1975 (11) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Eligibility for relief under section 84 of the Income-tax Act, 1961.
2. Determination of the first year of production for the purpose of section 84.
3. Interpretation of the term "articles" in section 84.

Issue-wise Detailed Analysis:

1. Eligibility for Relief under Section 84 of the Income-tax Act, 1961:
The primary issue was whether the assessee was entitled to relief under section 84 for the assessment year 1966-67. The assessee, a public limited company, claimed a deduction of Rs. 4,78,583 under section 84, which was subsequently disallowed by the Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal. The Tribunal concluded that the production of cellulose pulp in March 1961 marked the beginning of manufacturing finished articles, making the assessment year 1961-62 the first eligible year for relief under section 84. As the relief was available for five years, the last eligible year was 1965-66, thus excluding the assessment year 1966-67.

2. Determination of the First Year of Production for the Purpose of Section 84:
The Tribunal held that the production of cellulose pulp in March 1961 was not trial production but regular production, thus marking the beginning of manufacturing. The assessee contended that the production in March 1961 was a trial run, and regular production started only in 1962-63. The Tribunal rejected this alternative contention due to a lack of evidence supporting the trial production claim. The High Court, while noting the figures and working days, acknowledged the force in the assessee's contention but upheld the Tribunal's conclusion due to the absence of a specific challenge to the Tribunal's finding.

3. Interpretation of the Term "Articles" in Section 84:
The High Court emphasized that under section 84, the term "articles" refers to the final product for which the industrial undertaking was set up, not intermediate products. The court noted that the industrial licence, collaboration agreement, and prospectus indicated that the undertaking was set up for the production of C.M.C., not cellulose pulp. The court disagreed with the Bombay High Court's interpretation in Commissioner of Income-tax v. Hindustan Antibiotics Ltd., which considered intermediate products as "articles" under section 15C of the Indian Income-tax Act, 1922. The High Court concluded that the production of C.M.C. starting on June 15, 1961, marked the beginning of manufacturing "articles" for the purpose of section 84, making the assessment year 1962-63 the first eligible year for relief.

Conclusion:
The High Court held that the assessee was entitled to relief under section 84 for the assessment year 1966-67, as the production of the final product, C.M.C., began in the assessment year 1962-63. The court answered the referred question in the negative, in favor of the assessee and against the revenue, and awarded costs to the assessee.