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TMI Blog2022 (10) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions in the Statute so as to supply any assumed deficiency. It is trite law that exemption notification is to be read strictly and burden is on the assessee to prove that item falls within the four corners of such exemption notification. An exemption notification should be given a liberal meaning. Recourse to other principles or cannons of interpretation of Statute would be resorted to only in the event of the same giving rise to anomaly or absurdity. The exemption given under the notification or Statute must be construed having regard to the purpose and object sought to be achieved. Insofar as the contention of assessee that section 35C also provided for allowing deduction, the amount of expenditure relatable to agricultural development and the expression used in section 36(1)(viii)(b)(i)(A) requires to be considered for the purposes of outright rejection, inasmuch as the very provision namely section 35C itself provides that where any Company or a co-operative society is engaged in the manufacture or processing of any article or thing which is made from, or uses in such manufacture or processing as raw material, any product of agriculture, animal husbandry, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of sequence of events, as stated above, and in view of the literal meaning of relevant provisions, we are of the considered opinion that no error is committed by the authorities below in disallowing deduction sought for by the assessee and as such, we hereby answer the substantial question No.(F) in favour of the revenue. - R/TAX APPEAL NO. 1087 of 2008 - - - Dated:- 12-10-2022 - HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR and HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI MR SN SOPARKAR, SENIOR ADVOCATE WITH MR BANDISH SOPARKAR FOR MRS SWATI SOPARKAR(870) for Appellant No. 1 MR VARUN K PATEL for Opponent No.1 ORDER ( PER : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR ) 1. This Court while admitting the appeal had formulated the following substantial questions of law : (B) Whether, on the facts and in the circumstances of the case, the ITAT was right in law in confirming disallowance of deduction u/s. 36(1)(viii) for Rs.9,90,00,000? (C) Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that `dairying' is not industry or agricultural development or development of industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as the Industrial Act for short); the mandate of the provision required that the aggregate of the amount carried to special reserve account created for the purpose should not exceed twice the amount of the paid up share capital, it could not create any reserve as there is no paid up share capital and therefore, the limit upto which special reserve can be created was indeterminable vide assessment order dated 15.06.2005 (Annexure A ). The assessee being aggrieved by the said order filed an appeal before CIT (Appeals), who dismissed the same by order dated 18.01.2006 affirming the order of the Assessing Officer. Further appeal before the Tribunal did not yield any result to the appellant assessee and the claim of the appellant came to be negatived by the ITAT vide order dated 08.08.2007 (Annexure C) by affirming the order of the Assessing Officer and CIT (Appeals). However, the Tribunal held that claim of the assessee as regards status of Public Financial Institution, it had applied on 10.07.2002 i.e. within the year of assessment order under consideration and the notification granting status of PFI was on 23.02.2004, which relates back to the date of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. It is the contention of Mr. Soparkar, learned advocate appearing for the assessee that Tribunal having accepted that assessee is a specified entity as defined under clause (a)(i) of Explanation to Section 36(1)(viii), it ought to have further held that activities carried on by the assessee would be an activity of agricultural development and as such it would fall within the definition of eligible business as defined under clause (b) to Explanation to section 36(1)(viii) of the Act. He would further contend that meaning of agricultural development as defined under the then existing section 35C of the Act is identical to the words or expression found in sub-clause (A) of clause (b) to Explanation to section 36(1)(viii) and as such denying the claim for deduction for Rs.9,90,00,000/- by disallowing the claim is erroneous and liable to be quashed. Hence, they have prayed for answering the substantial questions of law in favour of the assessee. 6.1 They would contend that as long as the business entity namely recipients carry on the activity of agricultural development for which the finance is being provided by the assessee, AO could not have disallowed the deduction claimed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd industries specified in First Schedule to the said enactment is to be construed as an existing industrial undertaking as defined under clause (i) of section 3 and he specifically refers to Entry 27 of the First Schedule which defines different industries of the food processing industries to be construed as an industrial undertaking, which includes the industry engaged in the milk foods manufacturing as an industry and as such the authorities erred in arriving at a conclusion that end product of those industries manufacturing the milk foods are not turning out any new product and as such the entity to whom the assessee has advanced finances, cannot be brought under the definition of eligible business is an erroneous finding. 6.4 He would contend that own funds available with the assessee is to be understood and construed as the expression Share Capital and General Reserves as indicated under the proviso to Sub-section (viii) of Section 36 of the Income Tax Act, 1961. 6.5 He would contend that once the authorities have held that assessee would fall under the specified entity as indicated in the Explanation by virtue of proviso, the benefits flowing from Section 36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et another provision from 4th Schedule of the Income Tax Act, 1961 and by referring to Rule 4 contained in Part-C thereof, it has been contended that earlier approval which was granted in 1972 was never withdrawn at any point of time and for the purpose of arriving at a conclusion, as has been done by authorities below, first of all, there has to be withdrawal of earlier approval of scheme, which is not the case of the authority also. By referring to Rule 4 and 6 of Part-C of schedule-IV, which relates to application for approval, Mr. Soparkar has submitted that if any alteration in the rules, constitution, object or conditions of fund is made at any point of time after date of application for approval, trustees of fund are required to forthwith communicate such alteration to the assessing authority and in default, the consequences narrated in sub-rule of Rule 4 would follow, and as such, by drawing our attention to the communication dated 23.9.2003, he would contend that such variation of scheme in the form of deed of variation having been intimated to the authorities and it was duty acknowledged by them, would demonstrate that revival has taken place and it relates back to origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record that deed of variation was made on 27.3.2003 and relevant provisions mandate that any contribution to gratuity fund is allowable on actual payment basis and pending approval of deed of variation does not make the fund unrecognized. When this was the stand taken by the assessee, which was examined by the authorities below and upon scrutiny found that it was only at the fag-end of current financial year, i.e. on 31.3.2003, assessee had moved an application to revive the said gratuity policy and as such, the Trust gratuity Policy remained inoperative for long period of 15 years. It was also found by authority that deed of variation which was submitted was almost a new deed with new terms and conditions and therefore, when such are the terms, same would require specific approval of CIT and until then, it remained unrecognized fund and consequently, no contribution could be allowed to the assessee as a deduction in computing the income of the assessee. The assessee on the contrary has committed a breach of trust reposed in it by allowing the Gratuity Policy to lapse and remained dormant for 15 years. That being the situation, according to Mr. Patel, the conclusion arrived at by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of any special reserve created by a financial corporation which is engaged in providing longterm finance for industrial or agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long- term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under this clause and] Chapter VIA) carried to such reserve account:]]] Provided that the corporation or, as the case may be, the company] is for the time being approved by the Central Government for the purposes of this clause: Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of] the paid- up share capital (excluding the amounts capitalised from reserves) of the corporation or, as the case may be, the company], no allowance under this clause shall be made in respect of such excess. Explanation.- In this clause,- (a) ― specified entity means,- (i) a financial corporation specified in section 4A of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d up share capital and the special reserve being not determinable, such exemption cannot be granted. The claim for deduction was also disallowed on the ground that the assessee was not a public financial institution PFI during the year. This order of CIT was upheld by the CIT (Appeals) and affirmed by the ITAT. 10. A plain reading of the Section 36 would indicate that deductions provided in clauses enumerated therein would be allowed in respect of the matters dealt with therein, while computing income as referred to in Section 28 of the Act. 11. A Taxing Statute is to be strictly considered. In the classic passage, Lord Cairns stated the principle thus : if the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of law the case might otherwise appear to be. 12. In other words, if there be admissible in any statute, what is called an equitable, construction, certainly, such a construction is not admis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or neat logic and so the literal, though pedestrian interpretation must prevail. 16. Keeping the aforesaid principle in mind when Clause (viii) of subsection (1) of Section 36 is perused, it would clearly indicate that deductions would be allowed to an assessee as provided in the clauses enumerated in respect of the matters dealt with therein or enumerated therein, in promoting the income referred to in section 28. In other words, there cannot be any scope for adding, deducting or adopting interpretative process to define or explain the words. 17. In the instant case, the assessee in computation of the income has claimed deduction of Rs. 9.90 crores contending that it has provided long term financing for agricultural development and therefore eligible for deduction under section 36(1)(viii) of the Act to the extent of profit derived from such activities subject to creation of special reserve. The assessee to become eligible for claiming deduction has to be - (i) a financial corporation engaged in providing long term finance for industrial or agricultural development or development of infrastructural facility; or (ii) a public company registered in India, en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal other enactments such as sub-section (2) of Section 2 of Tamil Nadu Agricultural Produce Marketing (Regulation) Act, 1987, clause (b) of Section 2 of Tamil Nadu Agricultural University Act, 1971, clause (a) of Section 2 of Agricultural and Rural Debt Relief Scheme, 1990, so defining the term 'agriculture' as to include therein 'pisciculture'. These definitions were pressed in service by Shri Iyer, the learned senior counsel, to support his submission for a similar meaning being assigned in the present case. Suffice it to observe that the common parlance meaning of the term 'agriculture', in the context in which it has been used and is arising for determination before us, cannot be determined by reference to definition given in other statutes. This we say for more reasons than one. Firstly, none of the statutes reffered to by Shri Iyer, the learned senior counsel, can be called statutes in pari materia. Secondly, it is common knowledge that the definition coined by the Legislature for the purpose of a particular enactment is often an extended or artificial meaning so assigned as to fulfill the object of that enactment. Such definitions given in other e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory provisions providing for exemption have to be interpreted in light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions. 8.3 As per the law laid down by this Court in a catena of decisions, in a taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining a defined meaning. Strict interpretation of the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it results in absurdity, which is so not found in the present case. 8.4 Now, so far as the submission on behalf of the respondent that in the event of ambiguity in a provision in a fiscal statute, a construction favourable to the assessee should be adopted is concerned, the said principle shall not be applicable to construction of an exemption notification, when it is clear and not ambiguous. Thus, it will be for the assessee to show that he comes within the purview of the notification. Eligibility clause, it is well settled, in relation to exemption notification must be given effect to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant assessee that section 35C also provided for allowing deduction, the amount of expenditure relatable to agricultural development and the expression used in section 36(1)(viii)(b)(i)(A) requires to be considered for the purposes of outright rejection, inasmuch as the very provision namely section 35C itself provides that where any Company or a co-operative society is engaged in the manufacture or processing of any article or thing which is made from, or uses in such manufacture or processing as raw material, any product of agriculture, animal husbandry, or diary or poultry farming, and has incurred after the 29th day of February, 1968 [but before the 1st day of March, 1984], whether directly or through an association or body which has been approved for the purposes of this section by the prescribed authority, any expenditure in the provision of any goods, services or facilities specified in clause (b) to a person (not being a person referred to in clause (b) of sub-section (2) of section 40A) who is a cultivator, grower or producer of such product in India, the company (or co-operative society) shall, subject to the provision of this section, be allowed a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act 1961 vide order No. OSD45-4/72 dated 19th October, 1972 issued by the Commissioner of Income Tax, Gujarat I, Ahmedabad. The Scheme proposed to enhance the maximum limit of benefit under the scheme. Accordingly a Deed of Variation has been executed. A cop of the same is enclosed for your kind approval. 30. The said letter was followed by yet another letter dated 01.04.2004 seeking approval. The contents of said letter reads : Sub. : Approval of Deed of Variation Dear Sir Your Kind attention is drawn to our letter no P A-EC:GRATY:13670 dated 23rd Sept. 2003 on the subject mentioned above. Vide above letter, we had submitted a Deed of Variation of National Dairy Development Board Employees Group Gratuity-cum-Life Assurance Scheme, for approval. We would request you to kindly confirm having noted the Deed of Variation . 31. Section 43B indicates that certain deduction to be made only on actual payment and explanation (attached to said provision) indicates that assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of previous year in which sum is actually paid by him. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for approval. 4. (1) An application for approval of a gratuity fund shall be made in writing by the trustees of the fund to the Income-tax Officer by whom the em ployer is assessable and shall be accompanied by a copy of the instrument under which the fund is established and by two copies of the rules land, where the fund has been in existence during any year or years prior to the financial year in which the application for approval is made, also two copies of the accounts of the fund relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made)] for which such accounts have been made up, but the Commissioner may require such further information to be supplied as he thinks proper. (2) If any alteration in the rules, constitution, objects or conditions of the fund is made at any time after the date of the application for approval, the trustees of the fund shall forthwith communicate such alterations to the Income-tax Officer mentioned in sub-rule (1), and in default of such communication, any approval given shall, unless the Commissioner otherwise orders, be deemed to have been withdrawn fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch assistance to the revenue. In said case also, necessary conditions for grant of approval of gratuity fund was not established. That being so, case is made out by revenue on this issue. 35. At this stage, we may further refer to Section 2 of Part-C of Schedule-IV, which deals with approval and withdrawal of approval. Sub-section (2) mandates that an authority shall communicate in writing to the trustees grant of approval with date on which approval is to take effect and where approval is granted subject to those conditions. Said sub-rule thus reads as under:- 2. ... (2) The Principal Chief Commissioner or] Chief Commissioner or Principal Commissioner or] Commissioner] shall communicate in writing to the trustees of the fund the grant of approval with the date on which the approval is to take effect and where the approval is granted subject to conditions, those conditions. 36. Now, in juxtaposition of this mandate contained under the provisions, a perusal of documents which are sought to be relied upon by learned advocate Mr. Soparkar to contend that specific approval is not required, a mere intimation is to be made in absence of any withdrawal of earlier ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strued and given a meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions. 8.3 As per the law laid down by this Court in a catena of decisions, in a taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining a defined meaning. Strict interpretation of the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it results in absurdity, which is so not found in the present case. 39. Aforesaid circumstances are clearly indicating that the stand taken by the the assessee in respect of this substantial question of law is not possible to be digested and the conclusion arrived at by the authorities below is not possible to be construed either perverse or illegal or not in conformity with the provisions of the Act. As a result of which, we answer the substantial question of law (F) in favour of the revenue and against assessee. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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