M/S PRAKASH TRADING CO.versusCOMMISSIONER OF INCOME TAX, GUJARAT

l.
                          MIS. PRAKASH TRADING CO.                                      A
                                            v.
                COMMISSIONER OF INCOME TAX, GUJARAT

                                FEBRUARY 20, 1996

            [B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.)                               B

           Income tax Act, 1961 :

           Finance Act, 1966: s.2(5)(a)(ii) and (iii); 2(5)(c) :

           Finance Act, 1967: ss.2(4)(a)(ii) and (iii); 2(4)(c):
                                                                                        c

           lndust1ies (Development and Regu.lation) Act, 1951; Schedule I : In-
     come Tax-Export/sale to exporter, of de-oiled cakes-Additional deduc-
     tion-Held, not admissible on articles enumerated in clause(c) of s.2(5) of
     J966Act, and cl.(c) of s.2(4) of 1967 Act-Sub-clauses (ii) and (iii) of clause D
     (a) and clause (c) as also 1st Schedule to /.D.R. Act, refer to articles only.

            In order to encourage export of industrial goods, the Finance Acts
     of 1966 and 1967 provided that a person engaged in manufacturing of any
     articles in an industry enumerated in the First Schedule to the Industries         E
     (Developm~nt and Regulation) Act, 1951 and exporting such articles or
     selling them to an exporter was entitled to an additional deduction as
     specified in Sub clauses, (ii) and (iii) of clause (a) of s.2(5) of 1966 Act and
     s.2(4) of 1967 Act. However, the articles mentioned in clause (c) of ss.2(5)
     and 2(4) of the two Acts respectively were excluded from the incentive.
                                                                                        F
           The appellant-assessee, a manufacturer of groundnut oil, claimed
     additional deduction on the amount received on export/sale to exporter of
     deoiled cakes under the provisions of ss.2(5)(a)(ii) and (iii) 1966 Act and
     s.2(4)(a)(ii) and (iii) of 1967 Act. The Income Tax Officer rejected the
     claim relying upon clause (c) of s.2(5) of 1966 Act and s.2(4) of 1967 Act.
     On appeal, the Appellate Assistant Commissioner accepted assessee's case           G
     that the above mentioned clause (c) referred to•articles as such and not to
     industries and since deoiled cake was not mentioned in clause (c), the
     assessee was entitled to additional deduction. This view was affirmed by
     by the Income Tax Appellate Tribunal. But on reference, the High Court
     decided the matter against the assessee. Aggrieved, the assessee filed the         H
                                           849
    850                   SUPREME COURT REPORTS
                                                                                ~.
                                                                  [1996] 2 S.C.R.

A present appeals.
           On the question : Whether clause (c) of ss.2(5) and 2(4) of 1966 Act
    and 1967 Act respectively referred to articles mentioned therein or whether
    it referred to industries engaged in the manufacture of those articles :

B         Dismissing the appeals, this Court

          HELD : Sub-clauses (ii) and (iii) of clause (a) as also clause (c) of
   ss.2(5) and 2(4) of Finance Act, 1966 and Finance Act, 1967, respectively,
   refer to articles only, as does the First Schedule to the Industries (Develop·
C ment and Regulation) Act, 1951 and, therefore, all of them must carry the
   same meaning and purport. Moreover, clause (c) being an exception to sub-
  clauses (ii) and (iii) must follow the same pattem as in the said sub-clauses.
   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 t~e 1966 Act and
  .Section 2(4) of the 1967 Act. The description is identical in both the First
D Schedule and clause (c). (855-A-B]
         CIVIL APP~LLATE JURISDICTION: Civil Appeal Nos. 452 and
    453of1978.                                                   .

          From the judgment and. Order dated 31.8.77 of the. Gujarat High
E Court ~ I.T.R. No. 70 of 1975..

          Sameer Parekh fo~ P.H. Parekh for the Appellants.

         Dr. V. Gaurishankar, Anil Srivastava and S.N. Terdol. for the
    Respondents.
F
          The Judgment of the Court was delivered.by
                                                         '         '

           B.P. JEEVAN REDDY, J. : These appeals preferred by the assessee
  agait).st the judgment Of the Gujarat High ·c;:ourt answering the ~o ques·
G tionS: referred to it, at the instance of the Revenue, in favour of the Revenue
  and against the assessee. The two question stated for the opinion of the
  High Court under Section 256(1) are:

             •i(l} Whether bn the facts and in the circ~~tances of the c~se, the
             assessee was entitled to claim deduction from tax in respect of . ,
H            deoiled cakes exported or sold to exporters by it under section '
         PRAKASH TDG. CO. v. C.I.T. (B.P. JEEVAN REDDY, J.]             851

        2(5)(a)(ii) and (iii) and Section 2(5)(c) of the Finance Act, 1966 A
        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 B
        respect of deoiled cakes exported or sold to exporters by it under
        section 2(4)(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 ?"                                                         c
      With a view to encourage export of industrial goods, 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 has exported such articles out of India or has sold D
the said articles to an exporter was entitled, to an additional deduction
specified in sub-clauses (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
provisionsm    both the Finance Acts are identical. It would suffice if we
refer to the provisions in the Finance Act, 1966. Insofar as relevant, the E
provisions in Section 2(5) read as follows :

        "2(5)(a) In respect of any assessment for the assessment year
        commencing on the 1st day of April 1966, in the case of an assessee
        being a domestic company or an assessee other than a company,-
                                                                               F
        (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 G
        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 (Develop-
        ment and Regulation) Act, 1951 (LXV of 1951), and has, during
        the previous year, exported such articles out of india, he shall be    H
    852                   SUPREME COURT REPORTS                     [1996) 2 S.C.R.

A          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;
B
              Explanation-- xxxxxx

           (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 sole such articles to any other person in India
c          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 he is chargeable for 'the
           assessment year of an amount equal to the income-tax calculated
D          at 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) xxxxxxxx

E          (c) Nothing contained in sub-clause (ii) or sub- clause (iii) of clause
           (a) shall apply in relation to --

          · (1) fuels,
            (2) fertilisers,
            (3) Photographic raw film and paper;
F           (4) textiles (including those dyed, printed or otherwise processed
                  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,
G
            (8) vegetable oils and vanaspati,
            (9) cement and gypsum products,
            (lO)arms and ammunition, and
            ( 11) cigarettes                                                            ---
H          resp_f?ctively, specified in iteins 2, 18, 20 23(2), 24(2), 24(5), 25, 28,
              PRAKASHIDG. CO.v. C.l.T. [B.P.JEEVANREDDY,J.]                      853


-            35, 37 and 38 of the First Schedule to the industries (Development A
             and Regulation) Act, 1951 (LXV of 1951)."

          The appellant-assessee is a registered partnership firm enga5 ..,u m
    the manufacture of groundnut oil at Veraval. It has a solvent extraction
    plant at Veraval. It exported, or sold to exporters, de- oiled cakes of the B
    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
    (c) of Section 2(5) of the Finance Act, 1966 and clause (c) of Section 2(4)
    of the Finance Act, 1967. On appeal, the Appellate Assistant Commis-
    sioner 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. D
    The Tribunal affirmed the said view in appeal. At the instance of the
    Revenue, the Tribunal referred the aforesaid two questions 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              E
    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 mticles manufactured in "an industry specified in the First Schedule to
    the I.D.R. Act", which have been exported out of India by the manufacturer           F
    during the relevant accounting year or which have been sold to an exporter
    who has actually exported them out of India. Clause (c) of Section 2(5) of
    the 1966 Act for (or Section 2(4) of the 1967 Act) is in the nature of an
    exception to sub- clauses (ii) and (iii) of clause (a). It 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----".   G
    Then it proceeds to mention several articles, at same time specifying the
    item numbers in the First Scheclule to the i.D.R. Act under which the said
    articles fall. Just as the First Schedule (to the l.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 descrip-            H
    854                    SUPREME COURT REPORTS                     [1996) 2 S.C.R.

A   tion 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 :
B            (1) Coal, lignite, coke and their derivatives.

             (2) mineral oil (crude oil) motor and aviation spirit, diesel oil,
             kerosene oil, fuel on diverse hydrocarbon oils and their blends
             including synthetic fuels, lubricating oils and the like.
c            (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 of an item in the First Schedule, it says
D   so - and the description is identical. To wit, 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
E   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):
F
             (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.

G            (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 yarn and hosiery.

             (5) Made wholly or in part of synthetic, artificial (man-made)
H            fibres, including yarn and hosiery of such fibres."
         PRAKASHIDG. CO.v. C.l.T. [B.P.JEEVANREDDY,J.)                  855

        Item (4) in clause (c), however, refers only to sub-item (2) of Item A
(23) in the First Schedule but not to other 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 report, both B
clauses (ii) and (iii) of clause (a) and clause (c) refer to articles only, as
does the First Schedule to the l.D.R. Act. If so, all of them must carry the
same meaning and purport. Moreover, clause (c) being an exception to sub-
clauses (ii) and (iii) must follow the same pattem as in the said sub-clauses.
It is reasonable to presume so.                                                C
     For the above reasons, we agree with the High Court and dismiss the
appeals. No costs.

R.P.                                                    Appeals dismissed.