Commissioner of Income Tax vs Poly-Ene General Industries

Sethuraman, J.—The assesses, a registered firm, is manufacturing polythene bags. The relevant assessment years under consideration are

1964-65 and 1965-66. The assessee claimed rebate u/s 2(5)(a)(iii) of the Finance Acts, 1964 and 1965, on the ground that polythene bags

manufactured by it were actually exported out of India by the persons by whom they were purchased and as such the said exports were eligible for

the relief under the aforesaid clause. The Income Tax Officer did not allow the rebate so claimed on the ground that the industry was not listed

under the Industries (Development and Regulation) Act, 1951. On appeal, the Appellate Assistant Commissioner considered that this case could

be described as ""plastic industry"" coining under entry 19(4) of the First Schedule to the Industries (Development and Regulation) Act. He,

therefore, held that the rebate was admissible, He pointed out that the sales made by the assessee to exporters amounted to particular figures in the

two years and after verifying the reported figures of sale he directed the Income Tax Officer to allow the proper rebate.

The revenue filed appeal to the Tribunal. Before the Tribunal it was conceded that the industry in which the assessee was engaged came within

the scope of the relevant Schedule of the Industries (Development and Regulation) Act. The only point taken before the Tribunal was based on the

interpretation of Section 2(5)(a)(iii) of the Finance Acts, 1964 and 1965. The Tribunal pointed out that there was clear evidence in this case of the

exporters using the vary same polythene bags for the purpose of their export of tobacco and on such a clear finding the assessee was entitled to the

relief provided under the said provisions of the Finance Act.

At the instance of the revenue, the following question has been referred:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee-firm was entitled to

relief provided for u/s 2(5)(a)(iii) of the Finance Acts, 1964 and 1965?

The relevant provision of the Finance Act was designed to give an incentive to exports. The nature of the incentive varied with the manner in

which the export was done under Clause (i) of Section 2(5)(a). An assessee whose total income included any profits and gains derived from the

export of any goods out of India was entitled to a deduction from the amount of Income Tax and super-tax with which he is chargeable of an

amount equal to the Income Tax and super-tax calculated at one-tenth of the average rate of Income Tax and of the average rate of super-tax on

the amount of such profits and gains included in the total income. It may be seen that this provision is applicable to the exporter as such--that is

whether he himself manufactured the goods and then exported them or he merely purchased and exported them. Clause (ii) of Section 2(5)(a)

provided that where an assessee whole total income included any profits and gains derived from the export of any goods out of India, was engaged

in the manufacture of any articles in any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, and if

he had exported after a particular date such articles out of India, he would be entitled, in addition to the deduction of tax referred to in Sub-clause

(i), to a further deduction from the amount of tax with which he was chargeable for the assessment year, of an amount equal to Income Tax and

super-tax calculated respectively at the average rate of Income Tax and the average rate of super-tax on an amount equal to two per cent. of the

sale proceeds receivable by him in respect of such export. It may be seen that in this case the manufacturer and the exporter not only got a 10%

rebate on the Income Tax and super-tax paid but in addition got a further allowance of the tax on 2 per cent. of the sale proceeds. This clause

would apply to a person who was himself engaged in the manufacture of any article and was actually exporting. Clause (iii) provides for cases

where an assessee engaged in the manufacture of any articles in an industry specified in the said First Schedule sold such articles to any other

person in India, who himself has exported them out of India and evidence is produced before the Income Tax Officer of such articles having been

so exported. In such cases, the assessee was entitled to a deduction from the amount of Income Tax and super-tax with which he was chargeable

for the assessment year of an amount equal to the Income Tax and super-tax calculated respectively at the average rate of Income Tax and the

average rate of super-tax on a sum equal to two par cent. of the sale proceeds receivable by him in respect of such articles from the exporter.

In the present case, the contention of the revenue is that Clause (iii) of Section 2(5)(a), with which alone we are concerned, requires two

conditions to be satisfied, namely, that the assessee engaged in the manufacture of specified articles should have sold the said articles to any other

person in India and that such person should have himself exported them out of India. It is pointed out that the export must be of the identical goods

and where the export is not of the said goods as such the benefit of Clause (iii) of Section 2(5)(a) is not applicable. The point sought to be made is

that this clause would have application only to those cases where the export of the relevant articles is made in the same form and as such to foreign

countries. We consider that the assessee in this case would be eligible for the relevant claim even on the basis of the above contention because the

polythene liners as they are called have actually been exported out of India. They are not mixed with any other product so as to lose their identity.

It is not necessary that they should be separately sold by the exporter. Therefore, the conditions prescribed by Clause (iii) of Section 2(5)(a)

would appear to have been satisfied in this case. That this is the basis on which the Government of India itself have acted is clear from the fact that

the Government have granted import entitlements to the assessee because of the export of the polythene bags by the purchasers. The relevant

details of the import entitlements have been set out in paragraph 3 of the Tribunal''s order. Therefore, on the facts, we are satisfied that this is a

case where Clause (iii) of Section 2(5)(a) is satisfied and that the assessee was rightly held to be eligible for the allowance. The question is,

therefore, answered in the affirmative and in favour of the assessee.

Another question included in the reference runs thus ;

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the extra shift allowance has to

be calculated only with reference to the number of days for which the concern worked extra shifts ?

The learned counsel for the revenue did not press for an answer to this question and we, therefore, return this question unanswered.

As the assessee has substantially succeeded in the reference he will be entitled to his costs. Counsel''s fee Rs. 250.