Commissioner of Income Tax vs Sirdar Carbonic Gas Co. Pvt. Ltd.

Dr. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue, the following question of law has been referred by the Income Tax Appellate Tribunal to this court for opinion :

"Whether, on the facts and in the circumstances of the case, carbon dioxide manufactured by the assessee comes within the scope of item No. 25 of the Ninth Schedule to the Income Tax Act, 1961, which reads as ''carbon and graphite products'' ?"

The assessee is a limited company carrying on the business of manufacturing carbon dioxide, soda water machines and their spare parts. The assessee claimed investment allowance u/s 32A(1) of the Income Tax Act, 1961 ("the Act"), on the ground that its main business was manufacture of carbon dioxide, which came under item No. 25 of the Ninth Schedule to the Act, which reads : "Carbon and graphite products". The Income Tax Officer rejected the claim of the assessee on the ground that carbon dioxide did not come under the above item of the Ninth Schedule. The assessee appealed to the Commissioner of Income Tax (Appeals) and reiterated its claim of investment allowance. It was contended that the assessee was manufacturing carbon dioxide, both in its gaseous form as well as solid form. The Commissioner of Income Tax (Appeals) held that the carbon dioxide manufactured by the assessee did fall under item No. 25 of the Ninth Schedule and the assessee was entitled to investment allowance u/s 32A(1) of the Act. He, therefore, directed the Income Tax Officer to accept the claim of the assessee and modify the assessment accordingly. Against the above order of the Commissioner (Appeals), the Revenue appealed to the Income Tax Appellate Tribunal ("the Tribunal"). The contention of the Revenue before the Tribunal was that item No. 25 of the Ninth Schedule covers only "carbon and graphite products" and includes products made up of pure carbon only. Since, according to the Revenue, carbon dioxide was not a product of pure carbon, it was urged that it did not fall under item No. 25 of the Ninth Schedule to the Act. The contention of the assessee, on the other hand, was that item No. 25 of the Ninth Schedule was not restricted to "pure carbon" or "products of pure carbon". According to the assessee, there was no basis or justification for giving such a restricted meaning to item No. 25 which covers "products of carbon". It was urged that carbon dioxide was covered by item No. 25 of the Ninth Schedule. The Tribunal accepted the contention of the assessee that there was nothing in the language of item No. 25 of the Ninth Schedule to give an artificial and restricted meaning to the word "carbon" to mean only "pure carbon". The Tribunal, therefore, upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue. Hence, this reference u/s 256(1) of the Act at the instance of the Revenue.

Mr. G. S. Jetley, learned counsel for the Revenue, submits that the Income Tax Officer was justified in denying the relief u/s 32A of the Act to the assessee on the ground that the product manufactured by the assessee did not fall under item No. 25 of the Ninth Schedule. According to Mr. Jetley, the said item covers only "pure carbon and products thereof". The submission of learned counsel for the assessee, Mr. P. F. Kaka, on the other hand, is that item No. 25 of the Ninth Schedule is wide enough to cover carbon and carbon products. It cannot be restricted to pure carbon or products of pure carbon. We have carefully considered the rival submissions of learned counsel for the parties. Section 32A of the Act provides for an investment allowance to an assessee in respect of machinery owned by and wholly used by him for the purpose of business carried on by him. The expression "machinery" is specified by sub-section (2) of the said section. Sub-section (2) of section 32A, so far as relevant, reads :

"(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely :- ....

(b) any new machinery or plant installed after the 31st day of March, 1976- ....

(ii) for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Ninth Schedule; or

(iii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things."

Item No. 25 of the Ninth Schedule reads thus :

"25. Carbon and graphite products."

A plain reading of the above item makes it clear that carbon and all its products are covered by the said item. There is nothing in this item to suggest that the "carbon" referred to therein means "pure carbon". In fact, "carbon" will mean all forms of carbon and products thereof. Carbon is defined in the Oxford English Dictionary (Second edition, Volume II) as "one of the non-metallic elements". The description of "carbon dioxide" as given in the same dictionary reads as follows :

"b. chem., as in carbon compounds, etc., and specific names, as carbon dioxide, CO2 systematic name of carbonic acid gas; carbon dioxide snow, carbon dioxide solidified by cooling (cf. carbonic a.1a); carbon disulphide, see Disulphide, carbon monoxide, CO, a highly poisonous gas, also known as carbonic oxide gas; etc., carbon tetrachloride, ..."

It is clear from the above definition that carbon dioxide is a form of carbon compound and is a product of carbon. That being so, it clearly falls within item No. 25 of the Ninth Schedule to the Act and hence the assessee would be entitled to investment allowance u/s 32A of the Act in respect of the machinery used by him for the purpose of manufacturing the same. This conclusion of ours is fully supported by the ratio of the decision of the Supreme Court in Alladi Venkateswarlu v. Govt. of Andhra Pradesh [1978] 41 STC 394 , where, construing the expression "rice" appearing in entry 66(b) of the First Schedule to the Andhra Pradesh General Sales Tax Act, 1957, it was held that the term "rice" is wide enough to include rice in its various forms, whether edible or inedible. Rice in the form of grain is inedible. Parched and puffed rice are edible. But the entry "rice" covers both forms of rice. It was held in that case that at any rate, the entry "rice" was wide enough to cover parched rice and puffed rice. The ratio of this decision of the Supreme Court squarely applies to the facts of the present case. It may also be appropriate at this stage to refer to a recent decision of the Supreme Court in State of Bihar v. Universal Hydrocarbons Co. Ltd. (Civil Appeals Nos. 6073 and 6074 of 1994 - decided on August 12, 1994) reported in State of Bihar and others Vs. M/s. Universal Hydrocarbons Co. Ltd. and another, . The assessee in that case purchased law coke and subjected it to a process of manufacture to produce calcined petroleum coke. A question arose whether "calcined petroleum coke" despite calcination, remained "coke". The Supreme Court held that calcined petroleum coke was only a form of raw coke. It was observed that the fact that calcined petroleum coke was a different commodity and was of little consequence. Reference may also be made in this connection to the decision of the Supreme Court in State of Tamil Nadu v. Mahi Traders [1989] 73 STC 228, where it was held that the entry "hides and skins" covers all hides and skins, whether raw or dressed.

In the light of the above discussion and following the ratio of the decisions of the Supreme Court referred to above, we are of the clear opinion that carbon dioxide manufactured by the assessee is nothing but a product of carbon and hence falls within item No. 25 of the Ninth Schedule to the Act. The assessee would, therefore, be entitled to investment allowance u/s 32A(1) of the Act in respect of machinery used in the business of manufacture of the same.

Accordingly, the question referred to us is answered in the affirmative and in favour of the assessee.

This reference is disposed of accordingly.

There shall be no order as to costs.