Holding

The Tribunal’s finding that cellulose pulp was a finished, marketable product and that the undertaking began manufacturing articles in the assessment year 1961‑62 is correct; the High Court erred in interfering, and the five‑year exemption period therefore ends with AY 1965‑66.

Summary

Cellulose Products of India Ltd, a chemical manufacturer, claimed exemption under Section 84 of the Income Tax Act for the assessment year 1966-67, arguing that its new industrial undertaking began producing "articles" only when it started manufacturing Carboxy Methyl Cellulose (CMC) in June 1961. The Income Tax Officer and the Tribunal held that the company had already begun manufacturing finished, marketable articles when it produced cellulose pulp, an intermediate product, in March 1961, making the first year of exemption AY 1961-62 and the five‑year period ending with AY 1965-66. The Gujarat High Court, in an advisory reference under Section 261, disagreed, treating the pulp as merely a raw material and holding the first year to be AY 1962-63. The Supreme Court affirmed that the Tribunal’s factual finding was correct, that a High Court cannot overturn such findings in a reference, and that the plain reading of Section 84(7) makes the commencement year 1961-62. Consequently, the revenue’s appeal was allowed and the High Court judgment set aside.

Issues considered

Whether the production of cellulose pulp in March 1961 constitutes the commencement of manufacturing "articles" under Section 84(7) of the Income Tax Act.
Whether the High Court, hearing a reference under Section 261, can overturn the factual findings of the Income Tax Appellate Tribunal.
From which assessment year does the five‑year exemption period under Section 84(7) commence for a new industrial undertaking.

Legislation cited

Income Tax Act, 1961s. 261, s. 84

Subjects

Income TaxSection 84New industrial undertakingExemption periodAssessment yearFactual findingAdvisory jurisdictionSection 261Intermediate productCellulose pulpCarboxy Methyl Cellulose

Judgment

COMMISSIONER OF INCOME TAX, GUJARAT
A
v.
CELLULOSE PRODUCTS OF INDIA LTD.

SEPTEMBER 4, 1991

B [S. RANGANATHAN, V. RAMASWAMI AND N.D. OJHA, JJ.]

Income Tax Act 1961: Sections 84 and 261-New Industrial
Undertaking-Exemption-Commencement of period-When arises.

'1'he respondent is a Public Limited Company incorporated on
c April 14, 1989 for carrying on business of manufacturing chemical
products particularly of Carboxy Methyl Cellulose (CMC) and Cellu-
.-
lose Pulps. The respondent was also granted an industrial licence by the
Central Government for the manufacture of Carboxy Methyl Cellulose.
The respondent had installed a cellulose plant in which cellulose pulp,
the raw material for Carboxy Methyl Cellulose was manufactured. The
D plant had begun production from March 1961 while the production of
Carboxy Methyl Cellulose was started from June 15, 1961.

The respondent claimed relief under section 84 of Income Tax Act·
as it stood prior to its being deleted with effect from April 1, 1968 by
Finance Act (2) 1967, for the assessment year 1966-67, the previous
E year of accounting being the financial year 1965-66.

The Income Tax Officer took the view that since the respondent
had started production of cellulose pulp from March, 18 1961, it had
begun to manufacture or produce finished articles or goods in the year
ending March 31~ 1961 and consequently the assessment year 1961-62
F was the first year in which the auesse e was entitled to relief under·
section 84 Sub-section (7) of tile Income Tax Act under which the relief
contemplated was to be available only for five aSsessment years. So. the
respondent was not entitled to relief in the assessment year 1966-67
which fell beyond the afOresaid period.

G The above view the lllcome Tax Officer was affirmed in appeal by
the Appellate As.mtant Commissioner. Even the Income Tax Appellate
Tribnnal held that the respondent having begun production or
manufacture of finished product which was capable of being sold in the
market in the year of accounting relevant to the assessment year 1961·
62 the last year in which the respondent was entitled to get relief under
H section 84 of the Act was the assessment year 1965-66 and the claim for

888
C.I.T. v. CELLULOSE PRODUCTS 889

the relief in the assessm-ent year 1966-67 was not maintainable. The
High Court on reference, held that the mere fact that the respondent
A
started production of Cellulose Pulp which was an interm;odiate product
• . on March 18, 1961 did not mean that the company had begun to pro·
duce or manufacture "articles" in the assessment year 1961-62 because
the· word "articles" used in Sub-section (7) of section 84 in the context,
could be only the end product of the industrial undertaking as a whole B
where there was no phased programme of installation and construction.

Allowing the appeal of the Revenue with costs, the Court,

HELD: The High Court on the facts and circumstances of the
instant case committed an error in interfering with the conclusion of the
Tribunal. It is settled law that a High Court while hearing a reference C
nnder the Act does not exercise any appellate or revisional or super·
visory jurisdiction over the Tribunal and it acts purely in an advisory
capacity. Further in the instant case the finding of the Tribunal did not
suffer from any infirmities such as not being supported by any evidence
or being perverse or patently unreasonable. The production of Cel· D
lulose Pulp during the month of March, 1961 was a finished product
which was a marketable commodity. It is true that Cellulose Pulp also
constitutes raw material for manufacture of Carboxy Methyl Cellulose
and the circumstances that the industrial licence granted to the respon-
dent was for the manufacture of Carboxy Methyl Cellulose which also
included the manufacture of Cellulose Pulp which was intermediate E
product to be used in its turn as a raw material for the manufacture of
Carhoxy Methyl Cellulose. The relvent clause of the Memorandum of
Association of the respondent company is obviously wide in its amp-
litude and as such comtemplates "manufacture of chemical products of
any nature and kind whatsoever and particularly of Carboxy Methyl
Cellulose, Cellulose Pulp and other chemical products." So the High F
Court obviously committed an error in holding that the manufacture of
Cellulose Pulp during March 1961 was of no consequence and that the
first year of production would be the assessment year 1962·63 when
Carboxy Methyl Cellulose was actually manufactured. The provisions
of section 84 of the Act could be construed liberally only, when there is
any genuine doubt about the interpretation. [892H-893G, 8948) G

In the instant case, a plain reading of Sub-section (7) of the section
84 of the Act makes it clear without any doubt that the period of BSS!'""·
ment year relevant to the previous year in which the undertaking began
to manufacture or produce "articles" was 1961-62. The question as to
the assessment year in which the undertaking begins to manufacture or H
890 SUPREME COURT REPORTS (1991] 3 S.C.R.

A produce articles is essentially a question to be decided on the facts of
each case and on the basis of evidence placed on record. [894C-D J

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1314 ~
(NT} of 1976.

B From the Judgment and Order dated 15.11.1975 of the Gujarat
·High Court in Income Tax Reference No. 160 of 1974.

Dr. V. Gauri Shankar, Manoj Arora and Ms. A. Subhashini for
the Appellant.

J. Vellapaly, Ms. A.K. Verma and J.B. Dadachanji for the "".
c Respondent.

The Judgment of the Court was delivered by·

OJHA, J. This appeal has been preferred on the basis of a
D certificate granted by the High Court of Gujarat under Section 261 of
the Income Tax Act, 1961 (hereinafter referred to as the Act). The
judgment appealed against is reported in Cellulose Products of India
Ltd. v. Commissioner of Income Tax, Gujarat, [1977) 110, l.T.R. page
151. The respondent is a public limited company incorporated on April
14, 1989 mainly for the purpose of carrying on business of manufactur-
E ing chemical products. The Memorandum of Association of the
respondent company, as is apparent from the order of the Appellate
Assistant Commissioner of Income Tax, inter alia contains the follow-
ing clause:

"to carry on the business of manufacture of and dealer and
F importers and exporters in chemical products of any nature
and kind whatsoever and particulary of Carboxy Methyl Cel-
lulose (CMC), Cellulose Pulps . and other chemical
products."

The respondent was granted an industrial licence by the Central
G Government for the manufacture of Sodium Carboxy Methyl Cellu-
lose (for short CMC). In pursuance of the said licence the respondent
installed a Cellulose plant, in which was manufactured Cellulose pulp
which in its tum was meant to be used as a raw material for
manufacture of CMC. This fact does not appear to have been in dis-
pute that the respondent began production of Cellulose pulp from
H March 18, 1961 in the said plani while the production of CMC w'as
started from June 15, 1961.

/
. C.LT. v. CELLULOSE PRODUCTS IOJHA, J.] 891

In the assessment year in question namely 1966-67, the previous
A
year of account being the financial year 1965-66 ending on March 3 l,
1966, the respondent claimed relief contemplated by Section 84 of the
• Act (as it stood prior to its being deleted with effect from April 1, 1968
by Finance (No. 2)Act, 1967). The Income Tax Officer took the view
that since the respondent had started production of Cellulose pulp
from March 18, 1961 it had begun to manufacture or produce finished B
.articles or goods in the year ending on March 31, 1961 and conse-
quently the assessment year 1961-62 was the first year in which the
assessee was entitled to relief under Section 84. According io him, the
relief contemplated by Section 84 being available only for five years
namely the assessment year 1961-62 and the four assessment years
,. immediately succeeding as contemplated by Sub-section (7) of Section C
84 of the Act, the respondent was not entitled to the relief claimed in
the assessment year 1966-67 which fell beyond the aforesaid period.
This finding of the Income Tax Officer was affirmed in appeal by the
Appellate Assistant Commissioner. The matter was taken by the
respondent in further appeal before the Income Tax Appellate Tri-
bunal. The- respondent's contention that the production of Cellulose D
pulp during the month of March 1961 was a trial production was repel-
led by the Tribunal and a categorical finding was recorded by it that
l.c Cellulose pulp manufactured by the respondent during the month of
March 1961 was a finished product which was a marketable commodity.
On this view the Tribunal held that the respondent having begun pro-
duction or manufacture of finished product which was capable. of being E
sold in the market in the year of account relevant to the assessment
year 1961-62, the last year in which the respondent was entitled to get
relief under section 84 of the Act was the assessment year 1965-66 and
the claim made by it for the said relief in the assessment year in
• question namely 1966-67 was not·maintainable. The Tribunal, how-
ever, on an application made in this behalf by the respondent referred F
the following question to the High Court of Gujarat for its opinion:-

"Whether on the facts and in the circumstances of the case,
the Tribunal was right in rejecting the assessee's claim for
relief under section 84 of the Act for the assessment year
1966-67?" .G

The High Court by the judgment under appeal answered the question
aforesaid in the negative, that is, in favour of the assessee and against
the revenue. It held that even though the word "article" used in Sub-
section (7) of section 84 of the Act was undoubtedly an ordinary word
employed by the legislature but in the context in which it was used and H
892 .
SUPREME COURT REPORTS [1991] 3 S.C.R.

looking to the object with which it was enacted it was obvious that it
A
could only refer to the end product of the industrial undertaking ·as a
whole where there was no phased programme of installation and con-
~-
struction. On this view the High Court found that the mere fact that
the respondent started the production of Cellulose pulp which was an
intermediate product on March 18, 1961 did not mean that the com-
.B pany had begun to produce or manufacture '_'articles" in the assess- \
ment year 1961-62.

It has been urged. by learned counsel for the appellant that the
finding recorded by the Tribunal referred to above was essentially a
,.
.
c
finding of f~ct based on appraisal of evidence and it was not open to
the High Court in its advisory jurisdiction to take a contrary view. For -.
-

the respondent, on the other hand, in support of the judgment
appealed against, it was urged by its learned counsel that inasmuch as
section 84 of the Act contemplated grant of relief to a new undertak-
ing, it should be construed liberally so as to effectuate the object
thereof. He maintained that since the undertaking established by the
D respondent was to manufacture CMC and the industrial licence had
also been granted to it for the saif! purjlose, exemption under section
84 of the Act could be claimed byft only in the y~ar during which CMC
was actually manufactured and since it was so done during the assess- •
ment year 1962-63 exemption could not be claimed in the assessment
year 1961-62, notwithstanding the fact that Cellulose pulp for captive'
E consumption was manufactured in that year. According to him, there-
fore, the period of five years contemplated by sub-section (7) of
section 84 of the Act would represent the assessment year 1962-63 and
the four assessment years immediately succeeding and in this view of
the matter the High Court was right in allowing the relief claimed by J
the respondent during the assessment year in question, namely 1966-
F 67. In the alternative, he submitted that if ultimately the view ofthe

,~
Tribunal prevailed that the production had started in the assessment
year 1961-62 then the disallowance of the relief in the 5th year namely
in the assessment year in question should be restricted to the invest-
ment of the pulp factory and the respondent should not be denied the
relief in respect of the investment exclusively related to the CMC
G plant.
~

Having given our anxious consideratio'lrto-the respective submis-
sions made by the learned counsel for the parties, we are inclined to
agree with the contention of the learned counsel for the appellant that
the High Court on the facts and in the circumstances of the instant case
H committed an error in interfering with the conclusion of the tribunal. It
C.I.T. v. CELLULOSE PRODUCTS (OJHA, J.J 893

is settled law that a High Court hearing a reference under the Act does
A
.not exercise any appellate or revisional or supervisory jurisdiction over
the Tribunal and that it acts purely in an advisory capacity. If the
Tribunal after considering the evidence produced before it on a ques-
tion of fact records its finding it cannot be interfered with in a refe-
rence by the High Court unless of course such finding was not sup-
ported by any evidence, was perverse or patently unreasonable. In B
our opinion, the finding of the Tribunal in the instant case did not
suffer from any of these infirmities. The finding that the production of
Cellulose pulp during the month of March 1961 was not a trial produc-
tion and that Cellulose pulp as manufactured by the respondent was a
finished product which was a marketable commodity was essentially a
"" finding of fact based on appraisal of evidence. It is true that Celllulose C
pulp constitutes raw material for manufacture of CMC but it has not
been disputed before us by the learned counsel for the respondent that
it was even by itself a finished marketable commodity. The circums-
tance that the industrial licence granted to the respondent was for the
manufacture of CMC and not of Cellulose pulp is, in our opinion,
keeping in view the nature of the two articles,, not of much signifi- D
cance. In the same manner as a licence, for instance, for the
manufacture of cloth includes the manufacture of cotton yarn, an
intermediate product necessary for manufacturing cloth, the licence
granted to the respondent for the manufacture of CMC included the
manufacture of Cellulose pulp which was an intermediate product to
be used in its turn as a raw material for the manufacture of CMC. The E
relevant clause of the Memorandum of Association of the respondent-
company, already quoted above, is obviously wide in its amplitude, It
contemplates manufacture of "chemical products of any nature and
kind whatsoever and particularly of CMC, Cellulose pulp and other
chemical products". Manufacture of Cellulose pulp was thus indeed
one of the objects of the company. The question involved had to be F
considered 'in this background and the Tribunal having done so and
recorded the finding of fact referred to above the High Court obvi-
ously committed an error in holding that manufacture of Cellulose
pulps during.March 1961 was of no consequence and that the first year
of production would be the assessment year 1962-{;3 when CMC was
actually manufactured. The decision of the Madras High Court relied G
• on by the l~arned counsel for the respondent reported in. Madras
Machine Tools Manufacturers Ltd. v. Commissioner of Income-Tax,
Madras, [1975) 98 ITR 119, in view of what has been obseiVed above
on the facts of the instant case does not advance the case of the respon-
dent any further than the reasons recorded in the judgment under
appeal. H
894 SUPREME COURT REPORTS [1991] 3 S.C.R.

A As regards the alternative submission made by the learned
counsel for the respondent suffice it to say that the case on the basis of
which this alternative submission is sought to be made was not set up
before the Tribunal nor any such question was sought to be referred on
the basis of which this alternative submission could be made. It cannot,
as such, be perrnitted to be made in the present appeal. The submis-
B
sion that the provisions of section 84 of the Act should be construed
liberally so as to effectuate the object thereof need detain us for long.
It is only when there is any genuine doubt about the interpretation of a
fiscal statute or where two opinions are capable of being formed tr at
the rule of interpretation canvassed by learned counsel for the respon-
dent may be taken to. In the instant case a plain reading of sub-section
c (7) of section 84 of the Act makes it clear without any doubt that the
period of five years was to start from the assessment year relevant to
the previous year in which the undertaking began to manufacture or
produce "articles". Since the language of the sub-section is plain and
admits of no ambiguity there is no scope of applying the aforesaid rule
of interpretation. The question as to in which assessment year "the
D undertaking begins to manufacture or produce articles" is essentially a
question to be decided on the facts of each case and on the basis of the
evidence placed on record.

In view of the foregoing discussion, this appeal succeeds and is
allowed with costs and the judgment of the High Court under appeal is
E set aside.

S.B. Appeal allowed.

l