Commissioner of Income Tax vs Singareni Collieries Co. Ltd.

P. Venkata Rama Reddi, J.—In this application filed u/s 256(2) of the Income Tax Act, 1961, the Revenue seeks reference of the following two questions for the decision of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in allowing the amount of Rs. 2,53,700 incurred towards boarding, lodging and education of the 32 orphans adopted by the assessee-company as a business expenditure ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee is entitled to investment allowance of Rs. 2,24,52,331 on the new plant and machinery installed in the assessee''s business of extracting coal ?"

We are of the view that the first question raises a debatable point of law. No doubt, there is a finding of the Tribunal that the expenditure incurred for the lodging, boarding and education of 32 orphans pursuant to the appeal made by the State Government, as a measure of cyclone relief, is connected with the business expenditure inasmuch as those orphans were imparted training and absorbed in the service of the company. But it is to be noted that an activity undertaken purely as a philanthropic measure which has no connection with the company''s business activity as such, cannot be treated as business expenditure. But, at the same time, if the activity undertaken by the assessee-company in rehabilitating the orphan children with a view to eventually absorb them into the company''s service is not only a philanthropic act but also prompted by considerations of business or business expendiency, the findings of the Tribunal can be justified. But prima facie, from the discussion of the Tribunal it is not clear as to whether the assessee-company was promoted by a business motive in adopting the orphans. The Tribunal surmised that if the expenditure incurred for the training imparted to them is a business expenditure, meeting the expenditure for their boarding and lodging prior to such training is also to be considered to be an expenditure meant for the purpose of getting prospective coal miners. Whether or not this approach of the Tribunal is correct and whether there is material at all for the Tribunal to reach a conclusion that the incurring of expenditure for boarding, lodging and education of orphans was not only conceived as a philanthropic has to be drawn from the proved facts, is an arguable question of law to be decided.

As far as the second position is concerned, we are unable to find a debatable of law fit to be referred for the consideration of this court. One of the conditions to be satisfied for allowing deduction by way of investment allowance u/s 32A is that new machinery or plant should have been installed in an industrial undertaking "for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule". The contention advanced on behalf the Revenue is that winning or excavating the coal from the mine does not involve production of an article or thing. Learned standing counsel contends that the Tribunal has followed the decision of this court in Commissioner of Income Tax Vs. Super Drillers, , wherein the Division Bench of this court held that drilling operations resulted in the production of an article or thing, i.e., underground water within the meaning of section 32A(2)(b)(iii) and a similar view taken by the Karnataka High Court was reversed by the Supreme Court in Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, . In that case, the Supreme Court held that the activity of construction of a dam, bridge, building or road does not amount to production of an article or thing. The Supreme Court mainly relied ion the legislative history of the provision for the purpose of understanding the meaning of the words "articles and things" occurring in section 32A(2)(b)(iii) and pointed out that they refer only to movable objects. As far as the appeal from the judgment of the Karnataka High Court extending the benefit of section 32A to the new machinery employed in digging borewells was concerned, the Supreme Court merely held (page 435) :

For the reasons given hereinabove, leave is granted and the appeal is allowed."

Though no specific reasons are given for allowing the appeal, we must take it that the reasoning of the Karnataka High Court similar to the view adopted by this court in Commissioner of Income Tax Vs. Super Drillers, must be deemed to have been disapproved by the Supreme Court. The Tribunal''s order in so far as it has drawn support from the decision of this court in Commissioner of Income Tax Vs. Super Drillers, , may not be correct. The submission made by learned standing counsel is correct to this extent. But that does not solve the problem. Even eschewing the decision in Commissioner of Income Tax Vs. Super Drillers, from consideration, we are unable to say that the conclusion reached by the Tribunal is untenable or the interpretation of section 32A(2) in the context of the facts of this case gives rise to a debatable question of law. In coming to the conclusion that no debatable question of law arises for consideration, we rely on the very decision of the Supreme Court which has been pressed into service by learned standing counsel. The Tribunal held that in extracting coal or winning coal from the coal mine, an article or thing is produced. It is not the case of the Revenue that coal which is extracted from the mine is not an article or thing. What is sought to be contended is that winning or excavating coal is not an activity of production. It is difficult to agree with this contention of the principle laid down by the Supreme Court in Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, , the Supreme Court observed (page 423) :

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

It was further observed (page 423) :

"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."

Then, it was observed (page 424) :

"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...."

The Supreme Court also expressed the view that the expressions used in the relevant clause of section 32A must be understood in their normal connotation and according to commercial usage. Viewed from that standpoint and the legislative history of the provisions, their Lordships held that construction of a dam, bridge and the like cannot be understood as production of an article or thing.

In Webster''s New International Dictionary, the word "produce" is defined as "something that is brought forth or yielded either naturally or as a result of effort and work". In Shorter Oxford English Dictionary, the following meaning is given : "To bring forward, bring forth or not; to bring into being or existence". The meaning given in Black''s Law Dictionary to the expression "produce" is "To bring forward; to show or exhibit; to bring into view or notice; to bring to the surface".

Applying the principle of interpretation spelt out by the Supreme Court in the aforementioned decision and the ordinary meaning of the word "produce" as disclosed by the dictionaries and by its ordinary connotation, we have no doubt in our mind that the activity of winning or excavating the coal from the mines can be aptly described as production activity. It is common to use the expression that the coal or ore is produced from the mine and the statistics of total production of coal or other minerals are required to be given under the statutory provisions governing mines and minerals. It is also not out of place to mention that u/s 35E of the Income Tax Act which deals with deduction for expenditure on prospecting, etc., for certain minerals, the following is the language employed :

".... engaged in any operations relating to prospecting for, or extraction or production of, any mineral...."

Thus, the expression "production of mineral" is used in the allied provisions of the Act itself and it is a definite point that Parliament employed the expression "production" to the minerals extracted from underneath the surface as well as just as the legislative history taken into account by the Supreme Court, the internal aid to interpretation furnished by a cognate provision can be ultimately taken into account. Viewed from any angle, we are of the view that the benefit of section 32A is available to the respondent-assessee. The correct legal position regarding deduction of investment allowance should not be left in doubt and an uncertainty created in the mind of the respondent-assessee which is a public sector undertaking in the guise of raising a question as to interpretation of a provision which admits of no doubt. We, therefore, decline reference on the second question.

In the result, we direct reference only on the first question. We direct the Tribunal to draw up the statement of case and refer to the first question of law extracted above for the opinion of this court. The Income Tax case is partly allowed. No costs.