- (1.) This appeal has been preferred on the basis of a certificate granted by the High Court of Gujarat under S. 261 of the Income-tax Act, 1961 (hereinafter referred to as the Act). The judgment appealed against is reported in Cellulose Products of India Ltd. v. Commr. of Income-tax, Gujarat, (1977) 110 ITR 151. The respondent is a public limited company incorporated on April 14, 1989 mainly for the purpose of carrying on business of manufacturing chemical products. The Memorandum of Association of the respondent company, as is apparent from the order of the Appellate Assistant Commissioner of Income-tax, inter alia, contains the following clause:- "to carry on the business of manufacture of and dealer and importers and exporters in chemical products of any nature and kind whatsoever and particularly of Carboxy Methyl Cellulose (CMC), Cellulose Pulps and other chemical products." The respondent was granted an industrial licence by the Central Government for the manufacture of Sodium Carboxy Methyl Cellulose for short (CMC). In pursuance of the said licence the respondent installed a Cellulose plant, in which was manufactured Cellulose pulp which in its turn was meant to be used as a raw material for manufacture of CMC. This fact does not appear to have been in dispute that the respondent began production of Cellulose pulp from March 18, 1961 in the said plant while the production of CMS was started from June 15, 1961.
(2.) In the assessment year in question namely 1966-67, the previous year of account being the financial year 1965-66 ending on March 31, 1966, the respondent claimed relief contemplated by Section 84 of the Act (as it stood prior to its being deleted with effect from April 1, 1968 by Finance (No. 2) Act, 1967). The Income-tax Officer took the view that since the respondent had started production of Cellulose pulp from March 18, 1961 it had begun to manufacture or produce finished articles or goods in the year ending on March 31, 1961 and consequently the assessment year 1961-62 was the first year in which the assessee was entitled to relief under Section 84. According to him, the relief contemplated by, Section 84 being available only for five years namely the assessment year 1961-62 and the four assessment years immediately succeeding as contemplated by subsection (7) of Section 84 of the Act, the respondent was not entitled to the relief claimed in the assessment year 1966-67 which fell beyond the aforesaid period. This finishing of the Income-tax Officer was affirmed in appeal by the Appellate Assistant Commissioner. The matter was taken by the respondent in further appeal before the Income tax Appellate Tribunal. The respondent's contention that the production of Cellulose pulp during the month of March 1961 was a trial production was repelled-by the Tribunal and a categorical finding was recorded by it that Cellulose pulp manufactured by the respondent during the month of March 1961 was a finished product which was a marketable commodity. On this view the Tribunal held that the respondent having begun production or manufacture of finished product which was capable of being sold in the market in the year of account relevant to the assessment year 1961-62, the last year in which the respondent was entitled to get relief under Section 84 of the Act was the assessment year 1965-66 and the claim made by it for the said 'relief in the assessment year in question namely 1966-67 was not maintainable. The Tribunal, however, on an application made in this behalf by the respondent referred the following question to the High Court of Gujarat for its opinion:- "Whether on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee's claim for relief under Section 84 of the Act for the assessment year 1966-67 -
(3.) The High Court by the judgment under appeal answered the question aforesaid in the negative, that is, in favour of the assessee and against the revenue. It held that even though the word "articles" used in sub-section (7) of Section 84 of the Act was undoubtedly an ordinary word employed by the legislature but in the context in which it was used and looking to the object with which it was enacted it was obvious that it could only refer to the end product of the industrial undertaking as a whole where there was no phased programme of installation and construction. On this view the High Court found that the mere fact that the respondent started the production of Cellulose pulp which was an intermediate product on March 18, 1961 did not mean that the company had begun to produce or manufacture "articles" in the assessment year 1961-62.;