Bakhtawar Singh Balkrishan Builders Ltd. vs Commissioner of Income Tax

Abhay Manohar Sapre, J.—This is an income tax reference made by the Tribunal under s. 256(1) of the IT Act, 1961 (for short hereinafter called "the Act") to this Court at the instance of the assessee to answer the following two questions of law said to arise out of the order of the Tribunal: 1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee was not an industrial company and, therefore, liable for additional tax under s. 104 of the IT Act, 1961?

Whether in the facts and circumstances of the case. Tribunal was right in not admitting the additional ground of appeal preferred by the assessee?

In order to answer the questions referred, few relevant facts from the statement of case by the Tribunal to this Court need mention infra. 2. The assessee is a private limited company registered as such under the Companies Act. The assessee is the builder and undertakes various kinds of civil construction, and special kind of civil engineering structural works on contract basis in their day to day business activities.

The assessee was awarded one civil engineering special type of works contract during the assessment years in question (1981-82 and 1982-83) by the Bhilai Steel Plant (for short hereinafter called "BSP")--a Government of India undertaking having one of the largest steel manufacturing plant in the country at Bhilai in District Durg. The works contract was essentially for erection, or/and modernization of plate mill designed with specifications supplied by BSP as per their requirement to the assessee. To execute this specialized type of job, the assessee was required amongst other things to erect heavy concrete foundations/pillars/slabs/columns and then lay each of these specially erected structures in earth in their proper positions as per specifications for making the mill an operational one.

It is apposite to mention the nature of work which was awarded to the assessee. It can be taken from assessee''s own affidavit filed by them before CIT(A) which reads as under:

The plate mill of Bhilai Steel Plant functions in a vast shed. This shed is erected on heavy concrete foundations/pillars/columns/slabs etc. The work of laying the heavy concrete foundations, castings, concrete pillars/slabs/columns etc. laying them in a position was awarded to the assessee. In order to lay heavy concrete foundations and erect concrete pillars, columns etc. earth work was necessarily involved. Earth work is nothing but part of concrete work, because without earth work has concrete foundation cannot be laid. A photocopy of the award letter is produced. A perusal of this would show:

From the above, it would be found that concrete section constituted 61 percent concrete and earth work section together constituted 77 percent of the total contract. In other section manufacturing activities like making of chips, manufacturing of bricks, etc. were involved. According to the terms and conditions of the contract steel and cement were supplied by the Department which were processed by the assessee to bring out a new separately identifiable product viz., concrete. The question now is whether making concrete out of steel and cement etc. amounts to manufacture or processing of goods. The answer to this question is found in para 32 of the Full Bench decision which is reported below:

Considering the various activities which include manufacturing of steel structure making of concrete slab and other such activities are the activities of either manufacture or processing of goods. When several materials are mixed in a particular proportion so as to make reinforced concrete and such slabs are used in the main construction work, it is certainly processing of goods. The Departmental Representative has, however, accepted that in a normal construction work of this type, manufacturing or processing of goods has invariably to be undertaken. It is, therefore, clear that the assessee company is engaged in the manufacture or processing of goods.

The assessee completed the aforesaid works contract. They were then subjected to regular assessment proceedings which ended by determining their taxing liability for the years under consideration.

The AO then took recourse to the provisions of s. 104 of the Act (since repealed) and invoking its provisions issued a show-cause notice to the assessee proposing therein to impose the additional tax which according to him was also found payable by the assessee in terms of s. 104 of the Act on their annual income which they had earned during the two assessment years in question. In his opinion, since the assessee was engaged in construction activities which did not involve any manufacturing or processing activity for production of goods/articles and hence assessee was liable to pay the additional tax as provided under s. 104 ibid in addition to payment of tax under other heads as per assessment orders already passed prior to the proceedings initiated under s. 104 ibid.

The case of the assessee while opposing the proposed demand for payment of additional tax was that assessee was engaged in the business of manufacturing or/and processing of the goods or articles. In other words, the contention of the assessee was that their activities were in the nature of manufacturing or/and processing for production of the goods/articles and hence their case was governed by exception clause of s. 104(4)(a) ibid which inter alia provided that companies (assessee) engaged in the business of manufacture or processing of any goods/articles were not liable to pay any additional tax under the said section. It was essentially on this ground, the assessee had contended that provisions of s. 104 were not applicable to them for payment of any additional tax as proposed by AO.

The AO did not accept the contention of the assessee and held that since the assessee was not engaged in the business of any manufacture or/and processing of the goods/articles and hence they could not be regarded as "industrial company" for claiming any benefits earmarked for industrial company under the Act and in consequence were liable to pay additional tax under s. 104 ibid. In the light of this finding, the AO levied the additional tax in terms of s. 104 ibid on the assessee. These findings were upheld by the CIT(A) and lastly by the Tribunal when first and second appellate authorities dismissed the assessee''s appeals. The AO, CIT(A) and Tribunal while rejecting the contention of the assessee placed reliance on the law laid down by the Supreme Court in the case of Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, as in their opinion, the issue involved was fully covered by the law laid down in this decision against the assessee and hence the demand for payment of additional tax was upheld.

It may be pertinent to mention that while prosecuting the appeal before the Tribunal, the assessee had raised one additional point. According to assessee, they were otherwise not liable to pay any additional tax under s. 104 ibid because they had earned certain percentage of profits which enabled them to come out of rigour of s. 104 ibid. However, the Tribunal did not allow the assessee to raise this additional point observing that since it was never raised by the assessee at any stage either before AO or CIT(A} but was raised for the first time before the Tribunal and hence it was not allowed to be raised by the Tribunal. It was held that in the absence of any factual foundation laid either before AO or CIT(A) by the assessee and simply raising the point in arguments in support of their appeal cannot be permitted. It is against these findings, the assessee felt aggrieved and prayed for making the reference to this Court under s. 256(1) ibid to the Tribunal on the two questions proposed. The prayer made by the assessee was allowed and accordingly reference was made to this Court to answer aforementioned two questions.

Having heard the learned counsel for the parties and on perusal of the statement of case accompanied by its Annexures, we are inclined to decide the reference by answering the aforesaid two questions against the assessee and in favour of the Revenue.

Coming first to question No. 1, in our opinion, the same does not need any discussion to answer because as rightly argued by the learned counsel for the Revenue, it remains no more res integra and stands answered against the assessee by an authoritative pronouncement of the Supreme Court rendered in the case of N.C. Budharaja (supra) on which the authorities below had rightly placed reliance. 12. Their Lordships speaking through learned Judge Jeevan Reddy, J. held that a company engaged in any construction activities cannot be regarded as having undertaken any manufacturing or processing activity for production of any goods or articles. Though the issue was examined in relation to ss. 32A, 80HH and 84 of the Act yet the same has full application to the facts of the case in hand.

In N.C. Budharaja''s case (supra), the Supreme Court noted that the assessee was engaged in the business of construction of "dams and canals" and the other assessee whose case was also examined was engaged in the business of "laying foundations for building and other specialized kind of structures by specialized methods". Their Lordships held that these activities could not be regarded as manufacturing or processing of any goods or articles. It was held that such activities when undertaken do not bring into existence any goods or article and hence such companies (assessee) cannot be regarded as industrial company for claiming benefit earmarked for any industrial companies which produce some kind of goods/articles. Their Lordships observed--can it be said that by undertaking these kinds of activities a "dam" has come into existence which can be termed as goods/articles? The answer to this question was given in negative by observing as under:

The respondent-assessee was a firm of contractors constituted for the purpose of construction of a dam In Orissa. The Orissa High Court held that the word ''article'' covered even a dam and that the respondent-assessee was, for the asst. yrs. 1974-75 and 1975-76, entitled to the benefit of s. 80HH(1). The Revenue in its appeal against the said decision contended that the constructing of a dam did not fall within the words ''manufacture or produce articles''.

The word ''production'' has a wider connotation than the word ''manufacture''. While even manufacture can be characterized as production, every production need not amount to manufacture.

The word ''production'' or ''produce'' when used in juxtaposition with the word ''manufacture'' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.

The word ''articles'' is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation--the sense in which it is understood in commercial world. It is equally well to keep in mind the context since a word takes its colour from the context. The word ''articles'' is preceded by words ''it has begun or begins to manufacture or produce''. It is difficult to say that the word ''articles'' in cl. (i) of s. 80HH(2) comprehends and takes within its ambit a dam, a bridge, a building, a road, a canal and so on. To say that all of them fall within the meaning of word ''articles'' is to overstrain the language beyond its normal and ordinary meaning. It is equally difficult to say that the process of constructing a dam is a process of manufacture or a process of production. It is true that a dam is composed of several articles; it is composed of stones, concrete, cement, steel and other manufactured articles like gates, sluices etc. But to say that the end product, the dam is an article is to be unfaithful to the normal connotation of the word. A dam is constructed; it is not manufactured or produced. The expressions ''manufacture'' and ''produce'' are normally associated with movables-- articles and goods, big and small--but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building.

It may be that the firm is itself manufacturing some of the articles like gates, windows and doors which go into the construction of a dam but that makes little difference to the principle. It is not claiming the deduction provided by s. 80HH on the value of the said manufactured articles but on the total value of the dam as such. Therefore, it is not necessary to decide as to what would be the position if the firm had claimed the benefit of s. 80HH on the value of such articles manufactured or produced by it.

Applying the aforesaid principle of law to the facts of this case, we have no hesitation in holding that the assessee while executing the contract with BSP or while undertaking any construction activity was not engaged in the business of manufacture or/and processing of the goods or articles. In other words, the assessee did not engage themselves in any kind of manufacturing or processing activity for production of any particular goods or article nor any kind of goods or articles were brought into existence. The assessee was therefore rightly not given the status of industrial company to enable them to avail the benefit earmarked for any industrial company under the Act. Indeed the law laid down in N.C. Budharaja''s case (supra) had full application to the case in hand and no distinguishable features could be pointed out by the learned counsel for the assessee for holding that assessee was in fact engaged in the activity of manufacturing or processing and that they produced some kinds of goods/articles which enabled them to claim the benefits provided under the Act to such companies.

We are therefore of the considered view that assessee was not engaged in any manufacturing or/and processing activity and hence was not eligible to claim the status of an industrial company and in consequence was not eligible to claim the benefits earmarked for industrial companies under the Act.

Learned counsel for the assessee then contended that since in the assessment proceedings of the years in question, the taxing authorities had already given the benefit to the assessee by treating them to be an industrial company and hence such finding was binding on the authorities while deciding the issue arising in s. 104 proceedings. In other words, the submission was that since the authorities had extended the benefit to the assessee earmarked for industrial company in assessment proceedings for these very assessment years and hence as a necessary corollary, the same should have been extended to the assessee while considering their case under s. 104 ibid also. We do not agree to this submission for more than one reason.

First, this was not the question referred to this Court to answer. In other words, so long as any specific question is not referred, this Court in its limited reference jurisdiction cannot answer such issues. Second, even if we can go into such issue then also the submission is not acceptable. It is for the reason that the law laid down in N.C. Budharaja''s (supra) was not pronounced when the assessment proceedings were decided. Had the assessment proceedings been decided after the law was pronounced then the assessee would not have got any benefit. However, when the issue arising out of s. 104 proceedings came up for consideration before the taxing authorities, the law laid down in N.C. Budharaja''s case (supra) was holding the field and hence the issue was rightly decided by the taxing authorities in the light of law laid down. It is for the simple reason that law laid down by Supreme Court is binding on all the authorities/Tribunals/Courts in the country by virtue of mandate contained in Art. 141 of the Constitution of India.

In the light of foregoing discussion, the question No. 1 deserves to be answered against the assessee and in Revenue''s favour.

So far as question No. 2 is concerned, the same also deserves to be answered against the assessee and in Revenue''s favour because firstly it is a mixed question of fact and law, and secondly it was not raised at any stage of the proceedings by the assessee. It is for these two reasons, the Tribunal rightly did not allow the assessee to raise such plea in their appeal. The plea according to the assessee is that the assessee had earned some profits etc. and hence, the provisions of s. 104 had no application to their case. It is not in dispute that no factual foundation for raising such plea was laid at any stage by the assessee.

In order to raise a particular plea and specially when it is a factual one, the law expects that it should be raised before the AO with precision. It is only then it must be carried to CIT(A) and then to Tribunal to challenge its correctness.

By these observations, it should not be construed as laying down the proposition that a plea if not raised in the first instance can never be allowed to be raised at subsequent stages in higher forum. All that we wish to observe is that if the plea is found to be purely legal and goes to its root then perhaps the Tribunal may in appropriate case permit such issue to be raised but if it is a pure question of fact or mixed question of law and fact then in appropriate case, the Tribunal has jurisdiction to decline, such is the case here.

In the facts of this case, firstly it was an issue of fact or we may say it was a mixed question of fact and law and secondly no attempt was made to raise such plea either before AO or CIT(A) with the result that there was no factual finding recorded by any of the authorities on the said plea. In our opinion, mere raising a point in argument for the first time before the Tribunal without there being any factual foundation in its support could not be permitted. In any event, looking to the nature of question raised, the Tribunal was right in not permitting the assessee to urge such point.

In the light of foregoing discussion, the question No. 2 is also answered against the assessee and in Revenue''s favour.

As a consequence of foregoing discussion, both the questions referred to this Court are answered against the assessee and in favour of the Revenue. The reference stands accordingly finally answered. No cost(s).