2003 (12) TMI 5 - HC - Income Tax

Investment allowance was denied to the assessee (a manufacturer of aerated waters) on the ground that the aerated waters manufactured by it contained blended flavouring concentrates - Item No. 5 in Eleventh Schedule - An Explanation was added under entry No. 5 by the Finance Act, 1987, which came into force from April 1, 1988 - amendment that was effected in the year 1988 for the purpose of introducing an Explanation, was introduced - fact that this amendment was made effective from April 1, 1988, therefore, does not in any way have the effect of denuding the original entry of a part of its content. The synthetic essence being but one form of a blended flavouring concentrate was a blended flavouring concentrate before the amendment as also after the amendment. The order of the Tribunal holding that the assessee, despite being engaged in the manufacture of a product which is covered by entry No. 5 of the Eleventh Schedule, is entitled to investment allowance, therefore, cannot be sustained.

Summary

Issues:
1. Denial of investment allowance for the assessment year 1983-84 to a manufacturer of aerated waters due to the use of blended flavouring concentrates.
2. Interpretation of the term "blended flavouring concentrates" in relation to the use of synthetic essences.
3. Impact of the Explanation added under Item No. 5 of the Eleventh Schedule to the Income-tax Act in 1988 on the eligibility for investment allowance.

Analysis:
1. The judgment addressed the denial of investment allowance to the assessee for the assessment year 1983-84 based on the use of blended flavouring concentrates in manufacturing aerated waters. The Assessing Officer contended that the aerated waters contained blended flavouring concentrates, leading to the denial of the investment allowance. The Commissioner, on appeal, accepted the assessee's argument that the original entry did not include synthetic essences used by the assessee. The Tribunal affirmed the Commissioner's decision.

2. The court examined whether synthetic essences used by the assessee could be considered as blended flavouring concentrates. The term "synthetic" implies a non-natural substance, created by blending multiple ingredients. The court rejected the argument that a previous judgment regarding synthetic essence not being a blended flavouring concentrate was applicable, emphasizing that the essence used by the assessee qualified as a blended flavouring concentrate.

3. The judgment delved into the impact of the Explanation added under Item No. 5 of the Eleventh Schedule by the Finance Act, 1987. The Explanation clarified that "blended flavouring concentrates" included synthetic essences. Despite the effective date of the amendment being April 1, 1988, the court held that the clarification did not restrict the original entry's scope. The amendment aimed to prevent tax avoidance and confirm the inclusion of synthetic essences as blended flavouring concentrates. Therefore, the Tribunal's decision granting investment allowance to the assessee was overturned as the product fell under the category covered by the Eleventh Schedule.

In conclusion, the judgment highlighted the importance of interpreting legal provisions in light of clarifications and amendments to ensure consistent application and prevent potential tax avoidance schemes.