JUDGMENT
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following questions of law for the opinion of this Court under Section 256(1) of the Income-tax Act, 1961, (hereinafter called as "the Act") :
1. Whether, even after finding that the production could not come out in a final shape, the Appellate Tribunal was legally justified in holding that the mill had started manufacturing goods during the year under reference within the meaning of Section 80J of the Income-tax Act, 1961 ?
2. Whether, the finding of the Appellate Tribunal that the initial year in the case of the assessee for getting, benefit under Section 80J was the assessment year 1971-72 is legally sustainable ?
3. Whether, on the facts and in the circumstances of the case, the assessee is entitled to relief under Section 80J for the assessment year 1976-77 ?
2. The matter relates to the assessment year 1976-77.
3. M/s. Kanodia and Sons, Kanpur, the assessee, claimed relief under Section 80J of the Act. The Income-tax Officer disallowed the said claim on the ground that the year under reference was the sixth year from the date when it had started manufacturing the goods. In appeal the claim was, however, allowed by the Commissioner of Income-tax (Appeals). The said order has been later set aside by the Income-tax Appellate Tribunal in further appeal filed by the Department.
4. Heard learned Counsel representing the assessee and the Department.
5. The question for consideration is whether manufacture or production of "goods"/"article" had begun in the assessment year 1971-72 or in the assessment year 1972-73.
6. The assessee established a flour unit in the assessment year 1971-72. According to the assessee, the flour mill did not manufacture or produce "article" or "goods" in the relevant assessment year although the wheat was put in the flour mill as part of manufacturing process--for production purposes.
7. A controversy centres round the interpretation of Section 80J of the Act, which is reproduced below :
80J. Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.--(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship 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 total income of the assessee, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under Section 80HH or Section 80HHA) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent, per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the manner specified in Sub-section (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year):
Provided that in relation to the profits and gains derived by an assessee, being a company, from an industrial undertaking which begins to manufacture or produce articles or to operate its cold storage plant or plants after the 31st day of March, 1976, or from a ship which is first brought into use after that date, or from the business of a hotel which starts functioning after that date, the provisions of this sub-section shall have effect as if for the words 'six per cent.', the words 'seven and a half per cent.' had been substituted....
(2) The deduction specified in Sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year :
Provided that in the case of an assessee, being a co-operative society, the provisions of this Sub-section shall have effect as if for the words 'four assessment years', the words 'six assessment years' had been substituted.
8. The relevant expressions used in the section if read separately are--"to manufacture article" and "to produce article",
9. Shri S.K. Garg, learned Counsel for the assessee, submitted that the phrase "begins to manufacture" would draw colour from the subsequent expression "to produce" articles used in Sub-section (2) of Section 80J.
10. Section 80J provides special deduction to new industrial undertakings. It was introduced in the Act to give certain benefits to new industrial undertakings on fulfilment of certain conditions. It provides deduction in respect of profits and gains for newly established undertakings or ships or hotel business in certain cases. According to him, for ascertaining the intention of the Legislature, while interpreting the said statutory provision, one must not ignore the subsequent expression, namely, in the case of a hotel, the relevant assessment year is the one when it actually "starts", the business and not the start of the process of commencing the business. It is also to be noted that the Legislature has not used the expression like--"including", "means", manufacturing process/operation. The word "manufacture" is both "noun" as well as "verb". According to the petitioner it is, in the instant case, used as "noun". Before we undertake the exercise of interpreting Section 80J of the Act (quoted above) it is useful to refer to the dictionary meaning of some of the expressions given hereunder :
11. Legal Glossary published by Ministry of Law, Justice, Company Affairs, Government of India, page 149 :
Manufacture : 1. Producing by labour (Section 2(13), Income-tax Act); 2. the making of materials or articles (now on a large scale) by physical labour or mechanical power ; to do, produce or make (Section 73 ill.(q), Indian Contract Act.) Manufacturing operation : (Section 80P(2)(f), Income-tax Act.) Manufacturing process : (Section 2(2), Sugarcane Act and Section 2(k), Factories Act).
Page 195 Produce : 1. something that is brought forth or yield either naturally or as a result of effort and work (Section 145(2, Cr.P.C) ; 2. to bring forward ; to bring forth or out; to bring into being ; to yield.
12. Black's Law Dictionary 6th Edition--
Page 155 Begin--To originate ; to come into existence ; to start ; to institute ; to initiate ; to commence.
Page 964 :
Manufacture, v. From Latin words manus and factura, literally, put together by hand. Now it means the process of making products by hand, machinery, or other automated means. United States v. Anderson, D.C. Cal. 45F. Supp. 943. 946. Meaning of word 'manufacture', which is defined as the making of goods or wares by manual labour or by machinery, especially on a large scale, has expanded as workmanship and art have advanced, so that now nearly all artificial products of human industry, nearly all such materials as have acquired changed conditions or new and specific combinations, whether from the direct action of the human hand, from chemical processes devised and directed by human skill, or by the employment of machinery, are commonly designated as 'manufactured'.
Page 965 :
Manufacture, n. The process or operation of making goods or any material produced by hand, by machinery or by other agency ; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine.
Page 1209 :
Produce : n. Articles produced or grown from or on the soil, or found in the soil.
Produce : v. To bring forward ; to show or exhibit; to bring into view or notice ; as to present a play, including its presentation in motion pictures.
13. The New International Webster's Comprehensive Dictionary-Deluxe Encyclopaedic Edition.
Page--127 :
Begin : v. i. 4. To come into being ;
Page 776 :
Manufacture : n. 1. The production of goods by hand or by industrial art or processes. 2. Anything made by industrial art or processes; manufactured articles collectively.
Page--1006 Produce : n. That which is produced ; a product; specifically, form products collectively.
14. There "n" and "v" stand for "noun" and "verb".
15. Webester's Third New International Dictionary and seven language dictionary Page 1378 :
Manufacture : n 1 : something made from raw materials by hand or by machinery PRODUCTION CREATION Page 1810 vi : to bring forth a product or production : bear, make, or yield that which is according to nature or intention : grow, make, or furnish economically valuable products (laboured literally day and night to~-Vera M. Dean).
produce\pra, d(y)us, 'Pro.,-1. n-s 1 a(l) : something that is brought forth or yielded either naturally or as a result of effort and work (2) : a result produced :
16. On behalf of the Department emphasis is being laid on the word "begins". On the other hand, counsel for the assessee refers to the expression "or produced article".
17. From the aforequoted definitions given in various English dictionaries it is clear that the word "manufacture" in the English language, can be used both as a verb and a noun. When it is used as a verb it refers to the "process" or a "centering action" having starting point and end point. The expression "manufacture" when used as "noun", it has a fixed point namely when the process culminates into the end-point, i.e., the process ends up in the final result.
18. The court is to determine whether the word "manufacture" in Section 80J of the Act is used as "verb" ; or "noun".
19. Doubt, if any, is short-lived if one looks to the expression "to produce articles", used in that very section. This clearly shows that the Legislature has in mind the production of articles. There is no doubt, that by the use of the word "or" between two expressions, viz.,'begins to manufacture" and "begins to produce articles" they are interchangeable and denote the same meaning.
20. The Legislature has not used the expression to include process of manufacturing, as is evident on comparing the expression used in Section 80P(2)(f) which reads :
in the case of a co-operative society ... or a society engaged in the performance of any manufacturing operations with the aid of power....
21. If the Legislature intended to include process of manufacture it could have, as it has done elsewhere, specifically expressed so.
22. We have no doubt, in the context in which Section 80J has been incorporated. The intention is clear, namely, the expression "begins to manufacture" is used as a noun and that is when the undertaking achieves the end product out of the process of manufacture.
23. We are thus unable to accept the contention of the Department.
24. Question No. 1 is answered in the negative, i.e., in favour of the assessee and against the Department. Questions Nos. 2 and 3 are consequential questions and they are covered by the answer given under question No. 1.
25. Questions referred--answered accordingly.
26. No order as to costs.