such manner as may be prescribed by the local Govt. by notification in this behalf". "When it is proved that any spirit contains any quantity of any substance prescribed by the local Government for the purpose of denaturation the court may presume that such spirit is or contains or has been derived from denatured spirit.

"beer" includes ale, stout, porter and all other fermented liquor made from malt;

"liquor" means intoxicating liquor and includes spirits of wine, spirit, wine, tari, pachwai, beer and all liquid consisting of or containing alcohol, also any substance which the [state government] may by notification declare to be liquor for the purposes of this Act;"

12. Hon'ble Supreme Court reported in (2002) 4 SCC 506, Maharashtra Distilleries Vs. Municipal Corporation of Aurangabad and another while considering the relevant rule with regard to octroi duty had interpreted the rectified spirit as not fit for human consumption and observed that only after numerous processes in the distillation, it is being converted to consumable spirit i.e. fit for human consumption . Their Lordship of Hon'ble Supreme Court had rejected the plea and turn down the judgement of High Court and held that, rectified spirit is purified or refined liquor as it has to undergo certain process including treatment with chemicals and re-distillation, to quote relevant portion from the judgement of Maharashtra Distilleries (supra):-

".... Rectified Spirit imported by the appellant into octroi limits of the respondent was not fit for human consumption as it was directly at the point. It was only raw material at that stage. No doubt, it is subsequently used in the manufacture of potable liquor but the octroi duty is leviable on the material imported into octroi limits at that stage only, which aspect is not correctly appreciated by the High Court. The Rectified Spirit undergoes numerous processes in the distillery of the appellant after importing it on payment of octroi duty before being converted into potable liquor. Class I of the Schedule speaks of "articles used for food or drink by men ...........". It would only mean that the articles which were used directly on the import within the local area of the respondent and not articles coming into being after further processing because the octroi duty

is leviable on goods actually brought into the local area at that point for use directly. The High Court was also not right in saying that the Rectified Spirit is purified or refined liquor as it has to undergo certain processes including treatment with chemicals and redistillation to remove impurities before it can be treated as pure spirit. It may be stated that even the pure spirit has strength of about 90% v/v and in this form also it is not fit for human consumption."

13. Denatured spirit is prepared by addition of Methyl alcohol CH3OH (Methanol) used as fuel, solvent, oil for dry cleaning or to denatured the ethyl alcohol or ethanol C2H5OH.

Thus, admittedly, the industrial alcohol are denatured spirit but they constitute different class of spirits and with entirely different chemical formula and is otherwise than beer, wine etc.

14. Legislature to their wisdom has used the word "any other alcohol spirit" after beer and wine. There appears to be no room of doubt that beer and wine constitute different class though are spirit. It constitute different species or class and fit for human consumption. Purpose of Section 80 I is to give incentives to the industrialist while providing deduction under 80 I of the Act with regard to profit and gains earned from industrial undertaking after certain dates. Industrial alcohol has got commercial use and is not fit for human consumption. Whereas, beer and wine belong to category of liquor fit for human consumption. From the combined reading of Item 1 of Schedule 11 it borne out that it co relate to liquor fit for human consumption and not the industrial alcohol which is denatured spirit constitute separate class.

15. In Halsbury 4th Edition, Vol. 12 Para 1526 page 651, the principle of ejusdem generis has been defined as under:-

"The ejusdem generis rule is one to be applied with caution and not pushed too far, as in the case of many decisions, which treats it as automatically applicable, and not as being, what it is, a mere presumption, in the absence of other indications of the intention of the legislature. To invoke the application of the "ejusdem generis' rule there must be a distinct genus or category, [Craies on Statute Law (Seventh Edition, para 181, as referred in Manglore Electric Supply Co. V. CIT, (1978) 3 SCC 248, 254, para 9]"

16. According to Maxwell, to quote:-

"The general word which follows the particular and specific words of the same nature as itself takes its meaning from them and is presumed to be restricted to the same genus as those words.(Maxwell, op. cit p. 297)"

17. According to Merriam Webster, to quote:-

"A rule of construction: general words (as in a statute) that follow specific words in a list must be construed as referring only to the types of things identified by the specific words. (Merriam Webster)"

18. In (1920) 1 KB 773, A.G. Vs. Brown, while considering the principle of ejusdem generis, interpreting word "any other goods" occurring in Section 43 of the Customs (Consolidation) Act, 1876 Act, 1876 which empowered His Majesty by order in Council to prohibit the importation of "arms, ammunition, or gun powder or nay other goods' were construed as referring to goods similar to 'arms, ammunition or gun powder.'

19. AIR 1928 R. 31, Mirch Vs. Russell, it has been held that by the application of the maxim 'ejusdem generis', which is only an illustration or specific application of the broader maxim noscuntur a sociis, general and specific words which are capable of an analogous, meaning being, associated together, take colour from each other, so that the general words are restricted to a sense, analogous, to the less general.

20. In AIR 1960 SC 610 (V 47 C 95), The State of Bombay and others, Vs. The Hospital Mazdoor Sabha and others, while considering the doctrine of noscuntur a sociis, their Lordship of Hon'ble Supreme Court held that it is merely a rule of construction and it cannot prevail in cases where it is clear that wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. However, in case under doctrine the word use is for the same kind of nature then it may be apply. In case intention of legislature in associating wider word with the word of narrower significance is doubtful or otherwise not clear then such rule of construction may be usefully applied.

21. In AIR 1972 SC 1863, Amar Chandra Chakraborty Vs. Collector of Excise, their Lordship of Hon'ble Supreme Court while considering the doctrine of 'ejusdum generis' held that rule strives to reconcile the incompatibility between specific and general words. The doctrine applies when:

(i)the statute contains an enumeration of specific words;

(ii)the subjects or enumeration constitute a class or category;

(iii)that class or category is not exhausted by the enumeration;

(iv)the general term follows the enumeration;

(v)there is no indication of a different legislative intent.

All the aforesaid five ingredients seems to exists when we considered the Item 1 of Schedule 11 of the Act in the light of doctrine of 'ejusdem generis'.

22. In (1978) 4 SCC 16, The U.P. State Electricity Board and another Vs. Hari Shankar Jain and others, their Lordship of Hon'ble Supreme Court held that the rule of ejusdem generis is that the words of a general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified but it should be applied with caution.

23. Hon'ble Supreme Court in a case reported in AIR 1989 SC 1019, Siddeshwari Cotton Mills (P) Ltd. Vs. Union of India, while construing the word "any other process" in section 2(f)(v) of the Central Excises and Salt Act, 1944 held that the processes enumerated contemplate processes which import change of a lasting character to the fabric by either the addition of some chemical into the fabric or otherwise and 'any other process' in the section must share one or other of these incidents which constitute manufacture in the extended sense.

24. In one another case reported in AIR 1989 SC 1019, S.C.Mills Pvt. Ltd. Vs. Union of India, while considering the provision of Central Excise and Salt Act, the principle of ejusdem generis has been applied by Hon'ble Supreme Court to interpret the term process. Their Lordships held as under:-

"The expression ejusdem generis-'of the same kind or nature'-signifies a principle of construction whereby words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as preceding them. It a list or string or family of genus-describing terms are followed by wider or residuary or sweeping-up words, then the verbal context and the linguistic implications of the preceding words limit the scope of such words."

Their Lordships further observed in paragraph 8:

"The preceding words in the statutory provision which, under this particular rule of construction, control and limit the meaning of the subsequent words must represent a genus or a family which admits of a number of species or members. if there is only one species it cannot supply the idea of a genus."

25. In 2002 (4) SCC 219,Municipal Corporation of Greater Bombay Vs. Bharat Petroleum Corporation Ltd. while reiterating the aforesaid principle with regard to doctrine of 'ejusdem generis' their Lordship held that the rule normally envisages words of general nature following specific and particular words to be construed as limited to things which are of the same nature as those specified.

26. In 2002 (141) ELT 593 (SC), Grasim Industries Ltd. C.C. Hon'ble Supreme Court held that ejusdem generis applies only when the provision provide specific words, such enumeration constitutes a class, that the enumeration or the class is not exhaustive, general terms follows the enumeration and that there is no different legislative intent. If the enumerated items belong to a complete genus, the principle that the meaning of general words should be confined to those of narrower genus does not apply.

27. In 2008 (4) SCC 584, Parakh Foods Ltd. Vs. State of A.P.,while interpreting the doctrine of ejusdem generis, their Lordship of Hon'ble Supreme Court held that it is a latin expression which means"of the same kind". It means words of similar class. It is a canon of statutory construction that where general words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the some general class as those enumerated.

28. In "Principles of Statutory Interpretation" by Justice G.P. Singh, interpretation given by Hon'ble Supreme Court and Privy Council to different provision of Civil Procedure Code has been considered, where 'ejusdem generis' have been applied, to quote relevant portion:-

"On the same principles the Privy Council held that the words 'any other sufficient reason' occurring in Rule 1 of Order 47, Civil Procedure Code, 1908, must be taken as meaning a reason sufficient on the grounds at least analogous to those specified immediately previously, and similarly the phrase 'further and other relief' occurring in section 92(1)(h) of the Code was held by the Privy Council to mean relief of the same nature as specified in clauses (a) to (g) of the same section. The words 'or otherwise invalid', in para 15 of Schedule II to the Code of Civil Procedure, 1908 before enactment of the Arbitration Act, 1940, were construed by the Privy Council as ejusdem generis to the specific grounds of invalidity mentioned in the said para.................(page 478)"

29. Delhi High Court in the case of Sraya Industries(supra) and Andhra Pradesh High Court in the case of M/s. O.R.Distilleries (supra) had applied the principle of ejusdem generis while interpreting item no. 1 of Schedule 11 of the Act and held that it does not include industrial alcohol.

30. The case of Radico khaitan (supra) has been considered by Delhi High Court in Sraya industries (supra) and has been distinguished as under:-

The judgment of Allahabad High Court in the Commissioner of Income Tax and Anr. v. Radico Khaitan Ltd. [2005] 274 ITR 354 would not be of any assistance to the revenue. No doubt, the facts of that case suggest that the assessee was engaged in manufacturing of industrial alcohol, IMFL, country liquor, fertilizers etc. and the High Court held that the investment allowance was not admissible in respect of the plant and machinery installed for the purpose of manufacture of any of the items mentioned in 11th Schedule. However, at the same time, it suggests that it was limited to the distillery unit which was dealing with the manufacturing of IMFL and country liquor only. The question with which we are concerned in the present case did not arise for consideration and, therefore, was not addressed at all namely; if the same machinery is used both for the purpose of manufacturing of industrial alcohol as well as for manufacture of IMFL and country liquor etc., whether on such plant or machinery, the investment allowance would be admissible. When such a situation arises, Sub-section (2A) of Section 32A of the Act would be the governing provision.

31. Reliance placed by appellant's counsel on the case of Radico Khaitan (supra) seems to be not sustainable. In Radico Khaitan (supra) no specific finding has been recorded by a Division Bench of this Court that under Item no. 1 of Schedule 11 industrial alcohol is included. A finding has been recorded on the basis of sub-section 2 A of Section 32 A of the Act with regard to investment allowance. It has been held that investment allowance is not admissible in respect of plant and machinery installed for the purpose of manufacturing any of the items mentioned in the schedule 11, to quote relevant portion:-

"It is not in dispute that the assessee-company is engaged in the business of manufacture and production of one of the items mentioned in the Eleventh Schedule at serial No. 1, i.e., beer,wine and other alcoholic spirit. In view of the specific provisions contained in sub-section (2A) of section 32A of the Act, investment allowance is not admissible in respect of the plant and machinery installed for the purpose of manufacturing any of the items mentioned n the Eleventh Schedule. No doubt, it is true that the plea of prohibition under the Eleventh Schedule was not raised but being a pure question of law which does not involve any investigation of facts, the revenue has been permitted to raise this plea in the present appeal. In view of the specific provisions, the assessee-company is not entitled to any investment allowance in respect of the plant and machinery installed for the manufacture of items mentioned in the Eleventh Schedule."

32. In view of above, no reliance may be placed on Radico Khaitan Ltd.(supra) to resolve the question involved in the present case with regard to inclusion of industrial alcohol under Item no. 1 of the 11 schedule.

33. There is no dispute over the proposition of law raised by the appellant's counsel that taxing statute should be construed strictly and language should be given literal meaning. There appears to be no ambiguity in Item 1 of Schedule 11 of the Act. Language is clear and speaks for beer and wine followed by the words 'other alcoholic spirits'. The latter words indicate the same species i.e. of liquor falling within the category of beer and wine fit for human consumption (emphasis supplied). The spirits itself may be divided into categories i.e. methylated spirit and others. Legislature to their wisdom points out beer and wine and other identical or alcoholic spirits. Industrial alcohol constitute separate class seems to be undisputed fact. Accordingly, the appeal lacks merit. Impugned order passed by tribunal does not suffer from any impropriety or illegality. In view of above, appeal fails and dismissed.

Question answered against the appellant revenue in favour of assessee.

[Justice Devi Prasad Singh]

[Justice Vishnu Chandra Gupta,J]

Order Date :-9th August, 2012

Madhu