India Brewery And Distillery (P.) … vs Income-Tax Officer on 25 August, 1993

Income Tax Appellate Tribunal – Bangalore
India Brewery And Distillery (P.) … vs Income-Tax Officer on 25 August, 1993
Equivalent citations: 1993 47 ITD 441 Bang
Bench: A Balasubramanyam, S Bandyopadhyay


S. Bandyopadhyay, Accountant Member

1. Since these two appeals arise out of the consolidated order of the CIT(A) covering both the years under consideration and since again there is an important common issue in the appeal for both the years, we take up these two appeals in a consolidated manner and pass a combined order for the sake of convenience.

2. At the outset it has been found that both the appeals were filed in a belated manner by incurring a delay of six days. The representative of the assessee pointed out that the delay occurred on account of the laxity of the Chartered Accountant concerned in filing the appeals under consideration, although the appeal memo itself had been prepared in time. In view of this submission we hereby condone the delay and admit both the appeals.

3. The only issue relating to assessment year 1983-84 and the main issue for assessment year 1984-85 is the point of disallowance of investment allowance claimed by the assessee on plant and machineries stated to have been installed by it in these two years in its Industrial Alcohol Section. The assessee mainly carries on the business of manufacturing India-made foreign liquor like whisky and rum etc., which are branded as potable alcoholic spirits. The assessee, however, has tried to explain the working of its factory as it firstly converts molasses into spirits. It is stated that the said spirit is thereafter converted into rectified spirit (alcohol) and some portion remains as residue which is of the nature of denatured spirit. It has been stated that this rectified spirit forms the main basis for making of both potable alcoholic spirits as well as industrial alcohol (non-potable), which is used in chemical industry as well as plastic industry. It was also admitted by the representative of the assessee during the course of the hearing of the appeals before us that the rectified spirit produced by the assessee-company is actually utilised by it for manufacture of both alcoholic spirits as well as industrial alcohol. The assessee claims that during both these years under consideration, certain plants and machineries which were installed in its “Industrial Alcohol Section” were utilised only for purposes of manufacture of industrial alcohol. The assessee, thus, claimed investment allowance under Section 32A on these plants and machineries.

4. At the assessment stage, the ITO disallowed the claims of the assessee-company for both the years on the ground that the assessee suffers disability on account of its products being included within item 1 of the Eleventh Schedule of the Income-tax Act, 1961. The ITO stated in his assessment order that the industrial alcohol manufactured by the assessee-company in its Industrial Alcohol Section is nothing but rectified spirit which also contains alcohol and should, therefore, come within the ambit of the prohibitive entry No. 1 of the Eleventh Schedule.

The matter was taken by the assessee before the CIT(A). The assessee placed reliance on the two decisions of the Income-tax Appellate Tribunal in the case of Dr. Beck & Co. India Ltd. v. ITO [1984] 10 ITD 145 (Bom.) and Goodlass Nerolac Paints Ltd. v. ITO [1985] 11 ITD 767 (Bom.) and tried to contend that the prohibitive entry related to alcoholic spirit meant for human consumption only and not to industrial alcohol. The CIT(A), however, was of the opinion that the decisions as relied upon by the assessee were of no avail as related to the facts of the case. He commented that even the claim that the investment allowance should be allowed for the rectified spirit which was used for industrial purpose cannot be acceded to in the absence of any evidence in this regard. He rejected the contention of the assessee that the prohibition related to machineries engaged in manufacturing intoxicating liquors such as rum and whisky only.

5. The assessee has come up in appeal against the above decision of the CIT(A). During the course of the hearing of the appeals, the learned representative for the assessee has once more referred to the two above-mentioned decisions of the Tribunal in support of his claim that the use of the words “other alcoholic spirits” in item 1 of the Eleventh Schedule refers only to intoxicating spirits which are of the same type as beer and wine mentioned immediately before that. He also drew our attention to the Budget Speech of the Finance Minister for 1977-78 as printed in [1977] 107 ITR (St.) 65 with regard to the introduction of the scheme of investment allowance, the learned representative of the assessee drew our attention to the relevant paragraph of the said speech (page 66 of 107 ITR (Statutes), an extract from which is as below:

Since there is a need for encouraging generation of internal resources for financing investment, I consider it best to extend the scope of investment allowance to all industries except those which are engaged in the manufacture of specified low priority items such as cigarettes, cosmetics and alcoholic beverages.

He, therefore, argued that the items included in the Eleventh Schedule were only low priority items and so far as the first item relating to alcoholic products are concerned, it was the intention of the Legislature to consider only alcoholic beverages and not alcohol used for other, viz. industrial purposes, as prohibited items. The said representative of the assessee also relied on the decision of the Bombay High Court in the case of CIT v. Caltex (India) Ltd. [1989] 177 ITR 239 to show that even so far as item (3) of Schedule V/Schedule VI relating to allowability of deduction under Section 80E/80-I was concerned, a narrow meaning was given to the expression “mineral oil” in connecting similar words used in the same line. The departmental representative, on the other hand, strongly contended that what is prohibited in item 1 of the Eleventh Schedule is all types of alcohols irrespective of the actual user thereof. He also contended that the consideration of whether some item is luxury item or not is not at all relevant to the issue. He also took us to the Memorandum explaining the Finance Bill for 1977-78 reproduced at page 175 of 107 ITR (Statutes). He pointed out that at para 22 of the said Memorandum, only the expression “low priority items” was used and no mention was made to alcoholic beverages.

6. On a perusal of the Eleventh Schedule, we find that the first item therein is as below :

Beer, wine and other alcoholic spirits.

So far as the beer and wine are concerned, their meanings are clear enough so as not to put any body to any ambiguity. The difficulty actually arises as to the use of the expression “other alcoholic spirits”. The departmental representative quoted from Oxford Dictionary the meaning of the words “alcohol” and also “spirit”. The said exercise is not. found to be much useful inasmuch as the dictionary meanings of these two terms are exactly the same as what we generally understand by them. However, it is required to be noted in this connection that the Legislature has used neither the word “alcohol” nor the word “spirit” singly. On the other hand, the combined expression “alcoholic spirit” has been used. As per the dictionary meanings, the words “alcohol” and “spirit” would seem to be synonymous at least to some extent. If the word “alcohol” be used singly, it would certainly include industrial alcohol also. Similar would be the position if the word “spirit” be also used alone, in which case it should include all types of spirits whether rectified or not. However, use of the combined expression “alcoholic spirit” by the Legislature seems to carry some specific and significant meaning. Since this particular expression does not find place in any of the definitive or illustrative portions of the Income-tax Act, nor anywhere in the legal dictionary, we will have to try to find the meaning of the expression from the context in which it is used. Sometimes, the words “alcoholic spirit” are used loosely in common parlance to mean drinks containing alcohol. In the instant case, it is required to be noted that the expression is proceeded by two words viz., “beer” and “wine” each of which is of the nature of alcoholic beverage. At the same time again, since beer and wine are not manufactured by distillation process, in the strict technical sense, they cannot be considered as “spirit”. We feel that for the purpose of getting to the real meaning of the expression “alcoholic spirit”, it will be necessary for us to take recourse to the principles of noscitur a sociis or the principles of ejusdem generis. As is stated in Maxwell on the ‘Interpretation of Statutes’, the rule of noscitur a sociis is as below :

Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.

7. The words “ejusdemgeneris” means “of the same kind or nature”. This rule is that where particular words are followed by general words, the general words should not be construed in their widest sense but should be held as applying to objects, persons or things of the same general nature or class as those specifically enumerated, unless of course there is a clear manifestation of a contrary purpose; or to put in a slightly different way, where general or special words which are capable of analogous meaning are associated together, they take colour from each other and the general words are restrained and limited to a sense analogous to the less general. In the instant case, the words ‘beer’, ‘wine’ and ‘other alcoholic spirits’ all belong to the same genus of alcoholic beverages or potable alcoholic drinks. However, the expression “other alcoholic spirits” may have a broad connotation of including even non-potable alcohol also meant for industrial uses. In accordance with the abovementioned two principles of noscitur a sociis and ejusdem generis, only a restrictive meaning is required to be given to this particular expression so as to conform with the general nature of the two preceding items viz., beer and wine. The common character of beer, wine and other alcoholic spirits should, therefore, be such that they are meant for human consumption as intoxicating drinks. This interpretation also finds force from the speech of the Finance Minister, explaining the Finance Bill for 1977-78, a reference to which has already been made above in connection with the argument of the learned representative for the assessee. The Finance Minister was clearly of the view that what was necessary to restrict for the purpose of granting investment allowance was to exclude plants and machineries engaged in the manufacture of specified low priority items such as cigarettes, cosmetics and alcoholic beverages. When he used the expression “alcoholic beverages” he must have referred to the first item of the Eleventh Schedule only inasmuch as no other item in the said Schedule has anything to do with alcoholic beverages. It also stands to reason that when he referred to the said first item, he must have in his mind, alcoholic beverages only in relation to the expression “other alcoholic spirit”, as there cannot be any doubt about the fact that the other two sub-items included in the same item viz., ‘beer’ and ‘wine’ are also nothing but alcoholic beverages. In this view, therefore, we hold that only a limited meaning should be given to the expression “other alcoholic spirits” in the first item of the Eleventh Schedule and that the said meaning should be restricted to alcoholic beverages or potable alcohol only. The corollary to this inference would be that industrial alcohol would remain beyond the domain of the Eleventh Schedule and hence, any plant and machinery installed for the exclusive purpose of producing industrial alcohol will be entitled to the investment allowance under Section 32A.

8. Although this solves the legal dispute as to whether industrial alcohol should be considered as prohibitive item or not, in the instant case, however, the departmental representative has raised the issue that neither from the books of account nor from any other materials supplied by the assessee in the present case, it is possible to make a clear distinction between plant and machineries used by the assessee for manufacturing rectified spirit, potable alcohol like rum and whisky and industrial alcohol. It is an admitted fact that the rectified spirit produced by the assessee is utilised for manufacture of potable alcohol also, although some portion of the rectified spirit goes towards manufacture of industrial alcohol. Hence, plant and machineries installed for manufacture of rectified spirit only should not get the benefit of investment allowance inasmuch as rectified spirit is only an intermediary product part of which at least goes to the production of prohibited items like potable alcohol. Only such plants and machineries which convert rectified spirit into industrial alcohol shall be liable to get the benefit of investment allowance. So far as, therefore, the ascertainment of the exact plant and machineries which should be entitled to the benefit of investment allowance under Section 32A is concerned, we restore the matter back to the file of the Assessing Officer and direct him to ascertain, either by examining the records of the assessee or by paying a visit to its factory, those particular items of plant and machineries installed during these two years which are used exclusively for converting rectified spirit to industrial alcohol. He should thereafter grant investment allowance to the acquisition of such items of plant and machinery only provided however the requisite conditions like creation of appropriate amounts of reserves, etc., be satisfied.

9. The other issue relating to assessment year 1984-85 centres round the disallowance of the sum of Rs. 6,45,800 by applying the provisions of Section 43B. In one of the grounds, the assessee contends that the provisions of Section 43B can be applied only when there is a debit to the profit and loss account and that in the assessee’s particular case, there is neither such a debit nor a provision. However, it is required to be mentioned in this connection that the collection of sales-tax by the assessee has neither been credited to the sales nor debited to the profit and loss account separately in this case. As has been discussed by the CIT(A), the decisions of the Supreme Court in the cases of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 and Sinclair Murray & Co. (P.) Ltd. v. CIT [1974] 97 ITR 615,lay down the law that collection of sales-tax, even if not credited to the profit and loss account or sales would constitute nothing but a part of the sales only. In the instant case, therefore, the sales-tax amount will be considered to have been credited and debited simultaneously to the sales and profit and loss account. At the time of hearing of the appeal before us, again, the representative of the assessee did not raise this issue at all. Hence, we reject this particular ground.

9.1 The main ground relating to the disallowance under Section 43B is, however, that the sales-tax collected towards the end of the accounting year was actually paid during the next year within the due dates for payment of the same in accordance with the laws relating to sales tax. This facility is provided by the first proviso to Section 43B as introduced by the Finance Act, 1987 with effect from 1-4-1988. It has been decided by the Karnataka High Court in the case of Chief Commissioner [Admn.) v. Sanjay Sales Syndicate [1992] 197 ITR 255 that this proviso has got to be considered as merely declaratory in nature and hence, would be applicable in retrospective manner also. By respectfully following the said decision of the Karnataka High Court, therefore, we direct the Assessing Officer, in this case, to find out whether and to what extent the amount disallowed by him under Section 43B fulfills the condition as laid down in the first, proviso to that section. The assessee shall get reduction out of the disallowance to the corresponding extent. The Assessing Officer is directed to grant such benefit to the assessee.

10. In the result, both the appeals are partially allowed to the abovementioned extent.

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