ORDER
Per MK Chaturvedi Judicial Member – This appeal by the assessee is directed against the order of the CIT, Bombay City-X, Bombay passed under section 263 of the Income-tax Act, 1961 and pertains to the assessment year 1989-90.
Briefly the facts :
2. The assessee is a manufacturer of breads, savouries, biscuits, cakes and chocolates. It was stated that the assessee does not manufacture chocolates but buys in bulk from other manufacturers and processes them by putting its brand name. The assessee is registered as a small scale industrial unit with the Registrar of Industries, Government of Maharashtra for the following manufacturing activities :-
1. Bakery Product such as Bread, cakes, Rolls, Biscuits, confectionary.
It was clarified that the assessee is not manufacturing any confectionary products. During the relevant assessment year, the CIT found that the order as passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. He, therefore, issued a notice dated 5-11-1992 which reads as under :-
“(i) Your claim to deduction under section 80-I has been granted without proper scrutiny and application of mind. The business of confectionary is specifically covered under Eleventh Schedule which debars the assessee from the benefit under section 80-I. Whether the assessee comes under the exception granted to small scale industries has not been properly verified. In fact, the very issue relating to applicability of the Eleventh Schedule has not been examined at the assessment stage.
(ii) The Assessing Officer also failed to examine whether bakery can come within the meaning and definition of Industrial Undertaking for the purposes of section 80-I.
(iii) The Assessing Officer did not examine whether the assessee fulfils the criteria laid down in section 80-I (2) (iv) in relation to the manufacturing activity and number of employees on its pay-roll.”
3. The relevant portion of the notice served on 5-3-1993 reads as under :
“Your contentions regarding applicability of provisions of section 80-I of the Income-tax Act, 1961 will be taken into account while finalizing the proceedings under section 263 of the Income-tax Act, 1961. The records show that in the relevant assessment you had been allowed deduction under section 32AB in addition to the deduction under section 80-I of the Income-tax Act, 1961. It appears from the record that the Assessing Officer omitted to consider as to whether goods manufactured by you fall in the category of confectionary as listed in the Eleventh Schedule and he also failed to consider as to whether you qualify to be described as a small scale industrial undertaking. It would therefore appear that the assessment made was erroneous inasmuch as it was prejudicial to the interest of revenue on account of allowance of deduction under section 32AB, without consideration of relevant factors.”
4. The CIT opined that the deductions under sections 80-I and 32AB were granted without properly examining the fact that whether the products manufactured by the assessee are covered by any of the items mentioned in the Eleventh Schedule. According to the CIT, there was no proper examination as to whether the assessee constituted a small scale industrial undertaking. It was stated in the order that the major portion of the assessees turnover consisted of cakes. The CIT held that cakes and savouries should be construed to be confectionary items; that the assessee is not eligible industrial undertaking within the meaning of section 80-1 and the profits earned by it are not eligible profits within the meaning of section 32AB.
5. Coming to the other aspect that whether the assessee was a small scale industrial undertaking, the CIT took into consideration the definition of small scale industrial undertaking as given in section 80HHA. According to the said definition, only the value of tools, jigs, dies and moulds is to be excluded from the value of plant and machinery. No other items of plant and machinery are excluded. The value of the entire block of the assessees plant and machinery – excluding tools, jigs, dies and moulds during the relevant year exceeded the limit of Rs. 35 lakhs. In view of this, the CIT held that the assessee cannot be regarded as a small scale industrial undertaking. He, therefore, held that the assessment was erroneous and prejudicial to the interest of the revenue. He rendered direction to the Assessing Officer to revise the assessment by withdrawing the deductions allowed to the assessee under sections 80-I and 32AB of the Income-tax Act, 1961.
6. Shri S. E. Dastur, the learned Counsel for the assessee appeared before us. It was vehemently contended that the condition precedent for assuming jurisdiction under section 263 of the Act did not exist. Our attention was invited on the contents of items those listed in the Eleventh Schedule. This is as under :
Confectionery and Chocolates.”
7. Shri Dastur argued that cakes and savouries cannot be construed to be confectionary and as such, the items produced by the assessee are not coming within the ken of Eleventh Schedule. As such the assessee is entitled to the benefit as contemplated under sections 80-I and 32AB.
8. In order to explain the meaning of cake, the learned counsel adverted to the Webstors Third New International Dictionary, Volume one “Unabridged Editions page 313. The meaning as given in the Dictionary is reproduced here as under :
“(A)
CAKE
1.a Any of a variety of breads, usu. small in size and typically round and flat in shape as –
(1) a flat mass of dough sometimes unleavened, shaped round or oval by hand and baked with a crust on both sides.
(2) Scot : a thin hard baked bread of eatmeal. (3) a thin flat bread (as a griddlecake) made from batter fried on a griddle or other utensil.
(4) biscuit dough enriched with shortening and eggs and baked and served hot with fruit or meat (as shortcake).
1.b Any of a variety of fancy sweetened breads as –
(1) a loaf baked in a variety of forms and sizes made from a sweet dough or batter of flour and other ingredients and often coated with an icing.
(2) a usu. small mass of firm dough variously shaped, leavened with yeast or baking powder and cooked in deep fat (as a friedcake).
1.c A flattened usu. round mass of food (as potato hashed meat, fish) baked or fried.
2.a a block of compacted or congealed matter (a of soap) (an ice).
b. a hard or brittle layer or deposit : CRUST (the formed in a pipe)
c a hollow cylinder of yarn produced by the spinning process for viscose rayon.
(B)
Cake to cover (as surface) (with a crust : ENCRUST (his jacket was caked with dust : fill (a space) with a packed mass (caked fingernails) –
(1) to form or harden into a mass (coral is formed by the caking of minute shells into stone).
(2) to fuse (as of coal) into a pastry mass when heated.”
He also relied on the definition of cake as given in the Random House Dictionary (unabridged Edition), page 208 which reads as under :
“(1) a sweet baked, breadlike food, made with or without shortening and usually containing flour, sugar, baking powder or soda, eggs and liquid flavouring.
(2) a flat, thin, mass of bread, esp. unleavened bread.
(3) pancake : griddle-cake.
(4) a shaped or molded mass of other food : a fish cake.
(5) a shaped or compressed mass : a cake of soap, a cake of ice.
(6) a piece of cake, something easily done : He thought his first solo flight, a piece of cake.
(7) take the cake, informal to surpass all others : be extraordinary or unusual; his arrogance takes the cake.
(8) to form into a crust or compact mass.
(9) to become formed into a crust or compact mass.”
9. In order to define the meaning of word confectionary, the learned counsel invited our attention on the Oxford English Dictionary, Second Edition, Part III, where the word is defined as of the nature of confection, cornfit or sweetmeat or pertaining to confections or confectioners work. As per this Dictionary, the word confection means to prepare for use with sugar, syrup, or the like; to make into a confection; to mix, make up as a condiment or seasoned delicacy. We find that in the same Dictionary, the words “Confectionery preparations are defined as a sweetmeat. The word sweetmeat is defined in the Websters Encyclopaedic Unbridged Dictionary as sweet delicacy, prepared with sugar, honey or the like, as preserves candy, or formerly cakes or pastry.
10. In order to explain the meaning of the word confectionary the learned Counsel relied on the ratio in the case of CCE v. Popcorn House Ltd. [1968] 3 All E.R. 782. It was held in this case that confectionary means any food normally eaten with the fingers and made by a cooking process, other than baking, which contains a substantial amount of sweetening matter. The learned Counsel read the following portion of the judgment :-
“Applying that principle of construction to this taxing Act, I have to ask myself : What do the words Similar confectionery (including drained, glace or crystallized fruits) means ? and those words follow the words Chocolates and sweets. It was suggested that the words similar Confectionary may well be nothing more than words put in ex abundanti cautelae but counsel for the defendants had helped me by pointing out that some confectionary products, such as Turkish delight and nougat, might not come within the ordinary meaning of the word sweets. I adjudge that the word confectionary as used in the first part of Group 34 means any form of food normally eaten with the fingers and made by a cooking process, other than baking, which contains a substantial amount of sweetening matter. That is the characteristic of both chocolates and sweets; they are normally eaten with the fingers; they are not made by baking, and they have substantial amounts of sweetening matter in them.”
11. The word confectionary is also defined in the case of Parry & Co. Ltd. v. Perry & Co. AIR 1963 Mad. 460. In this case, confectionary is defined as sweetmeat. The Court has observed that biscuit is in the nature of dry bread which has the characteristic of being baked. It cannot therefore be said that biscuit and confectionary are identical. But there can be fancy biscuits in which confectionary can be put on the top of them. But the essential characteristic of biscuit is different from that of confectionary. In CHIT v. Jassu Ram Bakery Dealer [1976] 38 STC 461 (All.) the question arose. whether biscuits are cooked food or confectionary. It was held that biscuit in common parlance does not come under the category of cooked food. Biscuit is generally taken as a snack or along with tea and is not generally an item of food for a meal. While taking this view, the High Court referred to the decision of State of Bombay v. Virkumar Gulabchand Shah AIR 1952 SC 335 wherein it was ruled that where an expression occurring in statute is capable of a wide as well as a narrow meaning the question whether the wider meaning or the narrower meaning should be given to that expression would depend upon the context and the background. Reference was made to the case of P. Basheer v. State of Kerala [1993] 91 STC 291 (Ker.), wherein it was held that “bakery products” being words of everyday use must be construed in its popular sense, meaning that sense which people conversant with the subject matter with which the statute is dealing would attribute to it and it is to be construed as understood in common parlance.
12. Coming to the aspect whether the assessee was a small scale industrial undertaking, Shri Dastur contended that the value of other items of plant and machinery which were not directly engaged in the manufacturing process are to be excluded. Reliance was placed on the decision of the Tribunal rendered in the case of Indian Communication Network Ltd. v. IAC [1994] 50 ITD 411 (Delhi).
13. Shri Sharma, the learned Departmental Representative appeared before us. Relevant documents and papers were produced. The id. D.R. vehemently contended that the assessee was engaged in the manufacturing of confectionary items. According to Shri Sharma, cake comes within the ambit of the word confectionary. A cake was produced before us to demonstrate that covering of the cake which contains creamy and other layers are not part of the baked item. Our attention was invited on the certificate of registration wherein the assessees manufacturing activities include inter alia, items of confectionery. As such, according to the learned Departmental Representative, it cannot be said that the assessee was not engaged in the manufacture of confectionary items. Shri Sharma referred to the Concise Oxford Dictionary which defines the word confection as dish or delicacy made with sweet ingredients, 2 mixing, compounding.” The same Dictionary defines the word confect as made by putting together sweet ingredients. Websters Encyclopaedic Dictionary gives more or less the same definition. In fact, Websters Encyclopaedic (unbridged) Dictionary defines sweet-meat to include formerly cakes and patties. It was argued that the word confectionary is not defined in the Income-tax Act and therefore, one has to go by the plain or dictionary meaning. The word confectionary connotes any eatables which is made by compounding or mixing with sugar ingredients. Cakes manufactured by the assessee contain admittedly sweet ingredients. Therefore, these are to be construed as confectionary within the meaning of Eleventh Schedule. As the assessee is mainly engaged in the production of cakes and savouries, these being the confectionary items, the assessee is not entitled to get the benefit of sections 80-I and 32AB.
14. In regard to the question of small scale industrial undertaking, Shri Sharma submitted that the law is clear on this point. One is required to take the definition as given in section 80HHA. It is abundantly clear from this definition that only the value of tools, jigs, dies and moulds is to be excluded from the value of plant and machinery. No other item of plant and machinery is to be excluded. The contention of the assessee that the value of all other items of plant and machinery which cannot directly be put in the manufacturing process is to be excluded, is not supported by any precedent. Admittedly, the value of plant and machinery excluding the items listed in section 80HHA, in the relevant assessment year, exceeded the limit of 35 lakhs, and as such, the assessee cannot be treated as a small scale industrial undertaking.
15. On these reasonings, it was contended that the CIT correctly found the order of the Assessing Officer erroneous and prejudicial to the interest of the revenue. Therefore, the conditions precedent for assuming jurisdiction under section 263 did exist in the facts and circumstances of the case.
16. We have heard the rival submissions in the light of material placed before us and the precedents relied upon. In order to avail the benefit of section 32AB and section 80-I, the following categories of persons were found eligible assessees –
“(1) small scale industrial undertaking whether they manufacture any article or thing specified in Eleventh Schedule or not;
(2) industrial undertakings, other than small scale industrial undertakings, not engaged in the business of construction, manufacture or produce any article or thing specified in the list in Schedule Eleventh ….
17. In Schedule Eleventh, item 6 is listed as under :
“Confectionary and chocolate”
The CIT found that the assessee is engaged in the business of confectionary. He also noted that the benefit of section 32AB and section 80-I were given to the assessee by the Assessing Officer. The order of the Assessing Officer was, therefore, found to be erroneous and prejudicial to the interest of the revenue. The CIT assumed the jurisdiction under section 263 of the Act and directed the Assessing Officer to withdraw the benefits as given under sections 32AB and 80-I.
18. It is, therefore, necessary to enquire whether the items manufactured by the assessee could be construed to be confectionary. Admittedly assessee is manufacturing, cakes savouries, et hoc genus omne. In “Word Origins and their Romantic Stories” by Wilfred Funk, on page 346, the word Confetti is given. We reproduce the relevant portion from the said book :
“CONFETTI : was once candy
Confetti is an Italian ward for candies or sweetmeats; and the corresponding French word is bonbon, literally good-good. on carnival days the merrymakers in Italy used to have fun pelting each other with this candy, those who could afford it throwing money too. Later on, an enterprising and thrifty storekeeper made imitation sweetmeats, or confetti, out of plaster and pasteboard. To day little bits of colored paper, still called confetti, have been substituted for the pasteboard ones. When we city folks are celebrating the arrival of some great hero, we tear up the pages of the telephone books and throw the pieces out of the windows as symbolic offerings of candies and money. The word confetti is originally from Latin confectus, put together, prepared. This word also gave us our word confection which is another term for confetti and bon-bons.”
In Encyclopaedia Britannica, Part III, page 73, the words confectionary and candy production are defined. It means manufacture of a wide range of sweet food products (called candies) from sugar, chocolate, milk, fats and flavourings.
The text article covers sugar confectionery history, from ancient Egyptian times, and the main types of candy, their ingredients, and production, including hard candy, caramel and toffee, nougat, fondant, fudge, jelly and Turkish delight, marshmallow, paste and marzipan, gum and pastille, panned sweets, and others.
19. What is confectionery ? It is sweetmeat. What is sweetmeat ? Sweetmeat is shaped morsel of confectionary, consisting chiefly of sugar or chocolate, a fruit preserved in sugar, bon-bon, sugar plum, soody. In the light of the aforesaid discussion it can be said that confectionary comprises articles in which the main ingredients is sugar, although other articles may be added for enhancing its taste. It thus comprises essentially only these articles which are commonly called sweetmeats. Thus, it is clear that it is food chiefly made of sugar. Normally it is eaten with the fingers and made by cooking process, other than baking. That is the characteristic of both chocolates and sweets. These contain substantial amount of sugar, eaten with fingers and are not made out of the baking process.
20. Assessee is manufacturing cakes and savouries. Examining the nature of those items on the touchstone of the test laid down above, we find that the chief ingredient of cakes and savouries is not sugar. These are manufactured out of the baking process. Therefore, these items are not coming within the ambit of the connotation of the word Confectionary. Therefore, the case of the assessee is not falling within the ken of the Eleventh Schedule. On that basis, the assessee is entitled to get the benefit of sections 32AB and 80-I.
21. Coming to the next question, whether the assessee can be construed to be small scale industrial undertaking, we find that this point is adjudicated by the Tribunal in the case of Indian Communication Network Ltd. (supra). Tribunal held that the aggregate value of plant and machinery should be determined in the like manner as done by the Directorate of Industries. In order to apply this ratio and to find out whether the assesses comes within the ambit of small scale industrial undertaking, it is sine qua non to make the necessary enquiry. But in view of our finding given apropos the question whether the items manufactured by the assessee come under Eleventh Schedule. This point has now become only academic.
Therefore, we decline to comment over the same.
22. We direct the AO to give consequential relief in regard to the interest charged under section 139(8) and under section 215.
23. In the result, the appeal of the assessee stands allowed.