# THE COMMISSIONER OF INCOME TAX, ORISSA ETC. ETC v. N.C. BUDHARAJA & COMPANY AND ANR. ETC. ETC

- **Citation:** [1993] Supp. 2 S.C.R. 185
- **Court:** Supreme Court of India
- **Decided:** 1993-09-07
- **Case number:** Civil Appeal Nos. 42384240 of 1983
- **Bench:** B.P. Jeevan Reddy, N. Venkatachala
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-income-tax-orissa-etc-etc-v-n-c-budharaja-company-and-anr-11996
- **Pages:** 22

## Headnote

B
Income Tax Act, 1961:
Sections BOHH, B~'Manufacture or produce articlesL....Construction of
dam, laying foundation for buildings and other structures by pressure piling,
held, not manufacture or production-Dam and foundations, held, not articles.
c
Section 32A (2)(b)(iii)-'Construction' and 'thingl-lfeld, 'articles' and
'things' used interchangeably-'Things' refers only to movable~
'Construction' does not ref er to construction of dams, bridges, buildings, roads D
or canals.
Interpretation of Statutei-Where a word is not defined in the Act or
the Rules, it must be understood in its nonnal connotation, as it is understood
in commercial world-A word also takes its colour from the context in which
it is used-Statute cannot always be construed with the dictionary-Scheme,
context, legislative history of provision also to be considered.
Words and Phrases: Expressions 'Articles' occurring in Section 80HH
and 'Construction' and 'Thing' in Section 32A(2)(b )(iii) of the Income Tax
Act, 1961-Meaning of.
The respondent-assessee in one group of appeals was a firm of
contractors constituted in January, 1972 for the purpose of construction
of a dam, in a notified backward district for the purpose of Section 80HH.
E
F
For the assessment years 1974-75 and 1975-76, it claimed relief under
Section 80HH which was allowed by the ITO. The Commissioner of In- G
come-Tax, revised the order on the ground that construction of a dam
could not be said to be manufacture or production of an article nor the
firm was an industrial undertaking.
The Income-Tax Appellate Tribunal allowed the assessee's appeal
and held that construction of a dam could be characterised as an in- H
185
186
SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A
dustrial activity; that the expression 'articles' in Section 80HH(2)(i) was
not confined tn movables, and that the construction of a dam could be
characterised as processing as well as manufacturing. On a reference, the
High Court ag1 eed with the Tribunal.
B
In another set of appeals the respondent-assessee, engaged in the
business of laying foundations for buildings and other structures by
pressure piling method claimed benefit und~r Section 84 of the Income Tax
Act for the assessment years 1963-64 and 1964-65. The Income Tax Officer
denied the relief as he was of the opinion that the asses see was not engaged
in manufacture or production of articles. While the Asstt. Appellate ComC
missioner dismissed the assessee's appeal, the Tribunal allowed it.
On reference, the High Court examined the process by which the
assessee carried out its work, and held that it could be characterised as
manufacture or production of an article. It accordingly held in favour of
D the assessee.
In another group of appeals, the respondent-assessee firm was carrying on business in the manufacture and sale of tiles and in construction
work on a large scale. It specialised in the construction of dams and
canals. Its claim was for deduction as investment allowance under Section
E 32A, on the actual cost of machinery and plant used for the purpose of its
business pertaining to construction of dams and canals. The Assessing
Officer disallowed the claim, the CIT accepted the assessee's claim and the
Tribunal allowed the Revenue's appeal. On a reference by the assessee, the
High Court held in favour of the assessee.
F
The questions for consideration in the appeals before this Con.rt
were: (i) whether construction of a dam or laying foundations for buildings
and other structures through pressure pilings was manufacture or production of articles in Sections 80HH and 84(2) (iii); and (ii) whether machinery
and plant installed for the purpose of business pertaining to the construcG tion of dams and canals could be said to have been installed for the
'purposes of business of construction, manufacture or production of any
article or thing' in Section 32(2)(b)(iii), to be eligible for investment
allowance.
H
Allowing the appeals, this Court
•
C.l.T. v. BUDHARAJA & C

## Text

_Characters 0–39,971 of 52,306. This is a partial read: ask again with offset=39971 for what follows._

THE COMMISSIONER OF INCOME TAX, ORISSA ETC. ETC.
A
v.
N.C. BUDHARAJA & COMPANY AND ANR. ETC. ETC.
SEPTEMBER 7, 1993
[B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.]
B
Income Tax Act, 1961:
Sections BOHH, B~'Manufacture or produce articlesL....Construction of
dam, laying foundation for buildings and other structures by pressure piling,
held, not manufacture or production-Dam and foundations, held, not articles.
c
Section 32A (2)(b)(iii)-'Construction' and 'thingl-lfeld, 'articles' and
'things' used interchangeably-'Things' refers only to movable~
'Construction' does not ref er to construction of dams, bridges, buildings, roads D
or canals.
Interpretation of Statutei-Where a word is not defined in the Act or
the Rules, it must be understood in its nonnal connotation, as it is understood
in commercial world-A word also takes its colour from the context in which
it is used-Statute cannot always be construed with the dictionary-Scheme,
context, legislative history of provision also to be considered.
Words and Phrases: Expressions 'Articles' occurring in Section 80HH
and 'Construction' and 'Thing' in Section 32A(2)(b )(iii) of the Income Tax
Act, 1961-Meaning of.
The respondent-assessee in one group of appeals was a firm of
contractors constituted in January, 1972 for the purpose of construction
of a dam, in a notified backward district for the purpose of Section 80HH.
E
F
For the assessment years 1974-75 and 1975-76, it claimed relief under
Section 80HH which was allowed by the ITO. The Commissioner of In- G
come-Tax, revised the order on the ground that construction of a dam
could not be said to be manufacture or production of an article nor the
firm was an industrial undertaking.
The Income-Tax Appellate Tribunal allowed the assessee's appeal
and held that construction of a dam could be characterised as an in- H
185
186
SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A
dustrial activity; that the expression 'articles' in Section 80HH(2)(i) was
not confined tn movables, and that the construction of a dam could be
characterised as processing as well as manufacturing. On a reference, the
High Court ag1 eed with the Tribunal.
B
In another set of appeals the respondent-assessee, engaged in the
business of laying foundations for buildings and other structures by
pressure piling method claimed benefit und~r Section 84 of the Income Tax
Act for the assessment years 1963-64 and 1964-65. The Income Tax Officer
denied the relief as he was of the opinion that the asses see was not engaged
in manufacture or production of articles. While the Asstt. Appellate ComC
missioner dismissed the assessee's appeal, the Tribunal allowed it.
On reference, the High Court examined the process by which the
assessee carried out its work, and held that it could be characterised as
manufacture or production of an article. It accordingly held in favour of
D the assessee.
In another group of appeals, the respondent-assessee firm was carrying on business in the manufacture and sale of tiles and in construction
work on a large scale. It specialised in the construction of dams and
canals. Its claim was for deduction as investment allowance under Section
E 32A, on the actual cost of machinery and plant used for the purpose of its
business pertaining to construction of dams and canals. The Assessing
Officer disallowed the claim, the CIT accepted the assessee's claim and the
Tribunal allowed the Revenue's appeal. On a reference by the assessee, the
High Court held in favour of the assessee.
F
The questions for consideration in the appeals before this Con.rt
were: (i) whether construction of a dam or laying foundations for buildings
and other structures through pressure pilings was manufacture or production of articles in Sections 80HH and 84(2) (iii); and (ii) whether machinery
and plant installed for the purpose of business pertaining to the construcG tion of dams and canals could be said to have been installed for the
'purposes of business of construction, manufacture or production of any
article or thing' in Section 32(2)(b)(iii), to be eligible for investment
allowance.
H
Allowing the appeals, this Court
•
C.l.T. v. BUDHARAJA & CO.
187
HELD : 1. The activity of construction of a dam cannot be characA
terised as manaufacture or producing of article or articles, a~c the case may
be, within the meaning of Section 8088(2)(i) of the Income Tax Act, 1961.
A dam is constructed, It is not manufactured or produced. The expressions
'manufacture' and 'produce' are normally associated with movables -
articles and goods, big and small but they are never employed to denote · B
the construction activity of the nature involved in the construction of a
dam or for that matter a bridge, a road or a building. [pp. 194G; 196FJ
Commissioner of Income-Tax, Bombay City-Iv. N.U.C. Private Ltd.,
126 I.T.R. 377 (Bombay) and Commissioner of Income-Tax (Central), Bombay v. Shah construction Co. Ltd., 142 I.T.R. 696 (Bombay), referred to.
C
2. It is immaterial whether the assessee is itself manufacturing some
of the articles like gates, windows and doors which go into the construction
since it has claimed deduction provided by Section 8088 not on the value
of the manufactured articles, but on the total value of the dam as such.
[195-B] D
3. The principle of liberal interpretation cannot be carried to the
extent of doing violence to the plain and simple language used in the
enactment on the ground that the provision is intended to encourage establishment of industrial undertakings in backward areas. It would not be
reasonable or permissible for the <;ourt to rewrite the section or substitute E
words of its own for the actual words employed by the Legislature in the
name of giving effect to the supposed underlying object. The underlying
object of any provision has to be gathered on a reasonable interpretation
of the language employed by the Legislature. The High Court was not right
in dissociating the word 'article' from its context, viz., the preceding wordsF
which has led them to attach an unnatural meaning to the said word.
[pp. 195-E; 196-D-E]
Longhurst v. Guildford Goda/ming and District Water Board, [1961] 3
All E.R. 545, referred to.
4. The language of Section 84(2)(iii), is identical with the relevant G
language in Section 8088. Where the construction of a dam, bridge or
building as a whole does not amount to manufacture or production of an
article, laying its foundations cannot be so characterised either. The work
is done on the spot and it is a works contract. It is not different from any
other works contract which is done on the spot and becomes a part and H ·
188
SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.
A
parcel of a larger censtruction. In such matteres one has to look to the
precise activity and decide whether it can be said to amount to manufacturing or producing an article. [199-B-F]
B
5.1. Section 32A(2)(b)(iii) does not comprehend within its ambit
construction of a dam, a bridge, a building, a road, a canal and other
similar constructions. [202-C]
5.2. The sub-clause in Section 32A employs the additional words
'construction' and 'thing'. The legislative history of the provision shows
that this provision only related to movables. Ships being among the -
C articles or things to which the relevant sub-clause applies, the word
'construction' has been retained in the provision, since 'that is the appropriate word in the case of ships. The word 'thing' has no special
significance inasmuch as Schedules IX (to which the unamended subclause (ii) applied) and XI (the articles wherein are excluded from the
purview of amended sub-clause (iii) refer only to movable objects-called
D articles or things. [202-B, 205-A-B]
E
F
53. The association of words in former sub-clause (ii) and the
present sub-clause (iii) is also not without significance. It is evident that
in these sub-clauses as well as in the IXth Schedule and Xlth Schedule,
the words 'articles' or 'things' are used inter-changeably. In the scheme
and context of the provision, it would not be right to isolate the W()rd
'thing', ascertain its meaning with reference to Law Lexicons and attach
to it a meaning which it was never intended to bear. A statute cannot
always be construed with the dictionary in one hand and the statute in the
other. Regard must also be had to the scheme, context and - as in this case
- to the legislative history of the provision. [205-C-D]
Commissioner of Income-Tax, Bombay v. Tiecicon Private Limited,
168 I.T.R. 744 S.C.; Commissioner of Income-Tax, Bombay City-Iv. N.U.C.
Private Ltd., 126 I.T.R. 377 Bombay; Commissioner of Income-Tax (Central),
G Bombay v. Shah Constmction Co. Ltd., 142 I.T.R. 696 (Bombay); Chowgule
& Co. Pvt. Ltd. &Anr. v. Union of India & Ors., 47 S.T.C.124 S.C. and Delhi
Cold Storage Pvt. Ltd. v. Commissioner of Income-Tax, 191I.T.R.656 S.C.,
referred to.
Commissioner of Income-Tax, Bombay City-II v. Pressure Pilling ComH pany (India) Pvt. Ltd., 126 I.T.R. 333 and Shankar Constmction Company
C.I.T. v. BUDHARATA& CO. (JEEVAN REDDY,J.)
189.
v. Commissioner of Income-Tax, 189 1.T.R. 463, overruled.
Law Lexicon, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 42384240 of 1983.
From the Judgment and Order dated 13.11.79 of the Orissa High
Court in Special Jurisdiction Case Nos. 97, 98 & 99 of 1978.
'
WITH
A
B
Civil Appeal Nos. 5865-66/83, 3405/91, 2685/92, 5381/92, 3859/92, C
4239-4248/92.
AND
Civil Appeal Nos. 4882 and 4881/1993.
J. Ramamurthy, Mohan Vellapally, B.B. Ahuja, B. Sen, Ranbir
Chandra, R. Ayyam Perumal, Ms. Sushma Suri, Mrs. A.K. Verma, S.V.
Pathak, A.M. Khanwilkar, Mukul Mudgal, R.K. Mehta, Ms. Mana Chakraborty, A.K. Panda and Arvind Minocha for the appearing parties.
The Judgment of the Court was delivered by
B.P. JEEV AN REDDY, J. Two groups of appeals are placed before
D
E
us for hearing. The first group involves the interpretation of identical words
occurring in Section 80-HH and Section 84 viz., "manufacture or produce
articles" whereas the second group is concerned with the words "construction, manufacture or production of any article or thing" in Section 32-A of F
the Income-Tax Act. Civil Appeals 4238-4240 of 1983 can be said to be
representative of the first group whereas the second group of appeals
comprise Civil Appeals 4239 to 4248 of 1992.
The first group of appeals are directed against the Judgment of a
Division Bench of Orissa High Court answering the question referred to it G
under section 256 (2) in favour of the assessee. The question referred is to
the following effect: "Whether on the facts fo'llnd by the Appealate
Tribunal, the assessee is entitled to the benefit provided under Section
80-HH of the Income-Tax Act 1961?" The assessment years concerned!are
1974-75 and 1975-76. The respondent-assessee is a firm of contractors· H
190
SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
A
constituted for the purpose of construction of a dam in Orissa. It was
constituted under a partnership deed dated January 14, 1972. It was given
the contract of constructing a dam in Dhenkanal district which is a notified
backward district for the purpose of Section 80-HH. In proceedings for
assessment of its income for the relevant years, the Respondent claimed
B
c
the relief under the said provision. Tax Income-tax Officer allowed the
same. The Commissioner of Income-tax however revised the order of the
I.T.O. to the extent of grant of relief under section 80-HH. He was of the
opinion that the assessee, engaged in construction of a dam can not be said
to be engaged in manufacture or production of an article inasmuch as "a
dam is constructed and not manufactured. It would be absured to say that
the assessee is manufacturing dam or the dam is capable of being sold. In
short, the firm cannot be held as an industrial undertaking merely because
it has to undertake certain manufacturing process in the course of construction of the irrigation project." He also referred to the fact that the
assessee-firm was constituted only for the purpose of constructing a parD
ticular dam, on the completion of which work the firm would cease to exist
automatically. The assessee preferred an appeal before the Income-tax
Appellate Tribunal which was allowed on the following reasoning and
findings:
E
F
(a) The activity of constructing a dam can be characterised as an
industrial activity. The work undertaken by the assessee-firm can, therefore, be called an "industrial undertaking".
(b) The word "articles" occurring in clause (i) of sub-section (2) of
section 80-HH is not confined to movables nor to small things produced
in large quantities.
(c) The activity of construction of a dam can be characterised as
processing as well as manufacturing.
At the instance of the revenue the aforesaid question was referred
for the opinion of the High Court. The High Court agreed with the
G Tribunal that the assessee-firm constituted for the purpose of constructing
a dam for storing water can be called an "industrial undertaking". The High
Court opined that the definition of "industry" in the Industrial Disputes Act
can well be relied upon to ascertain the meaning of the expression "industrial undertaking", inasmuch as the said expression has not been defined
H in the Act or the Rules. The High Court also agreed with the Tribunal that
C.l.T. v. BUDHARAJA & CO. [JEEV AN REDDY, J.]
191
the word "article" need not be confmed to mere movables and that "there A
would be no justification to hold that a dam is not an article in that sense
of the term". The correctness of the said view is questioned in these
appeals.
The learned counsel for the Revenue, Shri J. Rama Murthy attacked
mainly the opinion of the High Court with respect to the meaning attached
by it to the word "article". He submitted that the activity of constructing a
dam can not and does not fall within the word "manufacture or produce
articles" in section 80-HH (2)(i). He relied upon the decision in Commissioner of Income-Tax, Bombay City-Iv. N.U.C. Private Ltd., 126 I.T.R. 377
(Bombay), in Commissioner of Income-Tax (Central), Bombay v. Shah C
Constrnction Co. Ltd., 142 I.T.R. 696 (Bombay), in Chowgule & Co. Pvt.
Ltd. and another v. Union of India and others, 47 S.T.C. 124 (Supreme
Court) and in Delhi Cold Storage Private Limited v. Commissioner of
Income-Tax, 191 I.T.R. 656 (Supreme Court) in support of his submission.
He submitted that the contrary view taken in some of the decisions of the D
High Courts does not represent the correct view. On the other hand, Shri
B.B. Ahuja and Sri B. Sen, learned counsel appearing for the respondentassessee supported the reasoning and conclusion of the High Court and
the Tribunal. They relied upon and commended for our acceptance the
reasoning in the order under appeal as well as the reasoning in Commissioner of Income-Tax, Bombay City-II v. Pressure Piling Company (India)
Private Limited, 1261.T.R. 333; Shankar Constrnction Company v. Commissioner of Income-Tax, 189 I.T.R. 463 and in Commissioner of Income-Tax,
Bombay v. Tiecicon Private Limited, 168 I.T.R. 744 (Supreme Court).
Section 80-HH occurs in Chapter (VI A, which provides for "deductions to be made in computing the total income". Sub- section (1) of section
80-HH provides that "Where the gross total income of an assessee includes
E
F'
any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with
and subject to the provisions of this section, be allowed, in computing the G
total income of the assessee, a deduction from such profits and gains of an
amount equal to twenty per cent thereof." Sub-section (2) says that section
80-HH applies to any industrial undertaking which fulfils all the four
conditions prescribed therein. It would be appropriate to set out sub-section (2) in its entirety :
192
A
B
c
D
E
F
SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.
"(2) This section applies to any industrial undertaking which
fulfils all the following conditions, namely:-
(i) it has begun or begins to manufacture or produce articles
after the 31st day of December, 1970 (but before the 1st day of
April, 1990), in any backward area;
(ii) it is not formed by the splitting up, or the reconstruction,
of a business already in existence in any backward area:
Provided that this condition shall not apply in respect of any
industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the. business
of any sucli industrial undertaking as is referred to in section 33B,
in the circumstances and within the period specified in that section;
(iii) it is not formed by the transfer to a new business of
machinery or plant previously used for any purpose in any backward area;
(iv) it employs ten or more workers in a manufacturing process
carried on with the aid of power, or employs twenty. or more
workers in a manufacturing process carried on without the aid of
power.
Explanation.-Where any machinery or plant or any part thereof
previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area
and the total value of the machinery or plant or part so transferred
does not exceed twenty percent of the total value of the machinery
or plant used in the business, then, for the purposes of clause (iii)
of this sub-section, the condition specified therein shall be deemed
to have been fulfilled."
Sub-section ( 4) prpvides that the deduction specified in sub- section
G (1) shall be allowed for a period of ten years beginning with the assessment
year relevant to the previous year in which the industrial undertaking
"begins to manufacture or produce articles." Sub-section (1) thus confers a
substantial benefit. It provides for duduction - for a period of ten years -
of an amount equal to 20 per cent from the profits and gains of an
H industrial undertaking which fulfils all the four conditions specified in
..
C.I.T. v. BUDHARAJA &.co. [JEEV AN REDDY, J.]
193
sub-section (2). All the four conditions must be satisfied simultaneously. A
We are, however, concerned in these appeals with the first of the four
conditions. It says that the industrial undertaking must have begun or
begins to manufacture or produce articles after the 31st day of December,
1970 in any backward area. (By the Finance Act, 1990, the words "but
before the 1st day of April, 1990" were inserted in the said clause, thus
limiting the operation of the section till that date only.)
B
Both the Tribunal and the High Court have held that the work under
taken by the assessee, or to put it differently, the assessee, which has
undertaken the work of construction of a dam, can be characterised as an
industrial undertaking. The counsel for the revenue has not addressed any C
arguments on this aspect. We shall, therefore, express no opinion on the
question whether the assessee/respondent or the work undertaken by it
constitutes an industrial undertaking. We shall proceed on the assumption
for the purpose of these cases that it does. The only question, therefore, is
whether the assessee, has begun to manufacture or produce acticles after D
the specified date in an area notified as a backward area. It is not in dispute
that the assessee commenced its work after 31st day of December, 1970
and that the work carried on by it is in a notified backward area. In short,
the limited question is whether the construction of a dam to store water
(reservoir) can be characterised, as amounting to manufactaring or
producing an article or articles, as the case may be. The words "manufacE
ture" and "production" have received extensive judicial attention both under
this Act as well as Central Excise Act and the various Sales Tax Laws. The
word "production" has a wider connotation than the word "manufacture".
While every manufacture can be characterised as production, every
production need not amount to manufacture. The meaning of the expresF
sion 'manufacture' :was considered by this Court in Deputy Commissioner
of Sales Tax v. Pio Food Packers, 46 S.T.C. 63 among other decision. In the
said decision, the test evolved for determining whether manufacture can be
said to have taken place is, whether the commodity which is subjected to
the process of manufacture can no longer be regarded as the original
commodity but is recognised in the trade as a new and distinct commodity. G
Pathak, J. as he then was, stated the test in the following words:
"Commonly, manufacture is the end result of one or more
processes through which the original commodity is made to pass.
The nature and extent of processing may vary from one case to H
A
B
c
194
SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
another, and indeed there may be several stages of processing and
perhaps a different kind of processing at each stage. With each
process ·suffered, the original commodity experiences a change.
But it is only when the change, or a series of changes, take the
commodity to the point where commercially it can no longer be
regarded as the original commodity but instead is recognised as a
new and distinct article that a manufacture can be said to take
place."
The word "production" or "produce" when used in juxta-position with
the word 'manufacture' takes in bringing into existence new goods by a
process which may or may not amount to manufacture. It also takes in all
the by-products, intermediate products and residual products which
emerge in the course of manufacture of goods. The next word to be
considered is 'articles', occurring in the said clause. What does it mean?
The word is not defined in the Act or the Rules. It must, therefore, be
D understood in its normal connotation-the sense in which it is understood
in commercial world. It is equally well to keep in mind the context since a
word takes its colour from the context. The word "articles" is preceded by
words "it has begun or begins to manufacture or produce." Can we say that
the word "articles" in the said clause comprehends and takes within its
E
F
G
ambit a dam,- a bridge, a building, a road, a canal and so on? We find it
difficult to say so. Would any person who has constructed a dam say that
he has manufactured an article or that he has produced an article? Obviously not. If a dam is an article, so would be a bridge, a road, an
underground canal and a multi-storied building. To say that all of them fall
within the meaning of word 'articles' is to over-strain the language beyond
its normal and ordinary meaning. It is equally difficult to say that the
proeess of constructing a dam is a process of manufacture or a process of
production. It is true that a dam is composed of several articles; it is
composed of stones, concrete, cement, steel and other manufactured articles like gates, sluices etc. But to say that the end product, the dam, is an
article is to be unfaithful to the normal connotation of the word. A dam is
constructed; it is not manufactured or produced. The expressions
'manufacture' and 'produce' are normally associated with movable - articles
and goods, big and small - but they are never employed to denote the
construction activity of the nature involved in the consturction of a dam or
for that matter a bridge, a road or a building. The decisions of the Bombay
H High Court in C.l.T., Bombay v. N.U.C. Private Ltd., 126 I.T.R. 377 and in
C.I.T. v. BUDHARAJA & CO. [JEEV AN REDDY, J.]
195
C.l. T., Bombay v. Shah Constmction Co. Ltd. relied upon by Sri Murthy A
are no doubt not decisions rendered under Section 80-HH or under
Section 84 - they arose under the relevant Finance Acts, the question being
whether the assessees were industrial companies - they do contain observations which tend to support the stand of the Revenue.
It may be that the petitioner is himself manufacturing some of the
articles like gates, windows and doors which go into the construction of a
dam but that makes little difference to the principle. The petitioner is not
claiming the deduction provided by Section 80-HH on the value of the said
manufactured articles but on the total value of the dam as such. In such a
situation, it is immaterial whether the manufactured articles which go into
the construction of a dam are manufactured by him or purchased by him
from another person. We need not express any opinion on the question
what would be the position, if the petitioner had claimed the benefit of
Section 80-HH on the value of the articles manufactured or produced by
him which articles have gone into/consumed in the construction of the dam.
B
c
D
In the Judgment under appeal, the Orissa High Court has relied
upon the .meaning assigned to the word "article" in Shorter Oxford English
Dictionary, to the effect - "a commodity; a piece of goods or property".
Since article means a piece of property, the learned Judges said, it can as
well mean immovable property. Accordingly, they held, a dam is also an E
article. In our opinion, the High Court was not right in dissociating the said
word from its context viz., the preceding words-which has led them to
attach an unnatural meaning to the said word.
Mr. Sen relied upon the decision of the House of Lords in Longhurst
1 v. Guildford godalming And District Water Board, (1961) 3 All ER 545 to F
support the view taken by the High Court. The question in that case was
whether the pump house wherein water was stored under pressure after
being filtered and chlorinated in the filter house can be called a 'factory'
within the meaning of Factories Act, 1937. "Factory" was defined in the said
Act in the following words :
G
"Subject to the provisions of this section, the expression 'factory'
means any premises in which, or within the close or curtilage or
precincts of which, persons are employed in manual labour in any
process for or incidental to any of the following purposes, namely:-
( a) the making of any article or of part of any article; or (b) the H
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altering, repairing, ornamenting, finishing, cleaning, or washing, or
the breaking up or demolition of any article; or (c) the adapting
for sale of any article; being premises in which, or within the close
or curtilage or precincts of which, the work is carried on by
way of trade or for purposes of gain and to or over which the
. employer of the persons employed therein has the right of access
or control: ....... "
It was argued that the water which was filtered and chlorinated and
then put under pressure in the pump house is an article. The House of
Lords held that though the water in the filter beds was an "article" for the
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purpose of the definition of the factory and the filter house can thus be
called a factory, yet the pump house which pumped water to the consumers was not a part of the factory. We are unable to see how the
principle of the said decision is of any help to the assessee herein.
It is submitted by the counsel for the respondent-assessee that since
D section 80-HH is intended to encourage establishment of industrial undertakings in backward areas for the reason that such establishment leads to
development of that area besides providing employment, we must adopt a
liberal interpretation which advances the purpose and object underlying
the provision. The said principle, however, cannot be carried to the extent
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of doing violence to the plain and simple language used in the enactment.
It would not be reasonable or permissible for the Court to re-write the
section or substitute words of its own for the actual words employed by the
Legislature in the name of giving effect to the supposed underlying object.
After all, the underlying object of any provision has to be gathered on a
reasonable interpretation of the language employed by the Legislature.
For all the above reasons, we are of the opinion that it is not possible
to accede to the contention that the activity of construction of a dam can
be characterised as manufacture or production of article or articles, as the
case may be, within the meaning of Section 80-HH(2)(i) of the Act.
Another set of appeals in the first group (Civil Appeals 5865- 5866
of 1983) are preferred against the judgment of the Bombay High Court in
C.l T, Bombay v. The Pressure Piling Co. (India) Private Limited, Bombay,
reported in 126 I.T.R. 333. The respondent-assessee in these appeals is
engaged in the business of laying foundations for buildings and other
H structures by a specialised patented method known as pressure piling. For
C.LT. v. BUDHARAJA & CO. [JEEV AN REDDY, J.]
197
the assessment years 1963-64 and 1964-65, it claimed the benefit under A
section 84 of the Income-tax Act, 1961 on the ground that it is a newly
established industrial undertaking within the meaning of the said provision.
The 1.T.O. denied the said relief on the ground that the assessee did not
satisfy the condition in section 84(2)(iii). In other words, he was of the
opinion that the assessee was not engaged in manufacture or production
of articles. The assessee's appeal to A.A.C. was dismissed, whereupon he
carried the matter in further appeal to the Tribunal. There, a difference of
opinion arose between the Accountant Member and Judicial Member who
heard the appeal. The accountant member was for allowing the appeal
whereas the judicial member was for its dismissal. The matter was referred
B
to a third member, who agreed with the accountant member. Thereupon C
the Revenue applied for the obtained reference of the following question
under section 256(i) of the Income-tax Act:
"Whether, on the facts and in the circumstances of the case,
the assessee-company ·was engaged in the 'manufacture' or
'production of articles' within the meaning of section 84(i) of the D
Income-tax Act, 1961, for the assessment year 1963-64, and relief
under section 84-(1) and section 101 for the assessment year
1964-65?"
The High Court examined the process by which the assessee carried E
out its work and held that it can be characterised as manufacture or
production of an article. Accordingly it answered the question referred in
the affirmative i.e., in favour of the assessee and against the revenue. The
correctness of the said view is questioned in these appeals.
The process adopted by the assessee for laying pressure piles has F
been set out in the statement of the case in the following words:
"Pressure piles are cast in site and piles are formed in bore
holes previously excavated by suitable boring plaht at each pile
position. The borings are sunk to suitable bearing stratum and
concrete is then introduced into the holes under applied air pres- G
sure. This, when set, forms a permanent pile giving a very high
surface friction in addition to the bearing value obtained at the
foot of the pile. The method adopted of sinking pressure piles is
as under : A boring is first made for each pile, the hole being bored
with steel tubes. As the boring proceeds, these steel tubes are sunk H
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in the ground, the soil being excavated through the tube itself in
the manner employed by well bores. In this way the underlying soil
is thoroughly explored, samples of the succeding strata being
obtained as each hole is sunk. This permits the correct depth of
boring to be determined in every case. If necessary, steel reinfor-
.cements of any required design can then be lowered down the
casing and fixed in a correct position so that the rods will be
/
properly embedded when concrete is added. If the bore hole is
dry, concrete is introduced to the casings and compressed air is
admitted. The air pressure forces the concrete down the casing
and presses it into the interstices of the bottom part of the bored
hole from which the. casing is withdrawn. In this way, the actual
diameter of the pile is made to exceed that of the casing itself and
it also forms a rough surface that bonds into the strata penetrated
by the pile. As each section of the tube is raised above ground, it
is unscrewed and further batch of concrete is added. This process
is continued until the pile is completed."
Section 84 in so far as it is relevant for our purpose reads thus:
"84. Income of newly established industrial. undertakings or
hotels. - (i) Save as otherwise hereinafter provided, income-tax
shall not be payable by an assessee on so much of the profits or
gains derived from any industrial undertaking or hotel to which
this section applies as do not exceed six percent per annum on the
capital employed in the undertaking or hotel, computed in the
prescribed manner.
(2) This section applies to any industrial undertaking which
fulfils all the following conditim1s, namely:-
(i) it is not formed by the splitting up, or the reconstruction of,
a business already in existence;
(ii) it is not formed by the transfer to a new business of a
building, machinery or plant previously used for any purpose;
(iii) it has begun or begins to manufacture or produce articles in
any part of India at any time within a period of eighteen years from
the 1st day of April, 1948, or such further period as the Central
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C.I.T. v. BUDHARAJA&CO. [JEEVANREDDY,J.]
199
Government may, by notification in the Official Gazette, specify A
with reference to any particular industrial undertaking ......... "
It would be noticed that the language of section 84(2)(iii), in so far
as it is relevant, is identical with the relevant language in section 80-HH.
In the light of our discussion hereinbefore, can it be said that the assessee B
herein is engaged in manufacture or production of articles? We find it
difficult to say so. According to the statement of case, the process adopted
by the assessee, in short, is this: in the first instance holes are bored into
earth at the site of construction with steel tubes; as the boring proceeds,
these steel tubes are sunk into the ground; the soil is excavated through
the tube itself; after reaching the correct depth, concrete is poured into the C
ca:;ings and compressed air is admitted; the air pressure forces the concrete down the casing and presses it into interstices; if necessary, steel reenforcements are also provided to keep the rods in correct position. In this
manner a strong foundation is laid. Upon that foundation further construction - whether it is a building, bridge, dam or any other structure - is raised. D
Can it be said that the said activity is one of manufacturing or producing
articles? If the construction of a dam, a bridge or a building as a whole
does not amo}lllt to manufacture or production of an article, it is difficult
to see how the laying of foundation or foundations for such dam, bridge or
building can be characterised as manufacturing or production of articles.
The process of laying foundation is an integral part of the construction of E
a dam, bridge or building. Each such structure requires a foundation. The
assessee does no more than lay the foundation( s) by a technologically
innovative method, which lends to the· strength of the foundation. It can
not be said that if a person constructs the entire dam including the
foundation, he is not manufacturing or producing an article but where he p
merely lays the foundation for such dam he is manufacturing or producing
an article. The piles, which the assessee lays by his particular method
become a fixture in the earth. It ultimately becomes an integral part of the
dam, bridge or building, as the case may be. It is not as if the assessee
supplies pre-fabricated piles, which are bored into the earth by the contractor or owner, as the case may be. The work is done on the spot and it G
is a works-contract. It is no different from any other works-contract which
is done on the spot and becomes a part and parcel Jf a larger construction.
In such matters one has to look to the precise activity and decide whether
it can be said to amount to manufacturing or producing an article. For the
above reasons and those given hereinbefore in Budhraja, these appeals are H
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A
also liable to succeed.
We may now take up the second group of appeals comprising Civil
Appeals 4239-4248 of 1992. These appeals are preferred by the Commissioner of Income-Tax against the decision of the Karnataka High Court in
C./. T v. Shankar Constrnction Co., 189 I.T.R. 463. Shankar Construction
B
Company is the respondent-assessee in all these appeals. For the relevant
assessment years, the respondent claimed deduction on account of investment allowance in terms of section 32-A. Sub-section (1) of section 32-A
provides inter alia that in respect of machinery or plant specified in
sub-section (2), owned by the assessee and wholly used for the purposes
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of the business carried on by him, he shall be allowed a deduction in
respect of the previous year in which the machinery or plant was installed
a sum equal to 25 per cent of the actual cost of the machinery or plant by
way of investment allowance. Sub-section (1) provides for such an allowance even in the case of a ship or aircraft. Sub-section (2) specifies the
ship or aircraft or machinery or plant referred to in sub-section (1). Having
D regard to its relevance, sub-section (2) may be set out hereinbelow omitting
the portions not necessary to be noticed for the purpose of these appeals:
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"(2) The ship or aircraft or machinery or plant referred to in
sub-section (1) shall be the following, namely:-
(a) a new ship or new aircraft acquired after the 31st day of
March, 1976, by an assessee engaged in the business of
operation of ships or aircraft;
(b) any new machinery or plant installed after the 31st day of
March, 1976,-
(i) for the purposes of business of generation or distribution of electricity or any other form of power; or
(ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article
or thing; or
(iii) in any other industrial undertaking for the purposes
of business of construction, manufacture or production,of any
article or thing, not being an article or thing specified in the
list in Eleventh Schedule:]"
C.I.T. v. BUDHARAJA & CO. [JEEV AN REDDY, J.)
201
The claim for the said allowance was disallowed by the Assessing -A
Officer. On appeal, the C.l.T. appeals accepted the assessees' claim against
which the department went up in appeal to the Tribunal. The Tribunal
allowed the Revenue's appeal following the decision in LT.A. No.
715/Bang/1982 (pertaining to Shankaranarayana Construction Company).
The assessee thereupon applied for and obtained a reference under section B
256 of the Income-tax Act. The question referred for the opinion of the
High Court reads thus: "Whether on the facts and in the circumstances of
the case, the Tribunal is justified in law in upholding the disallowance of
investment allowance?" With a view to pin-point the controversy, the High
Court re-framed the question in the following terms: "Whether, on the facts
and in the circumstances of the case, the allowance provided for under C
sub-clause (iii) pf clause (b) of sub-section (2) of section 32-A of the Act
will enure to tlie benefit of the assessee?"
Respondent-assessee is a registered firm, carrying on business in the
manufacture and sale of tiles and in construction work on a large scale. It D
has specialised in the construction of dams and canals. The question before
us is whether the assessee is entitled to investment allowance on the actual
cost of the machinery and plant installed for the purpose of its business
pertaining to construction of dams and canals. In other words, the question
is whether such machinery or plant can be said to have been installed "for
the purposes of business of construction, manufacture or production of any E
article or thing" and further whether the assessee or the work undertaken
by it can be called an 'industrial undertaking' within the meaning of subclause (iii) of clause (b) of sub-section (2).