JUDGMENT M. Katju, J.
1. This writ petition has been filed for a writ of certiorari to quash the impugned order dated January 19, 1989 passed by the respondent No. 2, the Divisional Level Committee, Meerut, copy of which is annexure 8 to the writ petition and for a mandamus modifying the eligibility certificate under section 4-A of the U.P. Trade Tax Act, 1948 dated April 22, 1998 and for a direction that the exemption be granted under section 4-A to the petitioner for five years. The petitioner has also prayed for a direction restraining the respondent No.3 the Sales Tax Officer, Muzaffarnagar, for demanding any trade tax or passing any order against the petitioner for not depositing the tax after October 15, 1988.
2. We have heard Sri Bharat Ji Agrawal, learned counsel for the petitioner and learned Standing Counsel for the respondents.
3. The petitioner is a partnership firm carrying on the business of manufacturing and sale of medicines. The partners of the firm were Sri Arvind Arora, Sri Alok Arora and Smt. Seema Arora. One of the partners, Sri Arvind Arora was having land of his own which he got in the family settlement from his parents in the decree passed by the Civil Judge in Original Suit No. 25 of 1983. In the said suit a settlement took place and the disputed land on which a building was constructed by the petitioner-firm came to the share of Arvind Arora. Sri Arvind Arora has given this land to the partnership-firm for establishing the unit in question.
4. In paragraph 6 of the writ petition it is stated that on the said land the petitioner-firm constructed a building and has invested a sum of Rs. 2,50,000 for the construction of the building. Photocopy of the balance sheet of the firm is annexure 1 to the writ petition. A perusal of the balance sheet shows that the fixed assets as per Schedule G of the firm was valued at Rs. 4, 15, 753.39 and a perusal of Schedule G shows that a sum of Rs. 2, 50,550 has been invested by the firm in the construction of the building. Photocopy of the certificate of the chartered accountant in this connection is annexure 2 to the writ petition.
5. The petitioner applied for registration as small scale industry with the General Manager, District Industries Centre, Muzaffarnagar and the petitioner was registered as S.S.I unit by the General Manager on October 16, 1985. True copy of the registration certificate is annexure 3 to the writ petition. This certificate shows that the date of manufacturing of capsules was September 1, 1985 while the syrup was manufactured on October 7, 1985 and the tablets have been manufactured on September, 1985. The petitioner applied for registration under the Factories Act which was granted to it.
6. After completing the formalities the petitioner applied for exemption under section 4-A in the prescribed pro forma before General Manager, District Industry Centre. In this application also it was mentioned that the investment on the land and building was Rs. 2,50,000 while investment in the machinery is Rs. 1,44,628.79.
7. While this application was being processed, the District Level Committee asked the petitioner to file the registered lease deed in respect of the land and building. The petitioner informed the District Level Committee that the land belongs to one of the partners of the firm and hence there was no need of filing any lease deed. The District Level Committee informed the petitioner that either it should be shown that the land belongs to the petitioner or there should be registered lease deed in favour of the petitioner. Consequently, Sri Arvind Arora who is one of the partners of the petitioner-firm executed a lease deed in favour of three partners including himself, i.e., in respect of the three partners of the firm for a period of ten years. This lease deed was executed in respect of the land alone. Photocopy of the lease deed is annexure 4 to the writ petition. However, the District Level Committee was not satisfied with the lease deed and it required the petitioner to file a lease deed in respect of both the land and building. It was then brought to the notice of the District Level Committee that the land belongs to one of the partners of the firm, Sri Arvind Arora while the building was constructed by the firm and hence there was no necessity for the lease deed of the building. The lease deed of land has already been executed and there was no further requirement of any lease deed. However, the District Level Committee stated that the exemption would not be granted until the lease deed in respect of the both land and building were filed. In these circumstances the petitioner had no other alternative but to get a lease deed executed from Arvind Arora who was himself one of the partners of the petitioner-firm. True copy of the registered . lease deed dated November 11, 1987 executed by Arvind Arora in favour of the petitioner-firm is annexure 5 to the writ petition.
8. The petitioner's application for exemption was processed by the District Level Committee and by the Divisional Level Committee. The Divisional Level Committee then by order dated April 22, 1988 granted exemption of trade tax, w.e.f. October 15, 1985 for a period of three years. True copy of the eligibility certificate dated April 22, 1988 is annexure 6 to the writ petition. The petitioner enquired from the office and came to know that as the investment of the building has not been included in the capital investment hence the exemption was granted only for three years. On coming to know of this petitioner filed a review application dated October 6, 1988 before the Divisional Level Committee copy of which is annexure 7 to the writ petition.
9. However, by order dated January 19, 1989 copy of which is annexure 8 to the writ petition the review application has been rejected on the ground that in respect of the land and building registered lease deed has been executed, and hence investment in the land and building cannot be included in the capital investment and so the investment in the unit is less than Rs. 3 lacs.
10. Learned counsel for the petitioner submitted that the order dated January 19, 1989 and April 22, 1988 are erroneous in law and are liable to be modified so as to grant exemption for a period of five years. Learned counsel submitted that the land belongs to one of the partners of the petitioner-firm and the building was constructed by the investment of the firm as is evident from the report of the Chartered Accountant and the balance sheet and other documents on record. Hence the investment made by the petitioner in constructing the building ought to have been considered by the respondent No. 2 while computing the capital investment. He submitted that the capital investment on the date of production and on the date of first sale on the plant and machinery was Rs. 1,44,628.79 and on the building it was Rs. 2, 50, 550 respectively, besides the value of the land which belongs to one of the partners of the firm. It was therefore submitted that the total investment apart from the land of the petitioner in its unit is Rs. 3,95,178.79 which is more than Rs 3 lacs. Hence he submitted that the exemption should have been granted for a period of five years. Learned counsel for the petitioner submitted that the capital investment is defined in the notification dated August 27, 1984 to mean the investment in land, building, plant, machinery, equipment, etc. Since the building has been constructed by the firm hence the investment made by the petitioner for constructing the building amounting to Rs. 2,50,550 ought to have been considered in the capital investment of the unit but it has wrongly been ignored. It was further submitted that the lease deed was executed by Arvind Arora, one of the partners of the petitioner-firm in favour of the partners of the firm. This clearly shows that the lease deed was executed only on the pressure of the officers of the industries department since in law no one can transfer property to himself. Hence the respondent No. 2 was not justified in not considering the value of the land and building on the ground that the lease deed has been executed for the land and building and hence its value cannot be taken into consideration. It is submitted that the land having belonged to one of the partners of the firm, there was no necessity for a lease deed in favour of the firm but a superfluous document was written on the direction of the industries department.
11. A counter-affidavit has been filed on behalf of the respondents. In paragraph 5 of the same it is stated that at the time of filing of an application for exemption it was shown by the petitioner that the land and the building of the firm was on rent for a period of ten years and it was filed for registration in the sub-registrar's office. Since in the application for exemption the petitioner had showed the land and building on rent the said application was processed accordingly. A copy of the lease deed is annexure C.A. 1. In paragraph 6 of the counter-affidavit it is stated that the certificate of the Chartered Accountant dated January 3, 1987 clearly shows that originally the value of the land and building was shown but the said document had been obtained in order to show that the building was constructed by the partnership firm which was belied from the lease deed. In paragraph 8 of the counter-affidavit it is stated that in its exemption application the petitioner had mentioned the cost of the land building at Rs. 2,50,000 whereas the certificate subsequently issued showed only the cost of the building and no proof was filed in respect of the same. However, the lease deed filed by the petitioner clearly mentioned that the lease was in respect of both land and building and the said lease deed was executed by the partners of their own sweet will. The case of the petitioner was therefore examined on the basis of the lease deed submitted by the petitioner. The copy of the lease deed is annexure C.A. 2. In paragraph 9 it is stated that while filing the exemption application the petitioner did not submit any documentary proof. In paragraph 11 of the counter-affidavit it is stated that since land and building was on lease the question of taking valuation of the land and construction did not arise, and hence the petitioners investment is less than Rs. 3 lacs.
12. A rejoinder affidavit has also been filed and we have perused the same. In paragraph 4 it is stated that the petitioner fulfilled all the requisite conditions of the notification and Government orders issued from time to time and hence was entitled for exemption for five years. A true copy of the exemption application is annexure R.A. 1. It is alleged in paragraph 6 of the rejoinder affidavit that a perusal of the exemption application does not show that at the time of filing of the exemption application the land and building was on rent for ten years. It is further stated that the lease deed was executed in advance only in respect of the land but when pressurised by the industries department a second lease deed was executed in respect of both land and building. The building was constructed by the partners of the firm as is evident from the balance sheet which was filed along with the exemption application and was corroborated by the Chartered Accountant. It is mentioned therein that a sum of Rs. 2,50,000 has been spent in the construction of the building of the firm and the same is liable to be included in the capital investment of the petitioner. Even if the cost of the land is excluded from the exemption application it was never shown by the petitioner that the land and building are on rent. The chartered accountant has only verified the cost of the building and has not shown the cost of the land.
13. From a perusal of the pleadings of the parties and after hearing the learned counsel for the petitioner and learned standing counsel the factual position which emerges is that the petitioner is a partnership-firm consisting of Arvind Arora, Alok Arora and Smt. Seema Arora as partners. The firm has established a new industrial unit for the manufacture and sale of medicines in pursuance of the scheme announced by the State Government by the G.O. dated September 30, 1982 for granting exemption from payment of tax to the new unit under section 4-A of the U.P. Trade Tax Act. The land in question admittedly belongs to one of the partners of the firm, namely, Arvind Arora. On the said land building was constructed by the firm with an investment of Rs. 2,50,000. Schedule G of the balance sheet of the firm which is part of annexure 1 to the petition clearly shows that a sum of Rs. 2,50,550 was invested by the petitioner-firm in respect of the building, and this is also proved by the certificate of the Chartered Accountant copy of which is annexure 2 to the writ petition. The certificate also shows that an investment of Rs. 1,44,628 was made in the plant and machinery.
14. On November 8, 1985 an application under section 4-A was filed by the petitioner and in column No. 7 of the prescribed pro forma of the application, copy of which is annexure R.A. 1 to the rejoinder affidavit, the investment in building is shown as Rs. 2,50,000 while that in the plant and machinery is Rs. 1,44,628.79. It seems that despite these facts disclosed in the application, the District Level Committee insisted that the petitioner executed lease deed in respect of the land owned by Arvind Arora one of the partners of the firm as also for execution of sale deed in respect of the building, otherwise the claim of the petitioner-unit for exemption under section 4-A will not be considered. Accordingly, the lease deed was executed on September 7, 1987 by Arvind Arora in favour of himself, Alok Arora and Smt. Seema Arora (the three partners of the firm) in respect of the land for a period July 1, 1985 to June 30, 1995. Another lease deed was executed on November 11, 1987 vide annexure 5 to the writ petition for the period from July 1, 1985 to June 30, 1995.
15. The order dated May 19, 1989 annexure 8 to the writ petition by which the petitioners' review application was rejected mentions that the land and building has been taken on lease and hence the investment made in the building cannot be included.
16. It is settled law that the firm is not a distinct legal entity but only a compendium of partners vide Dulichand Laxminarayan v. Commissioner of Income-tax, Nagpur. AIR 1956 SC 354 (Para 15) since the land belongs to Arivnd Arora, one of the partners of the firm, hence the lease in favour of the petitioner is meaningless since a person cannot make a lease in his own favour. Hence in our opinion it cannot be said that the land in question was on rent.
17. As regards the building, since it was constructed by the partners of the firm it obviously could not have been leased to the firm because a person cannot lease a building to himself. It is evident from the balance sheet which has annexed as annexure 1 to the writ petition as well as the certificate of the Chartered Accountant that a sum of Rs. 2,50,000 has been spent on the construction of the building. Hence in our opinion the said amount is liable to be included in the capital investment of the firm.
18. Thus in our opinion both the value of the land as well as that of the building should have been included in the capital investment of the petitioner-firm. Thus the investment is above Rs. 3 lacs.
19. The review application copy of which is annexure 7 to the writ petition refers to the circular of the Commissioner, Trade Tax dated February 25, 1988 which has not been considered by the Divisional Level Committee. In the said circular it is mentioned that even if the land or building is not the name of the industrial unit but is in the name of the partner/proprietor/ promoter, still the exemption is admissible. Hence even if the land is not in the name of petitioner unit but was in the name of partners of the petitioner-firm in our opinion the value of the land should have been taken into consideration and hence the exemption should have been granted for five years.
20. In Commissioner of Sales Tax, U.P. v. Indra Industries [2001] 122 STC 100 ; 2000 UPTC 472 the Supreme Court held that a circular of the Commissioner of Sales Tax is binding on the tax authorities. This is also the view taken by this Court in Raghunatyh Laxminarain Spices Put Ltd. v. State of U.P. 2000 UPTC 554. In Collector of Central Excise, Vadodra v. Dhiren Chemical Industries (2002) 2 SCC 127 it was held that a circular interpreting the notification so as to widen the scope of exemption is binding upon the revenue authorities irrespective of the different interpretation given.
21. In view of the facts and the above legal position in our opinion the Divisional Level Committee erred in law in overlooking the circular dated February 25, 1988 which has been referred to in the review application copy of which is annexure 7 to the writ petition. In our opinion, the land and building has to be taken into account towards the determination of the capital investment in the unit and hence the petitioner was entitled to exemption for a period of five year.
22. In the circumstances the impugned orders dated April 22, 1988 as well as January 19, 1989 annexures 6 and 8 to the writ petition are modified and a direction is issued to the Divisional Level Committee to grant exemption under section 4-A for a period of five years to the petitioner in respect of its new unit. The recovery proceedings will accordingly be stayed/modified till the grant of the modified eligibility certificate in the light of the observations and directions made in this judgment.
23. The petition is allowed. No order as to costs.