B. P. Jeevan Reddy, J. - (1.) These appeals are preferred by the assessee against the judgment of the Gujarat High Court (reported in 1978 tax LR 296), answering the two questions referred to it, at the instance of the Revenue, in favour of the Revenue and against the assessee. The two questions stated for the opinion of the High Court under Section 256(1) are:(At p.297)"(1) Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction from tax in respect of deoiled cakes exported or sold to exporters by it under Section 2(5) (a)(ii) and (iii) and Section 2(5)(c) of the Finance Act, 1966 read with item No.28 of the First Schedule to the Industries (Development and Regulation) Act, 1951 for the assessment year 1966-67 (2) Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction from income-tax in respect of deoiled cakes exported or sold to exporters by it under Section 2 (4) (a)(ii) and (iii) Section 2(4)(c) of the Finance Act, 1967 read with Item No.28 of the First Schedule to the Industries (Development and Regulation) Act, 1951 for the assessment year 1967-68
(2.) With a view to encourage export of industrial goods, the Finance Acts of 1966 and 1967 provided an additional incentive. A person engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (IDR Act) and who has exported such articles out of India or has sold the said articles to an exporter was entitled, to an additional deduction specified in sub-clauses (ii) and (iii) of clause (a) of Section 2(5) of the Finance Act, 1966 and Section 2(4) of the Finance Act 1967. The relevant provisions in both the Finance Acts are identical. It would suffice if we refer to the provisions in the Finance Act, 1966. Insofar as relevant, the provisions in Section 2(5) read as follows: "2(5) (a) In respect of any assessment for the assessment year commencing on the 1st day of April 1966, in the case of an assessee being a domestic company or an assessee other than a company - (i) where his total income includes any profits and gains derived from the export of any goods or merchandise out of India, he shall be entitled to a deduction, from the amount of income-tax with which he is chargeable, of an amount equal to the income-tax calculated at one-tenth of the average rate of income-tax on the amount of such profits and gains included in his total income. (ii) where he is engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries (Develop ment and regulation) Act, 1951 (LXV of 1951), and has, during the previous year, exported such articles out of India, he shall be entitled, in addition to the deduction of income-tax referred to in sub-clause (i), to a further deduction, from the amount of income-tax with which he is chargeable for the assessment year, of an amount equal to the income-tax on an amount equal to two per cent, of the sale proceeds receivable by him in respect of such export; Explanation - ********** (iii) where he is engaged in the manufacture of any articles in an industry specified in the said First Schedule and has, during the previous year, sold such articles to any other person in India who himself has exported them out of India, and evidence is produced before the Income-tax Officer of such articles having been so exported, the assessee shall be entitled to a deduction, from the amount of income-tax with which he is chargeable for the assessment year of an amount equal to the income-tax calculated at the average rate of income-tax on a sum equal to two per cent of the sale proceeds receivable by him in respect of such articles from the exporter. (b) ********** (c) Nothing contained in sub-clause (ii) or sub-clause (iii) of clause (a) shall apply in relation to - (1) fuels, (2) fertilisers, (3) photographic raw film and paper; (4) textiles (including those dyed, printed or otherwise processed) made wholly or in part of jute, including jute twine and rope. (5) newsprint. (6) pulp-wood pulp, mechanical chemical including dissolving pulp. (7) sugar, (8) vegetable oils and vanaspati, (9) cement and gypsum products, (10) arms and ammunition, and (11) cigarettes respectively, specified in items 2, 18, 20, 23(2), 24(2), 24(5), 25, 28, 35, 37 and 38 of the First Schedule to the Industries (Development and Regulation) Act, 1951 (LXV of 1951)."
(3.) The appellant-assessee is a registered partnership firm engaged in the manufacture of groundnut oil at Veraval. It has a solvent extraction plant at Veraval. It exported, sold to exporters, de-oiled cakes of the value of Rs. 48,92,902/- and Rs. 24,13,040/- respectively during the accounting years relevant to the Assessment Years 1966-67 and 1967-68 and claimed the additional deduction in respect of the said amounts under the provisions of Section 2 (5)(a)(ii) and (iii) of the Finance Act, 1966 and under Section 2 (4) (a) (ii) and (iii) of the Finance Act, 1967. The Income Tax Officer rejected the claim with reference to and relying upon clause (c) of Section 2(5) of the Finance Act, 1966 and clause (c) of Section 2(4) of the Finance Act, 1967. On appeal, the Appellate Assistant Commissioner agreed with the assessee's contention that clause (c) aforesaid refers to articles as such and not to industries and since de-oiled cake is not mentioned in clause (c), the assessee is entitled to additional deduction. The Tribunal affirmed the said view in appeal. At the instance of the Revenue,the Tribunal referred the aforesaid two questions under Section 256(i).;