1991 (12) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 32AB and 80-I for "Zarda Yukt Pan Masala" as a tobacco preparation.
2. Interpretation of item No. 2 in the Eleventh Schedule.
3. Evidence regarding consumer perception of "Zarda Yukt Pan Masala."
4. Rule of interpretation and ejusdem generis.
5. Calculation of eligible business profit u/s 80-I(8).
6. Disallowance of Rs. 19,738 for goods lost in transit.
7. Short allowance of deductions u/s 80HHC.

Summary:

1. Deduction u/s 32AB and 80-I for "Zarda Yukt Pan Masala" as a tobacco preparation:
The assessee contended that "Zarda Yukt Pan Masala" is not a tobacco preparation and thus should be eligible for deductions u/s 32AB and 80-I. The Assessing Officer and CIT(A) denied the deductions, considering it a tobacco preparation as per item No. 2 in the Eleventh Schedule. The Tribunal held that "Zarda Yukt Pan Masala" is predominantly Pan Masala with only 4-5% Zarda, and thus cannot be classified as a tobacco preparation. Consequently, the assessee's unit manufacturing "Zarda Yukt Pan Masala" is entitled to the deductions.

2. Interpretation of item No. 2 in the Eleventh Schedule:
The Tribunal emphasized that in the absence of a specific definition in the Income-tax Act, the term "tobacco preparation" should be understood in its popular sense. The Tribunal referred to the Supreme Court's decision in CIT v. Taj Mahal Hotel, which stated that words should be construed in their popular sense. The Tribunal concluded that "Zarda Yukt Pan Masala" is not a tobacco preparation as its main content is Pan Masala.

3. Evidence regarding consumer perception of "Zarda Yukt Pan Masala":
The Tribunal noted that consumers do not consider "Zarda Yukt Pan Masala" as a tobacco product. The Excise and Sales Tax Acts also treat it differently from tobacco preparations, supporting the assessee's claim.

4. Rule of interpretation and ejusdem generis:
The Tribunal applied the rule of interpretation, stating that words should be understood according to their common commercial understanding. The Tribunal also referred to the principle of ejusdem generis, noting that "tobacco preparation" as a genus is followed by specific illustrations, which do not include "Zarda Yukt Pan Masala."

5. Calculation of eligible business profit u/s 80-I(8):
The Tribunal did not find it necessary to address the alternative pleas regarding the small-scale industry status and the computation of raw material valuation, as the primary issue was decided in favor of the assessee.

6. Disallowance of Rs. 19,738 for goods lost in transit:
The Tribunal upheld the CIT(A)'s decision to disallow the claim for goods lost in transit, as the loss was still sub judice. The assessee was allowed to claim the deduction in the subsequent year when the liability is ascertained.

7. Short allowance of deductions u/s 80HHC:
The Tribunal agreed with the CIT(A) that deductions u/s 80HHC cannot be allowed for trade with Nepal, where sale proceeds are received in non-convertible foreign exchange, as no evidence was provided to support the claim.

Conclusion:
The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the primary issue of deductions u/s 32AB and 80-I for "Zarda Yukt Pan Masala," while upholding the CIT(A)'s decisions on the other issues.