1. This appeal by the assessee is directed against the order of the CIT(Appeals) and relates to the assessment year 1996-97.
2. Shri S.P. Chidambaram, learned Counsel for the assessee neatly identified the issues as under : 1. Whether in the facts and circumstances of the case assessee is entitled to claim deduction under Section 80HH and 80-I of the Income-tax Act, 1961 in respect of power generation? 2. Whether in the facts and circumstances of the case assessee did comply with the conditions contained under Section 80HH and 80-I in relation to the employment of the requisite number of employees? 3. Whether in the facts and circumstances of the case the provision of Section 80AB was property appreciated in regard to the consideration of income generated during the previous year from the wind mill for quantifying the deduction under Section 80HH and 80-I of the Act? 3. We have heard the rival submissions in the light of material placed before us and precedents relied upon. Assessee claimed deduction under Section 80HH on wind mill amounting to Rs. 3,44,284/- and under Section 80-I amounting to Rs. 4,30,355/-. It was fairly conceded by the learned Counsel that so far as the claim under Section 80-I is concerned, the issue is decided against him by the order of the Tribunal in the case of Sri Ramakrishna Mills (Cbe) Ltd. v. Dy. Commissioner of Income Tax in I.T.A. No. 84/Mds/98. We, therefore proceed to decide the issue in the context of Section 80HH only.
4. As per the mandate of the statute, deduction under Section 80HH is available in respect of profits and gains from newly established industrial undertaking or hotel business in backward areas. For enabling the benefit of the section, income must be derived from an industrial undertaking. Now the question arises whether the business of generation or distribution of power could be construed to be 'industrial undertaking' for the purpose of Section 80HH. To examine this aspect it is sine qua non to discuss the entire scheme apropos the deduction contemplated in the said section.
5. As per the prescription of Section 80HH(2)(i) it is necessary for an industrial undertaking to be eligible for deduction if it has begun or begins to manufacture or produce articles after the 31st day of December, 1970 but before the 1st day of April, 1990, in any backward area. Manufacturing and production of article is therefore, made a requisite condition for enabling the benefit of the section. The word "production" or "produce" when used in juxtaposition with the word "manufacture", takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is "articles" occurring in the said clause. This word is not defined in the Act. It must, therefore, be understood in its normal connotation - the sense in which it is understood in the commercial world. It is equally well to keep in mind the context, since a word takes its colour from its context. The word "articles" is preceded by the words "it has begun or begins to manufacture or produce". Can we say that the word "articles" in the said clause comprehends and takes in its ambit power generation? We find it difficult to say so. Would any person who is engaged in the business of generation of power say that he has manufactured an article or that he has produced an article? Obviously not. To say that power generation falls within the meaning of the word "article" is to over-strain the language beyond its normal and ordinary meaning. The expression "manufacture" and "produce" are normally associated with movables - articles or goods, big and small - but they are never employed to denote the activity of the generation of power.
In the shorter Oxford Dictionary the word 'article', is defined as "a commodity; a piece of goods or property". Power generation does not fit within the definition of the word 'article'.
6. Reference was made to the decision of the apex court rendered in the case of M.P. Electricity Board (35 STC 188)(S.C.). In this case it was held that electricity is goods within the meaning of Section 2(3) of Central Province and Virar Sales Tax Act. This decision was rendered in the context of the language of a particular statute. As such this meaning cannot be extended to the facts of the present case.
7. As per Section 2(7) of the Indian Sale of Goods Act, 1930 goods is every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Under Section 3(36) of the General Clauses Act, 1897 moveable property of every description except immovable property. The term 'property' is nomen generalissimum (a term of the most general meaning). The term 'property' signifies proprietary rights in rem possesses as singular variety of different applications having different degrees of generality. In the case of Ferens v.O'Brien (11 Q.B.D. 21) it was held that electricity cannot be classed as goods for the purposes of the Sale of Goods Act. Similar view was taken in the case of County of Durham Electric Power Co. v.Commissioners of Inland Revenue (2 K.B. 604; Eric County Fuel Co. v.Carroll (A.C. 105); Read v. Croydon (4 A.E.R. 631); Commr. Of Sales Tax, M.P. v. M.P. Ele. Board, Rash Behari Shaw v.8. Adverting to mens legis (intent of the legislature) we find that Section 80HH was primarily enacted to promote industrial undertaking in backward areas. The benefit of the section is available on the manufacturing and production of article. This section was effective from 31-12-1970 to 31-03-1990. Thereafter Section 80-I was made operative from 1-4-1990 to 1-4-1991. In this section Legislature has used the expression "industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants etc." So along with the word "articles" the word "things" was also appended. Thereafter Section 80-IA was introduced by the Finance (No. 2) Act, 1991 with effect from 1.4.1991. In this section Legislature included generation of power or transmission or distribution of power also. If generation of power could be placed within the ambit of the term "article", there was no necessity of specifying separately the same in the section. This clearly manifest the intent of the Legislature that the word "article" used in Section 80HH(2) does not include within its ambit power generation.
9. Coming now to the next issue regarding the requisite number of employees, we find that AO has given a categorical finding in the order that the assessee was entrusted the management of looking after the wind mills to its associate company, M/s. Pandian Chemicals. Assessee did not directly employ the requisite number of workers. In fact, the assessee did not employ any worker. The assessee only shared the cost of employees with Chemicals and another concern, M/s. Metal Powder Co.
Ltd. As such it is abundantly clear that the assessee did not satisfy the condition as regards the requisite number of workers.
10. Coming now to the last issue we find that the law is clear. The Hon'ble Supreme Court has laid down in the case of Motilal Persticides (I.) Pvt. Ltd. v. CIT (243 ITR 26)(S.C.) that special deduction is to be allowed only on net income and not on gross income.
11. Adverting to the objection of the learned Counsel for the assessee that deduction was allowed in the initial year of assessment, therefore, it cannot be withdrawn in later year, we find that there is no merit in this contention. The claim is not maintainable under the law. As a general rule, the principle of res judicata is not applicable to decisions of income-tax authorities. An assessment for a particular year is final and conclusive between the parties only in relation to that year. Decisions given in an assessment order for an earlier year are not binding either on the assessee or on the department in a subsequent year. This rule was laid down in the case of CIR v. Sneath (1932) 17 TC 149 C.A. In the case of MM. Ipoh and Ors. v. CIT (67 ITR 106)(S.C.) the Hon'ble Supreme Court has held that the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment; the findings on question of fact may be good and cogent evidence in subsequent year, when the same question falls to be determined in another year, but they are not binding and inclusive. We, therefore, decide this issue in favour of the Revenue and against the assessee.