ORDER
Shri Satish Chandra, AM
1. The appeal by the revenue is instituted against the order dated 9-8-1991 of the CIT (Appeals)-I, Indore, pertaining to the assessment year 1988-89.
2. The only substantive ground of the revenue reads as under :-
“On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in directing the Assessing Officer to allow deduction under section 32AB on the ground that the assessee’s business is grouting and drilling of dams which is not covered under the 11th Schedule of the Act.”
3. Briefly stated, the assessee is private limited company of contractors engaged in the business of grouting and drilling of dams. In the assessment year 1988-89, the previous year of which ended on 30-9-1987, the assessee claimed deduction of Rs. 52,154 under section 32AB. During the course of assessment proceedings, the assessee was required to justify its claim of said deduction. It was explained by the assessee that the assessee’s business of grouting and drilling of dams is not covered under 11th Schedule. It was also contended that if construction of things like building, dams, roads and bridges, etc., was considered for disqualification for deduction under section 32AB, it would be necessary to place them in 11th Schedule. The contention of the assessee was not acceptable to the Assessing Officer, who negatived the assessee’s claim observing, thus :-
“Section 32AB clearly provides that eligible business means business or profession other than the business of construction. This section further provides that the eligible business also means business or profession other than manufacture or production of any article or thing specified in the list of the 11th Schedule. Thus, reference to the list of the 11th Schedule is with regard to business of manufacture or production of any article or thing but not with regard to construction. Deduction under section 32AB is not allowed to the assessee.”
4. On appeal, the CIT (Appeals) allowed the claim of the assessee for deduction under section 32AB relying on the clarification contained in para 17.3 in the CBDT Circular No. 461 dated 9-7-1986 reported in [1986] 161 ITR (St.) 17 explaining the scope of the provisions relating to Direct Taxes as introduced by the Finance Act, 1986. Dissatisfied, the revenue is in appeal before the Appellate Tribunal.
5. Shri. Brijesh Gupta, the ld. D.R., submitted that the assessee-company is engaged in the business of construction. According to him, an assessee is entitled to a deduction of an amount up to 20% of the profits of ‘eligible business or profession’, if the said amount is either deposited with the Development Bank within the period up to six months from the end of the previous year or before furnishing the return, whichever is earlier or is utilised during the previous year for purchase of a new ship, new air-craft or new machinery or plant. The expression ‘eligible business or profession’ has been defined in sub-section (2)(i)(a) & (b) of section 32AB. As per this definition, the business of construction has been excluded from the definition of the ‘eligible business’ for the purposes of deduction under section 32AB. The words ‘article or thing’ do not qualify construction. These words qualify ‘manufacture or production’. He, therefore, submitted that the assessee being engaged in the business of construction is not an eligible assessee within the meaning of section 32AB(1) read with section 32AB(2)(i) of the Act. In this connection, he referred to the decision of the Apex Court in the case of CIT v. N. C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 212, wherein their Lordships have held that the expressions ‘manufacture’ and ‘production’ are normally associated with movables – articles and goods, big and small – but they are never employed to denote construction activities of the nature involved in construction of Dam or a building.
6. Shri. Brijesh Gupta, the ld. D.R., further submitted that the CBDT circular relied upon by the CIT (Appeals) is clearly against the provisions contained in the section 32AB of the Act, and, therefore, the Court are not bound to follow the said circular. In support of the proposition that a circular of the CBDT which is against the provisions of the Act is not binding upon the Courts’ he placed reliance on the following decisions :-
(i) Associated Cement Co. Ltd. v. CIT;
(ii) Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1/49 Taxman 87 (SC);
(iii) Delhi Flour Mills Co. Ltd. v. [1974] 95 ITR 151 (Delhi);
(iv) ITO v. A. V. Thomas & Co. [1986] 160 ITR 818/[1985] 21 Taxman 292 (Ker.); and
(v) CIT v. Malayala Manorama & Co. Ltd. [1983] 143 ITR 29/12 Taxman 253 (Ker.).
7. In the case of Associated Cement Co. Ltd. (supra), their Lordships of Bombay High Court have held that the memorandum explaining the provisions of the Finance Act or the circular of the Board cannot be used to curtail or modify the clear meaning and expression used in the statute.
7.1 In the case of Keshavji Ravji & Co. (supra), their Lordships of the Apex Court have held that the Board conduct pre-empt a judicial interpretation of the scope and ambit of a provision of the Act by issuing circular on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the taxpayer a burden higher than what the Act itself, on a true interpretation, envisages. The task of interpretation of the laws is the exclusive domain of the Courts.
7.2 In the case of Delhi Four Mills Co. Ltd. (supra), their Lordships of Delhi High Court have held that decisions of the Central Board of Direct Taxes are not binding upon Courts. They are meant only for the guidance of the Departmental Authorities. If these departmental decision are not in accordance with the provisions of the statute, they have to be disregarded.
7.3 In the case of A. V. Thomas & Co. (supra), their Lordships of Kerala High Court have held that the circular only gives the view of the department and a taxing provision has to be construed regardless of the views expressed in the circular. Their Lordships also quoted the decision of Kerala High Court in Malayala Manorama & Co. Ltd.’s case (supra), wherein it was held that the Court will have to put its own construction upon the provisions of the Act regardless of the practice of the department and the directions for the guidance of the officials.
8. Assailing the contentions of Shri. Brijesh Gupta, the ld. D.R., Shri. R. L. Rawka, the ld. counsel for the assessee strongly supported the decision of the CIT (Appeals). He argued that the case of the assessee is squarely covered by the CBDT Circular No. 461 dated 9-7-1986. He submitted that the benevolent circular of the CBDT is binding upon the departmental authorities even if such circulars deviated from the provisions of the Act. He placed reliance on the decision of Gujarat High Court in the case of Rajan Ramkrishna v. CWT [1981] 127 ITR 1/[1980] 4 Taxman 67.
9. We have considered the rival submissions, perused the orders of the authorities below as also the decisions cited by the respective parties. It is not in dispute that the Board can relax the rigour of law or grant relief to the taxpayers which is not be found in the statute. It is also well-settled that circulars are issued for a just and fair administration of the various provisions of the Act. In the case of CIT v. India Sea Foods [1991] 192 ITR 515 (Ker.), the Court held that the circular of the Board has the force of law. It can even supplant the law where it is beneficial to the assessee and has mitigated or relaxed the rigour of law. It can be enforced by the Courts. Their Lordships of the Apex Court have held in the case of Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 that even if the directions given in a circular by CBDT deviate from provisions of the Act, they are binding on ITO. Hon’ble Gujarat High Court has explained this decision in CIT v. Ahmedabad Keiser-E-Hind Mills Co. Ltd. [1981] 128 ITR 486 in the following words :
“It is now well settled that after the decision of the Supreme Court in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913, that even if there is a deviation on a point of law, so far as the circular of the Board is concerned, that circular will be binding on all officers concerned with the execution of the Income-tax Act and they must carry out their duties in the light of the circular.”
9.1 In the case of K. P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13, their Lordships of the Supreme Court have held that circulars issued by the CBDT are legally binding on the revenue and this binding character attaches to the circulars even if they are found not in accordance with the correct interpretation of a statutory provision and they depart or deviate from such construction. Their Lordships further held that the circulars issued by the CBDT could be utilised to understand the scope of a provision to which they related.
9.2 It is not in dispute that the Board’s Circular No. 461 dated 9-7-1986 has explained the scope of the provisions relating to deduction under section 32AB in para 17.3 thereof as under :-
“The new scheme is applicable to all existing types of assessee as also to the professionals and the leasing companies which have not leased out machinery to those industrial undertaking other than a small scale industrial undertaking, engaged in the manufacture or production of articles or things listed in the Eleventh Schedule to the Income-tax Act. In other words, the deduction is admissible to all the assessees who carry on “eligible business or profession”, which as per section 32AB(2) means business or profession other than the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule (in case it is not a small scale industrial undertaking) and the business of leasing or hiring of machinery or plant to an industrial undertaking other than a small scale industrial undertaking engaged in the business of low priority items as specified in the list in the Eleventh Schedule. It may be clarified that the business of construction is an eligible business for the purposes of this provisions.”
In view of the above clarification, an assessee, who is engaged in the business of construction, becomes eligible for deduction under section 32AB of the Act. The said circulars is undoubtedly beneficial to the assessee engaged in the business of construction inasmuch as it has toned down the rigour of the law insofar as it related to an assessee engaged in the business of construction for the purposes of deduction under section 32AB of the Act. It is now well-settled that the benevolent from the legal position. In this view of the matter, we do not find any infirmity in the decision of the CIT (Appeals), which we hereby uphold. Accordingly, the appeal of the revenue is hereby rejected.
10. In the result, the appeal stands dismissed.
