| SooperKanoon Citation | sooperkanoon.com/65353 |
| Court | Income Tax Appellate Tribunal ITAT Mumbai |
| Decided On | Mar-30-1992 |
| Judge | G Krishnamurthy, U Shah, S Vice-, O Jain, R Garg, S S R.N. |
| Appellant | R.M. Enterprises, Mittal |
| Respondent | First Income-tax Officer |
4. The common issue raised in these appeals is whether the assessees, engaged in the construction of buildings, would be entitled to deduction contemplated under Section 80-I of the Act.
5. The assessment years involved in the case of M/s. R. M. Enterprises are 1983-84 and 1984-85, while, in the other cases, it is only 1984-85.
All the assessees are partnership concerns and are carrying on, inter alia, building construction activity.
6. The Income-tax Officer rejected the claim made under Section 80-I of the Act on the ground that the activities of the assessee " do not fall under the ambit of 'industrial undertaking'".
7. Before the Commissioner of Income-tax (Appeals), it was stated by the assessees that their business was to develop properties for sale as flats on ownership basis. For this purpose, they entered into agreements with land owners and constructed multi-storeyed buildings.
It was, therefore, submitted that they qualify for deduction under Section 80-I of the Act. After referring to the order of the Tribunal (Special Bench) in the case of Hydle Construction (P.) Ltd. [1983] 6 ITD 575 (Delhi), wherein the Tribunal had relied on the decision of the Hon'ble Gujarat High Court in the case of Cellulose Products of India Ltd. v. CIT[1977] 110 ITR 151, the Commissioner of Income-tax (Appeals) upheld the action of the Income-tax Officer in the case of R. M.Enterprises as under : " 7. I am in respectful agreement with the decision of the Income-tax Appellate Tribunal (Special Bench), New Delhi, in the aforesaid case. On the basis of this decision, I hold that the appellant firm which is engaged in the construction of the building for sale as flats on ownership basis cannot be considered to be engaged in the manufacture or production of any article or thing, which in its normal connotation would only mean movable things and not immovable things like house property or construction of dams, tunnels, etc., and that the claim for deduction under Section 80-I was rightly rejected by the Income-tax Officer." 8. The Commissioner of Income-tax (Appeals) has passed identical orders in other cases also.
9. Being aggrieved by the orders of the Commissioner of Income-tax (Appeals), the assessees have come up with the grievance that he should have accepted their claim for deduction made under Section 80-I of the Act.
10. At the outset, learned counsel for the assessees stated that recently the Hon'ble Supreme Court has reversed the aforesaid decision of the Hon'ble Gujarat High Court in the case of CIT v. Cellulose Products of India Ltd. [1991] 192 ITR 155. In this view of the matter, he strongly urged that the assessee's claim under Section 80-I of the Act should be accepted without any hesitation. Thereafter, he made elaborate submissions to impress upon us that the business of building construction is an " industrial activity" and, therefore, the assessees are to be treated as-an " industrial undertaking " contemplated under Section 80-I of the Act, that there is a difference between an "industrial company" considered in certain reported decisions while dealing with the rate of tax applicable to such company provided in the annual Finance Act and an " industrial undertaking " with which we are concerned in these appeals, that the absence of the word " construction " in Section 80-I of the Act is not fatal so as to deny the assessees the benefit of deduction provided in that Section, that the expression " article or thing" used in Section 80-I of the Act should not be confined to movable properties only, as, according to him, that expression, in its sweep, would include immovable properties also like the one in the present cases, that in the absence of the definition of the words " article " or " thing" provided in the Act, one has to look to the dictionary meaning of these words and that when two views are possible on the interpretation of the provisions of a statute, the one in favour of the assessee should be preferred.
11. The learned representative for the Revenue, on the other hand, strongly supported the action of the income-tax authorities. According to him, the question that has to be decided in these appeals is whether the words " article or thing " are synonymous with the word " goods " used in the definition of an " industrial company " in the Finance Acts. In this connection, he stated that it would be his endeavour to impress upon us that as there is no difference in the three words, namely, article, thing and goods, the decision of the Hon'ble Bombay High Court in the cases of CIT v. N. U. C. Private Ltd. [1980] 126 ITR 377 and CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696, would be applicable even though, in those cases, the Hon'ble High Court was interpreting the definition of an " industrial company " used in the Finance Acts. In this view of the matter, he submitted that the assessees should not be treated as an " industrial undertakings " and thus were not entitled to deduction contemplated under Section 80-I of the Act. He referred to the provisions of Section 32A of the Act and tried to emphasis that, as the word " construction " is used in sub-Clause (iii) of Clause (b) of Sub-section (2) of that Section, the Hon'ble High Courts have held that an assessee engaged in construction activities like the present one would be entitled to claim investment allowance in respect of machinery and plant installed in the business.
However, since the word " construction " is not to be found in Section 80-I of the Act, the assessees would not be entitled to the deduction contemplated under that Section. Thereafter, he referred to article 366(12) of the Constitution of India which defines the word " goods" to include all materials, commodities and articles and submitted that the words " article or thing" are synonymous with the word " goods " used in the Act and since the word " goods " could be referred to movable properties only as per the Constitution of India, the words "article or thing" should also be referred to movable properties only. In this view of the matter, according to him, it is not necessary to refer to various dictionary meanings of the words" article or thing" and " goods". As the assessees are engaged in construction of immovable properties, the learned representative for the Revenue went on to argue that they would not be entitled to deduction contemplated under Section 80-I of the Act. He also referred to Schedule XI of the Act and pointed out that Parliament has advisedly not mentioned Section 80HH of the Act, as the said Schedule refers to the manufacture or production of articles which are movable properties. Turning to Section 132 of the Act, he pointed out that the words " article or thing" have been used in conjunction with "any money, bullion, jewellery" which clearly show that the words "article or thing" have reference to movable properties only. Referring to Sections 80HHC, 80-I(8) and 80J(6B) of the Act, where the use of the word " goods" is to be found, the learned representative for the Revenue strongly argued that all these words, namely, article, thing and goods, are synonymous and refer to movable properties only.
12. Learned counsel for the assessee, in his reply, submitted that, on a proper reading of Section 80 I of the Act, there is no warrant to construe the words " article or thing " to refer to movable properties only. According to him, in the case of N. U. C. Pvt. Ltd. [1980] 126 ITR 377 (Bom) and Shah Construction Co. Ltd. [1983] 142 ITR 696 (Bom), the Hon'ble High Court has given a restricted moaning to the definition of " industrial company " contained in the Finance Acts only because the word " construction " is used' in connection with ships and not in connection with other construction activities. He also pointed out that the said provision advisedly contains the word " goods" which would refer to movable properties only but, in the instant case, we are concerned with the meaning of an " industrial undertaking" which manufactures or produces " articles or things".
13. During the course of their submissions, the parties referred to the decisions in the cases of CIT v. JV. C. Budhoraja and Co. [1980] 121 ITR 212 (Orissa), CIT v. Pressure Piling Co. (India) P. Ltd. [1980] 126 ITR 333 (Bom), CIT v. N. U. C. Private Ltd. [1980] 126 ITR 377 (Bom), CITv, Shah Construction Co. Ltd. [1983] 142 ITR 696 (Bom), CIT v.Minocha Bros. P. Ltd. [1986] 160 ITR 134 (Delhi), CIT v. Oricon Pvt.
Ltd. [1989] 176 ITR 407 (Bom), Shanhar Construction Co. v. CIT [1991] 189 ITR 463 (Kar), CIT v. Suresh Malpani and Co. [1991] 191 ITR (St.) 10 (SQ, CIT v. Cellulose Products of India Ltd. [1991] 192 ITR 155 (SC), CIT v. Bhageeratha Engineering Ltd. [1992] 193 ITR 674 and CIT v.M. K. Gabrial Babu [1991] 188 ITR 464 ; 105 Taxation 133 (Ker), as well as the orders of the Tribunal, in the cases of National Construction Corporation v. IAC [1983] 15 TTJ 32 (Bom), ITO v. Hydle Construction (P) Ltd. [1983] 6 ITD 575 (Delhi) (SB), 1TO v. Poyilakkada Fisheries (P) Ltd. [1985] 14 ITD 224 (Coch.) (SB), R. S. Avtar Singh and Co. v.ITO [1985] 14 ITD 366 (Delhi) (TM), Orient Express Co. (P) Ltd. v. IAC [1985] 14 ITD 506 (Delhi), ITO (Second) v. Mittal and Co. (MR?) [1986] 15 ITD 571 (Bom), ITO v. Oricon (P) Ltd. [1990] 32 ITD 645 (Bom), IAC v. R. S. Avtar Singh and Co. [1990] 32 ITD 694 (Delhi), Walaiti Ram Gupta and Co. v. ITO [1990] 33 ITD 544 (Delhi), ITO (Second) v.Bandekar Engineers [1990] 33 ITD 680 (Bom) and D. S. Construction P.Ltd. (ITA Nos. 3524 (Delhi) of 1986, 2902 (Delhi) of 1987 and 1401 (Delhi) of 1987 dated May 12, 1988).
14. We have carefully considered the rival submissions of the parties and the material placed before us, as well as various reported decisions/ orders dealing with the issue or issues very much akin to the one involved in these appeals. At the outset, it would be proper to refer to the relevant provisions of Section 80-I of the Act, as they stood at the material time, read as under : "80-I : Deduction in respect of profits and gains from industrial undertakings after a certain date, etc.. - (1) Where the gross total income of an assessee includes any profits and gains from an industrial undertaking ... 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 of an amount equal to twenty per cent, thereof . . .
(2) This Section applies to any industrial undertaking which fulfils all the following conditions, namely : (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule . . . and begins to manufacture or produce articles or things ... at any time within the period of four years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking . . .
Provided further that the condition in Clause (iii) shall, in relation to a small-scale industrial undertaking, apply as if the words 'not being any article or thing specified in the list in the Eleventh Schedule' had been omitted . . .
(5) 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 things . . . (such assessment year being hereafter in this Section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year.
(8) Where any goods held for the purposes of the business of the industrial undertaking... are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business carried on by the assessee are transferred to the business of the industrial undertaking . . . shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date : . . .
Explanation. -- In this Sub-section,' market value ', in relation to any goods, means the price that such goods would ordinarily fetch on sale in the open market ....
(10) The Central Government may, after making such enquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this Section shall not apply to any class of industrial undertakings, with effect from such date as it may specify in the notification." (emphasis* supplied).
15. On a plain reading of the aforesaid provisions, the following are easily discernible : (i) The deduction is granted in respect of the profits and gains of an "industrial undertaking." (ii) The Section applies to any industrial undertaking, which manufactures or produces any article or thing.
(iii) If an industrial undertaking, other than a small-scale industrial undertaking, manufactures or produces any article or thing specified in the list contained in the Eleventh Schedule of the Act, then deduction under Section 80-I is not to be given.
(iv) The " prohibition" of the Eleventh Schedule is not applicable to small-scale industrial undertakings.
(v) The industrial undertaking manufactures or produces any article or thing at any time within the period of four years next following 31st of March, 1981.
(vi) The deduction is allowed for eight successive assessment years including the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce any article or thing.
(vii) When there is transfer of any goods of the industrial undertaking to any other business or vice versa carried on by the assessee, such goods have to be valued at market value on the date of such transfer.
(viii) The Central Government has been empowered to withdraw exemption to any class of industrial undertaking, by notification.
16. It would appear from the above that an assessee engaged in building construction activities is neither specifically granted deduction under Section 80 I of the Act, nor specifically debarred from claiming such deduction.
17. The assessees in the present case are engaged in building construction activities of a complex nature employing not only substantial magnitude of manpower but also using heavy machinery other than tools and implements generally pressed into service in such activities. The assessees make doors, windows and wooden frames as also manufacture concrete slabs and other allied items which are utilised in building construction though the extent of such manufacture or production was not readily available when called for during the course of hearing.
18. It is in the above background that we have to construe the true meaning of the expressions " industrial undertaking " and " manufactures or produces any article or thing" in the context in which they appear in Section 80-I of the Act. The definition of these words is not provided in the Section or in the entire Act. Therefore, both the parties referred to other allied Sections of the Act, of the Wealth-tax Act, 1957, as well as of the annual Finance Acts, wherein such words appear. They also relied on some decided cases wherein the courts/Tribunal had occasion to consider such words in the context in which they appear in various Sections, which came up for their consideration, keeping in view the activities carried on by the assessee.
19. Now let us turn to these Sections with a view to finding out the meaning of the expressions " industrial company ", " industrial undertaking", " manufacture "," production ", " articles ", " things and goods".
(a) Almost all the annual Finance Acts contain the definition of an " industrial company". For our purpose, it would suffice to refer to Clause (c) of Sub-section (8) of Section 2 of the Finance Act, 1983, wherein the definition of an "industrial company" is given as under : " (c) ' industrial company * means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.
Explanation. -- For the purposes of this Clause, a company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VI-A of the Income-tax Act), is not less than fifty-one per cent, of such total income : Provided that this Clause shall not apply for the purposes of Paragraph E of Part III of the First Schedule, and for the purposes of that Paragraph, the expression ' industrial company' shall have the meaning assigned to it in the Explanation at the end of that Paragraph." (emphasis * supplied).
Thus, construction of ships is included but not the construction of buildings.
(b) Part III of the First Schedule referred to above deals with " rates for calculating or charging income-tax in certain cases ..." Paragraph E thereof refers to the rates of income-tax in the case of a company. The " Explanation" contained in that paragraph reads as under : " Explanation. -- For the purposes of this Paragraph, 'industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining.
(i) a company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of the aforesaid activities included in its total income of the previous year (as computed before making any deduction under Chapter VI-A of the Income-tax Act) is not less than fifty-one per cent, of such total income ; (ii) ' project' means a project for the construction of a building, road, dam, bridge or other structure or assembly or installation of any machinery or plant." It would be noticed from the above that building construction activity is outside the purview of an " industrial activity", in so far as industrial company is concerned. If that were not so, then there was no need to use the expression " execution of projects" and the definition of the expression " project". Therefore, the expression " manufacture or processing" would not, in its ambit, take in construction activity also. The expression " goods" refers to movable properties only. Again, the expression " mainly engaged " has been clarified to mean that income attributable to one or more activities mentioned therein should not be less than 51 per cent, of the total income.
(c) Section 32(1)(vi) deals with additional depreciation and the relevant provision reads as under : " (vi) in the case of a new ship or a new aircraft acquired after the 31st day of May, 1974, by an assessee engaged in the business of operation of ships or aircraft or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date for the purposes of business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things, a sum equal to twenty per cent, of the actual cost of the ship, aircraft, machinery or plant to the assessee, in respect of the previous year in which the ship or aircraft is acquired or the machinery or plant is installed, or if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year ; but any such sum shall not be deductible in determining the written down value for the purposes of Clause (ii)." (emphasis * supplied).
The word " construction " appears along with the words " manufacture " and " production" of any one or more of the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule. One of the items contained in that Schedule is " ships" (item 15). Perhaps in that context, the word " construction " is used as it is well-known that ships are not manufactured or produced but are constructed.
(d) Section 32A of the Act deals with investment allowance and the relevant provisions are contained in Clause (b) of Sub-section (2) of that Section, which reads as under : " 32A. (2) The ship or aircraft or machinery or plant referred to in Sub-section (1) shall be the following, namely : -- (b) any new machinery or plant installed after the 31st day of March, 1976,-- (i) for the purposes of business of generation or distribution of electricity or any other form of power ; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or (iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule." (emphasis* supplied).
It would be observed that, in Sub-clause (ii) the word " construction " is not used, While the said word is to be found in Sub-clause (in). Further, a small-scale industrial undertaking would be entitled to investment allowance, even in respect of " manufacture" or " production " of any article or thing listed in the Eleventh Schedule of the Act. The word " construction" is used in Sub-clause (iii) along with the words " manufacture or production".
Therefore, it is possible, to hold that an assessee engaged in building construction activity would be eligible to claim investment allowance under Section 32A of the Act.
(e) Section 33 of the Act deals with development rebate. Item (B) of Clause (b) of Sub-section (1) of that Section reads as under : (i) where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule." (emphasis * supplied).
Here also, one of the items contained in the Fifth Schedule is " ships" (item 19). Perhaps, in that context, the word " construction " is used. As stated above, ships are constructed and are not manufactured or produced.
(f) Section 80HH of the Act provides for deduction in respect of profits and gains from newly established industrial undertakings in backward areas.
Here, the expressions used are " industrial undertaking " and " manufacture or produce articles ".
(g) Section 80HHA of the Act deals with deduction in respect of profits and gains from newly established small-scale industrial undertakings.
Here also, the expression used is " manufacture or produce articles ".
(h) Section 80HHB of the Act deals with deduction in respect of profits and gains from projects outside India. Clause (b) of Sub-section (2) of that Section defines " foreign project" to mean, inter alia, a project for construction of any building, road, dam, bridge or other structure.
20. This would indicate that, but for this provision, the profits and gains arising from the construction activity would not qualify for deduction under Section 80HHB of the Act.
21. Thus, on a survey of the aforesaid provisions of the Act, one thing is very clear that these provisions are meant for giving impetus or incentives for rapid industrial development in the country. Under some provisions, rebate is granted in the rate of tax while, under some other provisions, deduction is granted by way of additional depreciation, investment allowance or development rebate in respect of machinery and plant installed or deduction is granted with reference to profits and gains of an industrial undertaking. Parliament has used the words " construction ", " manufacture " or " production " with specific purposes and, therefore, it would not be advisable to give a wider meaning to these words than what is contemplated. Parliament, in its wisdom, has selected certain industrial undertakings to which both deductions with reference to machinery/plant installed and profits/gains derived from the activities are given, while, in the other industrial undertakings, only one or the other deduction is granted. Further, in the case of certain " industrial companies " a rebate in the rate of tax is also granted in addition to these two deductions. It is no doubt true that the expression " industrial undertaking" has a wider connotation than the expression " industrial company". All industrial companies would be industrial undertakings.
However, all industrial undertakings need not be industrial companies.
The expression " any industrial undertaking " used in the various aforesaid Sections refers to all types of taxable entities including a company. Therefore, the decision rendered with reference to an " industrial company ", as defined in the annual Finance Acts, may not be applicable to other industrial undertakings. Again, the qualification " mainly engaged " used in the Finance Acts is conspicuous, by its absence in the Sections of the Act referred to above. Further, deductions under Sections 80HH, 80HHA, 80-I and 80-J are granted with reference to profits and gains derived from an industrial undertaking.
In other words, profits and gains derived from manufacture or production of any article or thing would qualify for deduction irrespective of whether such profits, and gains are more than 51 per cent, of the total income or not.
22. In view of the aforesaid position, we do not deem it fit to discuss various decisions/orders cited by the parties. However, it would suffice to tabulate below the issue involved in each case and the decision thereon.
23. Since the judicial opinion on this topic is not uniform as is apparent from the various decisions relied upon and cited and though we did derive sufficient guidance from them, still we preferred to go by the first impression and the first principles of interpretation and the history of the Section to find out the intention of the Legislature to arrive at our conclusion because we did not find an authoritative binding and direct decision of the jurisdictional High Court on the interpretation of Section 80-I. In this context, it is relevant to notice the predecessor Sections of Section 80-I to see the origin of this concept of giving relief to priority industries. Originally, it was by Section 80E introduced by the Finance Act, 1966, with effect from April 1, 1966, that this concept was brought in which was in the following terms : "80E. Deduction in respect of profits and gains from specified industries in the case of certain companies. - (1) In the case of a company to which this Section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent, thereof, in computing the total income of the company.
(b) any other company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, but does not apply to any Indian company referred to in Clause (a), or to any other company referred to in Clause (b), if such Indian or other company is a company referred to in Section 108 and its total income as computed before applying the provisions of Sub-section (1) does not exceed twenty-five thousand rupees." 24. It should be noticed from this Section that profits and gains attributable to the business of " construction of articles or things specified in the Fifth Schedule " was also eligible for this deduction.
By the Finance (No. 2) Act, 1967, Section 80E was deleted and Section 80-I was introduced in its place, which was in the following terms : " 80-I. Deduction in respect of profits and gains from priority industries in the case of certain companies.--(1) In the case of a company to which this Section applies, where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed, in accordance with and subject to the provisions of this Section, a deduction from such profits and gains of an amount equal to eight per cent, thereof, in computing the total income of the company.
(2) This Section applies to a domestic company, save in a case where such company is a company which is referred to in Section 108 and has a gross total income of fifty thousand rupees or less.
(3) Where a company to which this Section applies is entitled also to the deduction under Section 80H, the deduction under Sub-section (1) of this Section shall be allowed with reference to the amount of the profits and gains attributable to the priority industry or industries as reduced by the deduction under Section 80H in relation to such profits and gains." 25. The priority industry referred to in Sub-section (1) of Section 80-I was defined in Section 80B(7) of the Finance (No. 2) Act, 1967, which provided : " (7)' priority industry' means the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule or the business of any hotel where such business is carried on by an Indian company and the hotel is for the time being approved in this behalf by the Central Government." 26. Again it will be seen that the benefit of deduction to the construction activity of any article or thing is retained and was made eligible.
27. Section 80-I was omitted by the Finance Act, 1972, with effect from April 1, 1973. Again, it was reintroduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981, in the present form.
28. This history shows that the original intent of giving relief on construction activity was somehow not repeated in Section 80-I as it stands now, i.e., introduced with effect from April 1, 1981. Only the activity of manufacture or production of articles or things was retained for the benefit of this deduction. This would suggest that the Legislature did not intend that the construction activity as a priority industry needed encouragement or needed legislative support for the grant of deduction. But yet the "manufacture or production of any article or thing" is retained for the purpose of granting the necessary relief for the promotion of these activities. Thus, while the construction activity such as buildings, dams, roads or other products involving civil and structural works as such is not included, rather eliminated for the grant of this relief yet, if any article or thing is required to be manufactured or produced within the meaning of the expression " manufacture or produce " as is now explained by the various High Courts and the Supreme Court and utilised in the construction activity, the profits attributable to the manufacture or production of those articles or things will have to be worked out, however difficult it is and then the deduction provided for in Section 80-I has to be granted. This appears to us to be a rational interpretation of Section 80-I having regard to the case law that has developed so far on the subject. It may also be mentioned that Section 80-I refers to an " industrial undertaking" or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, which means that the deduction provided for in that Section is available only to such of those articles which are capable of being manufactured or produced by those entities, and not of an immovable character. A ship is a movable property ; in the business of a hotel what is produced or manufactured is again movable property ; so also in the business of repairs to oceangoing vessels or other powered craft. Even the industrial undertaking as such has to produce movable articles or things. It is not possible for an industrial undertaking to produce immovable properties. An industrial undertaking has to produce only movable property and they will, therefore, be articles or things.
Looked at from this angle, an industrial undertaking engaged solely in the construction of " buildings " cannot treat the buildings so built as movable articles so as to claim entitlement for the deduction mentioned in this Section. Even an industrial undertaking has, therefore, to produce only articles or things and only then it will be eligible for the deduction provided in this Section. It is now settled law that the articles and things so produced need not be end-products.
They can be intermediate products capable of being sold or consumed.
29. As noted above, we are concerned with the provisions of Section 80-I of the Act which provides for deduction in respect of profits and gains from industrial undertakings. The expression used here is " manufactures or produces any article or thing". The absence of the word " construction " is quite conspicuous. We have noted above that in some of the provisions considered in Clauses (a) to (h) of para 16 and in para 18 above, the word " construction " has been specifically mentioned along with (appropriate grammatical variations of) the words.
30. But since, in Section 80-I of the Act, it is not so mentioned, it is difficult to accept the assessee's argument that the words " manufactures or produces any article or thing" should be construed to include building construction activity. We may further note that the activity of production or manufacture is held to be conversion of raw materials and inputs into any different item but most of those decisions are under the excise laws and they are rendered in the context of movables. At any rate, even if the word "thing" is held for some purposes to include building, the combined expression " manufacture or production of any article or thing" cannot take within its ambit the activity of construction of buildings for any provision of the Income-tax Act. Therefore, an industrial undertaking simply engaged in the activity of constructing buildings would not be entitled to deduction under Section 80-I of the Act.
31. If, however, such undertaking also manufactures or produces articles or things which are used in the building construction activity, it would be entitled to the deduction contemplated under that Section in respect of profits and gains referable to such activity. The Hon'ble Supreme Court in the case of Cellulose Products of India Ltd, [1991] 192 ITR 155 has recently held that, in order to qualify for deduction under Section 84 (now Section 80J) of the Act, it is not necessary that an " industrial undertaking" should start producing the end-product(s). If the intermediary products are also marketable, then the provisions of the Section would be applicable. Based on the same reasoning, we are of the view that, in the instant cases also, the assessees would be entitled to claim deduction under Section 80-I of the Act in respect of profits and gains derived from the manufacture or production of frames, doors and windows, as well as cement concrete slabs and other allied articles which are used in the building construction activity. In other words, we are inclined to agree with the stand taken on behalf of the Revenue that the words " article or thing" as used in Section 80-I of the Act refer to movables only.
Therefore, the assessee would not be entitled to deduction under Section 80-I of the Act in respect of profits and gains arising out of the construction of an entire building as such.
32. Since the extent of manufacture or production of frames, doors and windows, as well as of cement concrete slabs and other allied articles which are used in the building construction activity could not be readily furnished by the assessee, when called for during the course of hearing, we would set aside the orders of the income-tax authorities on this issue and restore the case once more to the file of the Income-tax Officer, with a direction to grant deduction under Section 80-I of the Act with reference to profits and gains attributable to the manufacture and production of frames, doors and windows, as well as cement concrete slabs and other allied articles which are used in the building construction activity and modify the assessments accordingly, after giving an opportunity of being heard to the assessees in this regard.
33. In the result, for statistical purposes, the appeals are partly allowed.