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PETITIONER: M/S. PRAKASH TRADINGS COMPANY

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX,GUJARAT

DATE OF JUDGMENT:       20/02/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) PARIPOORNAN, K.S.(J)

CITATION:  1996 SCC  (7) 685        JT 1996 (2)   465  1996 SCALE  (2)337

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P. JEEVAN REDDY,J.      These appeals are preferred by the assessee against the judgment  of  the  Gujarat  High  Court  answering  the  two questions referred to it, at the instance of the Revenue, in favour of  the Revenue  and against  the assessee.  The  two questions stated  for the  opinion of  the High  Court under Section 256(1) are:      "(1) Whether  on the  facts and  in      the circumstances  of the case, the      assessee  was   entitled  to  claim      deduction from  tax in  respect  of      deoiled cakes  exported or  sold to      exporters  by   it  under   section      2(5)(a)(ii) and  (iii) and  Section      2(5)(c) of  the Finance  Act,  1966      read with  item No. 28 of the First      Schedule    to    the    Industries      (Development and  Regulation)  Act,      1951 for  the assessment year 1966-      67?      (2) Whether on the facts and in the      circumstances  of   the  case   the      assessee  was   entitled  to  claim      deduction   from    income-tax   in      respect of  deoiled cakes  exported      or sold  to exporters  by it  under      section 2(4)(a)(ii)  and (iii)  and      section 2(4)(c) of the Finance Act,      1967 read  with Item  No. 28 of the      First Schedule  to  the  Industries      (Development and  Regulation)  Act,      1951 for  the assessment year 1967-      68?"      With a  view to  encourage export  of industrial goods,

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the Finance  Acts of  1966 and  1967 provided  an additional incentive. A  person  engaged  in  the  manufacture  of  any articles in  an industry  specified in the First Schedule to the  Industries   (Development  and  Regulation)  Act,  1951 [I.D.R. Act] and who was exported such articles out of India or has  sold the  said articles to an exporter was entitled, to an  additional deduction specified in sub-clause (ii) and (iii) of clause (a) of Section 2(5) of the Finance Act, 1966 and Section  2(4) of  the Finance  Act, 1967.  The  relevant provisions in  both the Finance Acts are identical. It would suffice if  we refer  to the  provisions in the Finance Act, 1966. Insofar  as relevant,  the provisions  in Section 2(5) read as follows:      "2(5)(a)   In    respect   of   any      assessment for  the assessment year      commencing on  the Ist day of April      1966, in  the case  of an  assessee      being  a  domestic  company  or  an      assessee other than a company, --      (i) where his total income includes      any profits  and gains derived from      the  export   of   any   goods   or      merchandise out  of India, he shall      be entitled  to a  deduction,  from      the amount of income-tax with which      he  is  chargeable,  of  an  amount      equal to  the income-tax calculated      at one-tenth of the average rate of      income-tax on  the amount  of  such      profits and  gains included  in his      total income.      (ii) where  he is  engaged  in  the      manufacture of  any articles  in an      industry  specified  in  the  First      Schedule    to    the    Industries      (Development and  Regulation)  Act,      1951 (LXV of 1951), and has, during      the previous  year,  exported  such      articles out  of India, he shall be      entitled,  in   addition   to   the      deduction of income-tax referred to      in sub-clause  (i),  to  a  further      deduction,  from   the  amount   of      income-tax   with   which   he   is      chargeable for the assessment year,      of an  amount equal  to the income-      tax calculated  at the average rate      of income-tax on an amount equal to      two per  cent, of the sale proceeds      receivable by  him  in  respect  of      such export;      Explanation -- xxxxxxxx      (iii) Where  he is  engaged in  the      manufacture of  any articles  in an      industry  specified   in  the  said      First Schedule  and has, during the      previous year,  sold such  articles      to any  other person  in India  who      himself has  exported them  out  of      India,  and  evidence  is  produced      before the  Income-tax  Officer  of      such  articles   having   been   so      exported  the   assessee  shall  be      entitled to  a deduction,  from the      amount of  income-tax with  c he is

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    chargeable for  the assessment year      of an  amount equal  to the income-      tax calculated  at the average rate      of income-tax on a sum equal to two      percent  of   the   sale   proceeds      receivable by  him  in  respect  of      such articles from the exporter.      (b) xxxxxxxxxx      (c) Nothing contained in sub-clause      (ii) or  sub-clause (iii) of clause      (a) shall apply in relation to --      (1) fuels,      (2) fertilizers,      (3)  photographic   raw  film   and      paper;      (4) textiles (including those dyed,      printed or otherwise proceeded made      wholly  or   in   part   of   jute,      including jute twine and rope,      (5) newsprint,      (6)  pulp-wood   pulp,  mechanical,      chemical including dissolving pulp,      (7) sugar,      (8) vegetable oils and vanaspati,      (9) cement and gypsum products,      (10) arms and ammunition, and      (11) cigarettes      respectively,  specified  in  items      2,18,20,23(2),24(2),24(5),25,28,35,      37 and  38 of the first Schedule to      the  industries   (Development  and      Regulation)  Act,   1951  (LXV   of      1951)."      The appellant-assessee is a registered partnership firm engaged in  the manufacture  of groundnut  oil at Verval. It has a  solvent extraction plant at Veraval. It has a solvent extraction  plant  et  Veraval.  It  exported,  to  sold  to exporters, de-oiled  rakes of  the value  of Rs. 48,92,902/- and Rs. 24,13,040/- respectively during the accounting years relevant to  the Assessment  Years 1966-67  and 1967-68  and claimed the  additional deduction  in respect  of  the  said amounts under  the provisions  of  Section  2(5)(a)(ii)  and (iii) of the Finance Act, 1966 and under Section 2(4)(a)(ii) and (iii)  of the  Finance Act, 1967. The Income Tax Officer rejected the claim with reference to and relying upon clause (c) of  Section 2(5) of the Finance Act, 1966 and clause (c) of Section  (4) of  the Finance  Act, 1967.  On appeal,  the Appellant Assistant  Commissioner agreed with the assessee’s contention that  clause (c)  aforesaid refers to articles as such and  not to  industries and  since de-oiled cake is not mentioned  in  clause  (c),  the  assessee  is  entitled  to additional deduction. The Tribunal affirmed the said view in appeal.  At  the  instance  of  the  Revenue,  the  Tribunal referred the aforesaid two question under Section 256(1).      The only  question that  arises  in  these  appeals  is whether clause  (c)) refers to articles mentioned therein or whether it  refers to  industries engaged in the manufacture of those  articles. For  answering this question, we have to turn to the scheme underlying the provisions aforementioned. Sub-clauses (ii)  and (iii),  which provide  the  additional deduction,  speak   of  the  articles  manufactured  in  "an industry specified in the First Schedule to the I.D.R. Act", which have  been exported  out of  India by  the manufacture during the  relevant accounting year or which have been sold to an  exporter who has actually exported them out of India.

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Clause (c)  of Section 2(5) of the 1966 Act for Section 2(4) of the  1966 Act for Section 2(4) of the 1967 Act] is in the nature of  an exception  to sub-clause  (ii)  and  (iii)  of clause (c). If follows, as it must, the same pattern. Clause (c) opens  with the words "(N)othing contained in sub-clause (ii) or  sub-clause (iii)  of  clause  (a)  shall  apply  in relation to--". The it proceeds to mention several articles, at the  same time  specifying the  item numbers in the First Schedule to  the I.D.R.  Act under  which the  said articles fall. Just  as  the  First  Schedule  [to  the  I.D.R.  Act] mentions several  articles  under  various  heads,  so  does clause (c)  of Section  2(5) of  the Finance  Act, 1966  and Section 2(4)  of the  Finance Act,  1967. The description is identical in  both the First Schedule and clause (c). We may illustrate what we say. The pattern in the First Schedule is to mention  an article  under  a  heading  [item]  and  then mention several  categories thereof  under the  sub-headings [sub-items]. For  example, Item  (2) in  the First  Schedule reads:      "2. FUELS:      (1) Coal,  lignite, coke  and their      derivatives.      (2) mineral  oil (crude  oil) motor      and aviation  spirit,  diesel  oil,      kerosene oil,  and fuel  on diverse      hydrocarbon oils  and their  blends      including     synthetic      fuels,      lubricating oils and the like.      (3)  Fuel   gases  --   (coal  gas,      natural gas and the like)."      Now, clause  (c) adheres  to the said pattern, Where it seeks to  refer to the entire item in the First Schedule, it does so  and where  it seeks  to refer  only to a particular sub-item in the First Schedule, it does so and where it seek to refer  only to  a particular  sub -item of an item in the first  Schedule   it  says  so  -  and  the  description  is identical. To  writ, Item  (1) in clause (c) is "Fuels", the same as  the heading of Item (2) of the First Schedule. item (2) in  clause (c) is "Fertilizers, the same as in Item (18) of the  First Schedule. Similarly, Item (3) in clause (c) is "photographic raw  film and paper", the same as Item (20) in the First  Schedule. However,  when it  comes to Item (4) in clause (c)),  it covers only a sub-item  of Item (23) in the First Schedule.  Item (23)  of the First Schedule ":Textiles [including those  dyed, printed or otherwise processed]" has five sub-items, it reads:      "23.  TEXTILES    (INCLUDING  THOSE      DYED,    PRINTED    OR    OTHERWISE      PROCESSED):      (1)  Made  wholly  or  in  part  of      cotton,  including   cotton   yarn,      hosiery and rope.      (2) Made wholly or in part of jute,      including jute twine and rope.      (3) Made wholly or in part of wool,      including wool  tops, woollen yarn,      hosiery, carpets and druggets.      (4) Made wholly or in part of silk,      including silk yard and hosiery.      (5)  Made  wholly  or  in  part  of      synthetic,  artificial   (man-made)      fibres, including  yarn and hosiery      of such fibres."      Item (4)  in clause  (c), however,  refers only to sub- item (2) of Item (23) in the First Schedule but not to other

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sub-items.  Item   (4)  in   clause  (c)   reads:  "Textiles (including those  dyed, printed or otherwise processed) made wholly or  in part  of jute  including jute twine and rope." Similarly, item  (5) in clause (c) refers to sub-item (2) of Item (24)  of the  First Schedule and Item (6) in clause (c) refers to  sub-item (5) of Item (24). In all cases, however, the description  of articles  is identical.  To repeat, both clauses (ii) and (iii) of clause (a) and clause (c) refer to articles is  identical. To  repeat, both  clauses  (ii)  and (iii) of  clause (a)  and clause (c) refer to articles only, as does  the First Schedule to the I.D.R. Act. If so, all of them must  carry the  same meaning  and  purport.  Moreover, clause (c)  being an  exception to sub-clause (ii) and (iii) must follow  the same pattern as in the said sub-clauses. It is reasonable to presume so.      For the above reasons, we agree with the High Court and dismiss the appeals. No costs.