THE COMMISSIONER OF INCOME TAX, ORISSA vs. N.C. BUDHARAJA & COMPANY AND ANR. ETC. ETC.

CIVIL APPEAL No. 4238/1983Supreme Court1993 INSC 28807 September 1993Bench: 2 JudgesAuthor: B.P. JEEVAN REDDY, N. VENKATACHALA COMMISSIONER OF22 pages
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What were the facts?

This judgment concerns multiple appeals before the Supreme Court of India, arising from decisions of the Income Tax Appellate Tribunal and various High Courts. The primary issue revolves around whether certain construction activities qualify as 'manufacture or production of articles' for the purpose of claiming tax benefits under Sections 80HH and 84 of the Income Tax Act, 1961, and whether machinery used in such activities is eligible for investment allowance under Section 32A. In one set of cases, assessees engaged in constructing dams and laying foundations by pressure piling claimed benefits. The Income Tax Officer and Commissioner generally denied these claims, viewing the activities as construction rather than manufacture. The Tribunal and High Courts, in some instances, ruled in favour of the assessees, interpreting the activities as industrial or manufacturing processes.

What did the Supreme Court hold?

The Supreme Court allowed the appeals, holding that the activity of constructing a dam, or laying foundations for buildings and other structures by pressure piling, does not amount to the 'manufacture or production of articles' within the meaning of Sections 80HH and 84 of the Income Tax Act, 1961. The Court reasoned that 'manufacture' and 'produce' are typically associated with movables, and these terms are not employed to denote construction activities of the nature involved in building dams, bridges, roads, or buildings. The Court emphasized that a dam is constructed, not manufactured or produced. It also held that the principle of liberal interpretation cannot override the plain language of the statute. Regarding Section 32A(2)(b)(iii), the Court ruled that it does not comprehend the construction of dams, bridges, buildings, roads, or canals. The legislative history of the provision indicates that it primarily related to movables, and the words 'construction' and 'thing' were retained in the context of ships and other movable articles or things, not immovable constructions. The Court noted that no arguments were addressed by the Revenue questioning the High Court's view on whether the assessee was an 'industrial undertaking,' and therefore, expressed no opinion on that specific aspect.

What were the issues?

1. Whether the construction of a dam, or the laying of foundations for buildings and other structures by pressure piling, constitutes 'manufacture or production of articles' within the meaning of Section 80HH(2)(i) and Section 84(2)(iii) of the Income Tax Act, 1961. 2. Whether machinery and plant installed for the purpose of business pertaining to the construction of dams and canals can be considered as installed for the 'purposes of business of construction, manufacture or production of any article or thing' under Section 32A(2)(b)(iii) of the Income Tax Act, 1961. Assessee's Contentions: The assessee argued that their construction activities, particularly dam construction and pressure piling for foundations, should be characterized as industrial activities amounting to manufacture or production of articles. They contended that the term 'articles' in Section 80HH was not limited to movables and that their work involved processing and manufacturing. For Section 32A, they argued that the machinery was used for the business of construction, manufacture, or production of articles or things. Revenue's Contentions: The Revenue contended that construction of dams and laying foundations are not 'manufacture or production of articles.' They argued that these are works contracts and the resulting structures are not 'articles' in the commercial sense. For Section 32A, they argued that the provision did not cover construction activities like dams, bridges, buildings, roads, or canals, and that the term 'thing' in the section referred only to movables, supported by legislative history.

Which sections of the Income-tax Act were involved?

Section 80HH,Section 84,Section 32A

AI-generated summary — verify with the full judgment below

THE COMMISSIONER OF INCOME TAX, ORISSA ETC. ETC. A v. N.C. BUDHARAJA & COMPANY AND ANR. ETC. ETC. SEPTEMBER 7, 1993 [B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.] B Income Tax Act, 1961: Sections BOHH, B~'Manufacture or produce articlesL....Construction of dam, laying foundation for buildings and other structures by pressure piling, held, not manufacture or production-Dam and foundations, held, not ar- ticles. c Section 32A (2)(b)(iii)-'Construction' and 'thingl-lfeld, 'articles' and 'things' used interchangeably-'Things' refers only to movable~ 'Construction' does not ref er to construction of dams, bridges, buildings, roads D or canals.

Interpretation of Statutei-Where a word is not defined in the Act or the Rules, it must be understood in its nonnal connotation, as it is understood in commercial world-A word also takes its colour from the context in which it is used-Statute cannot always be construed with the dictionary-Scheme, context, legislative history of provision also to be considered.

Words and Phrases: Expressions 'Articles' occurring in Section 80HH and 'Construction' and 'Thing' in Section 32A(2)(b )(iii) of the Income Tax Act, 1961-Meaning of.

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