COMMISSIONER OF INCOME TAX, AMRITSARversusSTRAW BOARD MANUFACTURING CO. LTD.

            COMMISSIONER OF INCOME TAX, AMRITSAR
                                        v.
             STRAW BOARD MANUFACTURING CO. LTD.

                                APRIL 28, 1989
a               [R.S. PATHAK, CJ AND M.H. KANIA, J.]

          Income Tax Act, 1961: Sections 33 and 80-E-Schedule 5, Item
    16-Assessee-Manufacturer of strawboard-Whether entitled to con-
    cessional 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'.

          The assessee, manufacturer of strawboard, claimed concessional
    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 assess-
    ment years 1965-66, 1966-67 and 1967-68, on the ground that the
p   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 SCbedules 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
f
    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
                                                                                J
    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 pro-
    viding for concessional rates of tax for the purpose of encouraging an
    industrial activity, a .liberal construction should be put upon the
H   language of the statute. [775E-F]
                  C.I.T. v. STRAW BOARD MFG. CO. (PATIIAK, CJI                773

'           The provisfon for rebate has been made for the purpose of
                                                                                      A
      encouraging the setting up of new industries, and the industries are
      those described in the Schedules relevant to 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 comprehensively. [7750-E]
                             -
                                                                                      B
{'' ·,       The expression 'paper and pulp' in the Industries (Development
     -~nd Regulatioh) Act, 1951 includes paperboard and str&wboard. News-
       print, paperboard and strawboard have been specifically mentioned in
       the relevant e11try in. order to make it clear that they are included within
       the meaning of the word 'paper'. The process of manufacturing strawboard
       is identical with the process of manufacturing paper. [77SG-H; 776A]
                                   -   . ·- . -
                                                  -                                   c
             In the circumstances, there is no doubt that the strawboard
      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. [77SE] .. .                                                              D

           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 519-
      521of1975.

          From the Judgment and Order dated 9.5.1974 of the Punjab and
      Haryana High Court in l.T. Reference Nos. 30 to 32 of 1973.                     E

          G.C. Sharma, Ms. A. Subhashini and K.C. Dua for the
      Appellant.

            Dr. Y.S. Chitale, R.K. Jain, Rakesh Khanna and Ms. Abba Jain
      for the Respondent.                                                             F

             The Judgment of the Court was delivered by

            PATHAK, C:J. These appeals by special leave are _directed
      against a judgment ofihe High Court of Pllnjilb and Haryana dispos-
      ing of an Income-tax Reference in favour ofthe respondent-assessee.             G

           The assessee manufactures strawboard. For the assessment years
      1965c66, 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 deductiop un<le_r s. 80-E of the Income Tax Act, 1961 on. the               H
    774                   SUPREME COURT REPORTS            [1989] 2 S.C.R.

A  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. Tb,e 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
C Income Tax Officer at Rs.8,17,485 received from the manufacture of
  strawboard. This industry is mentioned at item No. 16 in the Fifth
  Schedule to the Income Tax Act as substituted 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 iiicome of the asses-
  see was determined at Rs.11,00,885. The assessee claimed relief under
D s. 80-E to the extent of Rs.7,50,316 received as income from the man-
  ufacture of strawboard. 'This claim was similarly rejected 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 relevant Schedules pertaining to the assessment
E years 1966-67 and 1967-68.

          The assess.ee appealed to the Appellate Assistant Commissioner
    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 manufacture of strawboard was a priority
f   industry was accepted and the Appellate Tribunal held that the asses-
    see 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
G
               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
H              1965)?
                       C.l.T. v. STRAW BOARD MFG. CO. [PATHAK, CJ!               775

 -1                    Assessment years 1966-67 and 1967-68
                                                                                        A
                       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 at item 16 of the Fifth Schedule to the Income
                       Tax Act, 1961 and in allowing the assessee's claim under         B
7                      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, therefore, answered the
           que~tions referred to it in the affirmative, in favour of the assessee and
           against the Revenue.                                                         c
-i--
                The sole question before us is whether strawboard can be said to
         fall within the expression 'paper and pulp' mentioned in the Schedules
         relevant to the respective assessment years. To resolve the question it
         is necessary first to examine the significance and scope of the                D
         Schedules. 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 relevant Schedules. lt 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 pescribed as forming part of         E
         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 shoud be put upon the
""       language of the statute. From the material before us, which we have
         carefully considered, that is the only reasonable conclusion to be
                                                                                        F
"--....,
         reached in.these case. The High Court has referred to the licence dated
         31 May, 1954 issued to the assessee that the undertaking of the asses-
         see was registered in terms of s. 10 of the Industries (Development and
         Regulation) Act, 1951, and the details giv.enin the licence declare that
         it relates to a Schedule industry which includes newsprint, paperboard         G
~,       and strawboard. The High Court has also referred to the circumstances
         that the process of manufacturing strawboard is identical with that of
         manufacturing paper. The expression 'paper and pulp' in the Indus-
         tries (Development and Regulation) 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              H
    776                   SUPREME COURT REPORTS            [1989] 2 S.C.R.

A paper products' and, it is said, strawboard is evidently not within the
  natural meaning of the word 'paper'. We do not think that the submis-
  sion merits serious consideration. Newsprint, paperboard and straw-
  board have been specifically mentioned in the entry in order to make it
  clear that they are included within the meaning of the word 'paper'.
B
           In our judgment, the High Court is right in taking the view which
    it has, and therefore, the appeals must be dismissed.

          The appeals are dismissed with costs.

    N.P.V.                                              Appeals dismissed.