COMMISSIONER OF INCOME TAX, GUJARAT vs. CELLULOSE PRODUCTS OF INDIA LTD.

CIVIL APPEAL No. 1314/1976Supreme Court[1991] 3 S.C.R. 88804 September 1991Bench: 3 JudgesAuthor: S. RANGANATHAN, N.D. OJHA, V. RAMASWAMI COMMISSIONER OF7 pages
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What did the Supreme Court hold?

The Supreme Court held that the High Court erred in interfering with the Tribunal's conclusion. A High Court, on a reference, acts in an advisory capacity and cannot interfere with a Tribunal's finding of fact unless it is unsupported by evidence, perverse, or patently unreasonable. The Tribunal's finding that cellulose pulp produced in March 1961 was a finished, marketable commodity was a finding of fact not suffering from infirmities. Although cellulose pulp is a raw material for CMC, it is also a marketable product in itself. The industrial licence for CMC, along with the company's Memorandum of Association, covered the manufacture of cellulose pulp. Therefore, the undertaking began manufacturing 'articles' in assessment year 1961-62. The relief under Section 84 was available for five assessment years starting from 1961-62, making the claim for 1966-67 inadmissible. The Court dismissed the alternative submission regarding partial relief as it was not raised before the Tribunal. The Court also stated that Section 84(7) had plain language, admitting no ambiguity, thus not requiring liberal interpretation.

What were the facts?

The assessee, Cellulose Products of India Ltd., incorporated on April 14, 1989, manufactured chemical products, including Carboxy Methyl Cellulose (CMC) and Cellulose Pulps. They obtained an industrial licence for CMC. A cellulose plant was installed, producing cellulose pulp from March 18, 1961, and CMC from June 15, 1961. The assessee claimed relief under Section 84 of the Income Tax Act, 1961, for assessment year 1966-67. The Income Tax Officer and Appellate Assistant Commissioner held that production of cellulose pulp in March 1961 meant the undertaking began manufacturing in assessment year 1961-62, making 1965-66 the last year for relief, thus disallowing the claim for 1966-67. The Income Tax Appellate Tribunal affirmed this. The High Court, however, held that cellulose pulp was an intermediate product and the undertaking began producing 'articles' only in assessment year 1962-63 when CMC was manufactured.

What were the issues?

1. Whether the production of cellulose pulp from March 18, 1961, constituted the commencement of manufacturing or producing 'articles' for the purpose of Section 84(7) of the Income Tax Act, 1961, thereby making assessment year 1961-62 the first year for the five-year relief period. (Question of law and fact, turning on Section 84). Assessee's contentions (as argued before the High Court and alluded to in the Supreme Court's discussion of the High Court's reasoning): The production of cellulose pulp in March 1961 was trial production. The 'articles' referred to in Section 84(7) should be the end product, CMC, manufactured from June 15, 1961. Therefore, assessment year 1962-63 was the first year for relief, making 1966-67 eligible. Revenue's contentions (as argued before the Supreme Court): The High Court erred in interfering with the Tribunal's finding of fact. Cellulose pulp was a finished and marketable commodity. The Memorandum of Association encompassed the manufacture of cellulose pulp. The licence for CMC implicitly included intermediate products like cellulose pulp. The Tribunal's finding that production began in 1961-62 was supported by evidence and not perverse. The plain language of Section 84(7) indicated the commencement year was when 'articles' were manufactured, which included pulp.

Which sections of the Income-tax Act were involved?

Section 84,Section 261

AI-generated summary — verify with the full judgment below

A COMMISSIONER OF INCOME TAX, GUJARAT v. CELLULOSE PRODUCTS OF INDIA LTD. SEPTEMBER 4, 1991 B [S. RANGANATHAN, V. RAMASWAMI AND N.D. OJHA, JJ.] c D Income Tax Act 1961: Sections 84 and 261-New Industrial Undertaking-Exemption-Commencement of period-When arises. '1'he respondent is a Public Limited Company incorporated on April 14, 1989 for carrying on business of manufacturing chemical products particularly of Carboxy Methyl Cellulose (CMC) and Cellu- lose Pulps. The respondent was also granted an industrial licence by the Central Government for the manufacture of Carboxy Methyl Cellulose.

The respondent had installed a cellulose plant in which cellulose pulp, the raw material for Carboxy Methyl Cellulose was manufactured. The plant had begun production from March 1961 while the production of Carboxy Methyl Cellulose was started from June 15, 1961. The respondent claimed relief under section 84 of Income Tax Act· as it stood prior to its being deleted with effect from April 1, 1968 by Finance Act (2) 1967, for the assessment year 1966-67, the previous E year of accounting being the financial year 1965-66. The Income Tax Officer took the view that since the r

The order continues below.

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