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PETITIONER: COMMISSIONER OF INCOME TAX, AMRITSAR

       Vs.

RESPONDENT: STRAW BOARD MANUFACTURING CO. LTD.

DATE OF JUDGMENT28/04/1989

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) KANIA, M.H.

CITATION:  1989 AIR 1490            1989 SCR  (2) 772  1989 SCC  Supl.  (2) 523 JT 1989 (2)   264  1989 SCALE  (1)1151  CITATOR INFO :  RF         1992 SC1622  (4)

ACT:     Income Tax Act, 1961: Sections 33 and 80-E--Schedule  5, Item   16--Assessee--Manufacturer  of   strawboard---Whether entitled  to  concessional rate of  income-tax,  development rebate  and deduction-Strawboard industry--Whether  part  of paper  and  pulp  industry--Strawboard--Whether  covered  by expression ’paper and pulp’.

HEADNOTE:     The  assessee, manufacturer of strawboard, claimed  con- cessional rates of income tax, development rebate at  higher rate  under s. 33 and deduction under s. 80-E of the  Income Tax Act, 1961, for the assessment years 1965-66, 1966-67 and 1967-68,  on the ground that the manufacture  of  strawboard was  a  priority  industry. The claim was  rejected  by  the Income Tax Officer on the ground that the assessee could not be described as a priority industry and that the manufacture     of  strawboard was not covered by the words  ’paper  and pulp’ in the relevant Schedules pertaining to the assessment years 1966-67 and 1967-68.     The  assessee’s appeals were dismissed by the  Appellate Assistant  Commissioner.  In second appeals,  the  Appellate Tribunal  accepted the assessee’s plea that the  manufacture of  strawboard  was a priority industry and  held  that  the assessee  was entitled to the statutory rebates  claimed  by it.     On a reference made at the instance of the Revenue,  the High  Court  held that the strawboard industry  was  covered within  the  expression ’paper and pulp’  appearing  in  the relevant Schedules of the income Tax Act. Dismissing the appeals by the Revenue, this Court,     HELD:  When  provision is made in the context of  a  law providing  for concessional rates of tax for the purpose  of encouraging  an industrial activity, a liberal  construction should be put upon the language of the statute. [775E-F] 773     The  provision for rebate has been made for the  purpose of  encouraging  the setting up of new industries,  and  the industries are those described in the Schedules relevant  to

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the respective assessment years. When the Schedules refer to ’paper  and  pulp’, they, in fact, intend to  refer  to  the paper  and pulp industry. The expression has been used  com- prehensively. [775D-E]     The  expression  ’paper  and  pulp’  in  the  Industries (Development  and Regulation) Act, 1951 includes  paperboard and  strawboard. Newsprint, paperboard and  strawboard  have been  specifically mentioned in the relevant entry in  order to  make it clear that they are included within the  meaning of  the word ’paper’. The process or’  manufacturing  straw- board is identical with the process of manufacturing  paper. [775G-H; 776A]     In the circumstances, there is no doubt that the  straw- board  industry is part of the paper and pulp  industry  and the  assessee, whose undertaking was registered in terms  of s.  10 of the Industries (Development and Regulation),  1951 is entitled to the rebates claimed by it. [775E]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 5  19521 of 1975.     From the Judgment and Order dated 9.5.1974 of the Punjab and  Haryana High Court in I.T. Reference Nos. 30 to  32  of 1973.     G.C.  Sharma,  Ms. A. Subhashini and K.C.  Dua  for  the Appellant.     Dr. Y.S. Chitale, R.K. Jain, Rakesh Khanna and Ms.  Abha Jain for the Respondent. The Judgment of the Court was delivered by     PATHAK, CJ. These appeals by special leave are  directed against  a judgment of the High Court of Punjab and  Haryana disposing  of an Income-tax Reference in favour of  the  re- spondent-assessee. The  assessee  manufactures strawboard. For  the  assessment years   1965-66, 1966-67 and 1967-68 (the relevant  previous years  being  the respective calendar years 1964,  1965  and 1966),  the  assessee claimed concessional rates  of  income tax,  development rebate at higher rate and deduction  under s. 80-E of the Income Tax Act, 1961 on the 774 ground  that  the manufacture of strawboard was  a  priority industry.  For the assessment year 1965-66 the total  income assessed was Rs. 17,71,334 and against the basic rate of  80 per  cent the assessee claimed rebate at-the rate of 35  per cent up to Rs. 10,00,000 and on the balance at 26 per  cent. The Income Tax Officer allowed the rebate at 30 per cent  up to Rs. 10,00,000 and at 20 per cent on the balance. For  the assessment  year  1966-67 the assessee  claimed  development rebate  under s. 33 of the Income Tax Act at the rate of  25 per  cent  on the value of the machinery installed  after  1 April,  1965 worth Rs.34,287, but rebate was allowed  at  20 per  ’cent only. The assessee also claimed benefit under  s. 80-E  (inserted by the Finance Act, 1966 with effect from  1 April,  1966) to the extent of the income determined by  the Income  Tax Officer at Rs.8, 17,485 received from the  manu- facture  of strawboard. This industry is mentioned  at  item No.  16 in the Fifth Schedule to the Income Tax Act as  sub- stituted by the Finance Act, 1965. The claim of the assessee was. rejected by the Income Tax Officer. For the  assessment year 1967-68 the total income of the assessee was determined at Rs. 11,00,885. The assessee claimed relief under s.  80-E to  the  extent of Rs.7,50,316 received as income  from  the manufacture of strawboard. This claim was similarly rejected

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by  the Income Tax Officer on the ground that  the  assessee could  not be described as a priority industry.  The  Income Tax Officer took the view that the manufacture of Strawboard was  not covered by the words ’paper and pulp’ in the  rele- vant  Schedules  pertaining to the  assessment  1966-67  and 1967-68.     The assessee appeared to the Appellate Assistant Commis- sioner  of Income Tax in respect of the  three  assessments, but  the appeals were dismissed. In second appeals filed  in all  the three cases, the assessee’s plea that the  manufac- ture of strawboard was a priority industry was accepted  and the  Appellate Tribunal held that the assessee was  entitled to  the statutory rebates claimed by it. At the instance  of the  Revenue, the Tribunal referred the following  questions to the High Court for its opinion:               "Assessment year 1965-66               Whether on the facts and in the  circumstances               of the case, the Appellate Tribunal was  right               in law in holding that ’strawboard’ is covered               by  the  term ’paper and  pulp’  appearing  in               paragraph  F of Part I read with Part  III  of               the  First Schedule to the Finance  Act,  1965               (Act No. X of 1965)?               775               Assessment years 1966-67 and 1967-68               Whether on the facts and in the  circumstances               of the case, the Appellate Tribunal was  fight               in law in holding that ’strawboard’ is covered               by the term ’paper and pulp’ appearing at item               16  of  the Fifth Schedule to the  Income  Tax               Act, 1961 and in allowing the assessee’s claim               under section 80-E of the Act?"     The High Court has held that the strawboard industry  is covered within the expression ’paper and pulp’ appearing  in the relevant Schedules of the Income Tax Act and has, there- fore, answered the questions referred to it in the  affirma- tive, in favour of the assessee and against the Revenue.     The sole question before us is whether strawboard can be said  to  fall within the expression ’paper and  pulp’  men- tioned  in the Schedules relevant to the respective  assess- ment  years. To resolve the question it is necessary,  first to examine the significance and scope of the Schedules.  The provision  for rebate has been made for the purpose  of  en- couraging  the setting up of new industries, and the  indus- tries  are  those described in the  relevant  Schedules.  It seems  to us clear that when the Schedules refer  to  ’paper and pulp’ they in fact intend to refer to the paper and pulp industry.  That being so, the next question is  whether  the strawboard industry can be described as forming part of  the paper  and pulp industry. We have no doubt in our mind  that it does. The expression has been used comprehensively. It is necessary  to remember that when a provision is made in  the context of a law providing for concessional rates of tax for the purpose of encouraging an industrial-activity a  liberal construction should be put upon the language of the statute. From the material before us, which we have carefully consid- ered,  that is the only reasonable conclusion to be  reached in.  these case. The High Court has referred to the  licence dated 31 May, 1954 issued to the assessee that the undertak- ing of the assessee was registered in terms of s. 10 of  the Industries (Development and Regulation) Act, 195 1, and  the details  given in the licence declare that it relates  to  a Schedule  industry which includes newsprint, paperboard  and strawboard. The High Court has also referred to the  circum- stances  that  the process of  manufacturing  strawboard  is

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identical  with that of manufacturing paper. The  expression ’paper and pulp’ in the Industries (Development and  Regula- tion) Act includes paperboard; and strawboard. Our attention has been drawn to the Entry relevant to the assessment  year 1964-65 which speaks of ’paper and pulp including 776 paper products’ and, it is said, strawboard is evidently not within  the natural meaning of the word ’paper’. We  do  not think  that  the submission  merits  serious  consideration. Newsprint, paperboard and strawboard have been  specifically mentioned  in the entry in order to make it clear that  they are included within the meaning of the word ’paper’.     In  our judgment, the High Court is fight in taking  the view  which it has, and therefore, the appeals must be  dis- missed. The appeals are dismissed with costs. N.P.V.                             Appeals dismissed. 777