The Commissioner Of Income-Tax, A.P v. M/S. Singareni Collieries Co., Ltd. Kothagudem .

P. Venkata Rama Reddy, J.:— In this application filed under section 256(2) of the Income-tax Act, the Revenue seeks reference of the following two questions for the decision of this Court:

1. “Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in allowing the amount of Rs. 2,53,700/- incurred towards, boarding, lodging and education of the 32 orphans adopted by the assessee-company as a business expenditure?”.

2. “Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assess is entitled to investment allowance of Rs. 2,24,52,331/- on the new plant and machinery installed in the assessee's business of extracting coal?”.

2. We are of the view that the first question raises a debatable point of law. No doubt, there is a finding of the Tribunal that the expenditure incurred for the lodging, boarding and education of 32 orphans pursuant to the appeal made by the State Government, as a measure of cyclone relief, is connected with the business expenditure in as much as those orphans were imparted training and absolved in the service of the company. But it is to be noted that an activity undertaken purely as a philantropic measure which has no connection with the company's business activity as such, cannot be treated as business expenditure. But, at the same time, if the activity undertaken by the assessee company in rehabilitating the orphan children with a view to eventually absorb them into company's service is not only a philanthropic act but also prompted by consideration of business expediency, the finding of the Tribunal can be justified, But prima facie, from the discussion of the Tribunal it is not clear as to whether the assessee company was prompted by a business motive in adopting the orphans. The Tribunal surmised that if the expenditure incur for the training imparted to them is a business expenditure incurred for the training imparted to them is a business expenditure, meeting the expenditure for their boarding and lodging prior to such training is also to be considered to be an expenditure meant for the purpose of getting Prospective coal miners. Whether or not this approach of the Tribunal is correct and whether there is material at all for the Tribunal to reach a conclusion that incurring of expenditure for boarding, lodging and education of orphans was not only conceived as philanthropic measure but also as a business proposition and what legal inference has to be drawn from the proved facts, is an arguable question of law to be decided.

3. As far as the second position is concerned, we are unable to find a debatable question of law fit to be referred for the consideration of this court. One of the conditions to be satisfied for allowing deduction by way of investment allowance u/S. 32 A is that new machinery or plant should have been installed in an industrial undertaking “for the purpose of business of construction, manufacture or production of any article or thing not being an article or thing specified in the list in the Eleventh Schedule”. The contention advanced on behalf of the Revenue is that winning or excavating the coal from the mine does not involve production of an article or thing. The learned Standing Counsel contends that the Tribunal has followed the decision of this court in C.I.T v. Super Drillers . 174 ITR 640. wherein the Division Bench of this court held that drilling operations resulted in the production of an article or thing i.e underground water within the meaning of Section 2(b)(iii) and a similar view taken by the Karnataka High Court was reversed by the Supreme Court in C.I.T v. N.V Budharaja an Co. . 204 ITR 413.. In that case, the Supreme Court held that the activity of construction of dam, bridge, building or road does not amount to production of an article or thing. The Supreme Court mainly relied on the legislative history of the provision for the purpose of understanding the meaning of the words ‘articles and things’ occurring in Section 32-A (2) and pointed out that they refer only to movable objects. As far as the appeal from the Judgment of the Karnataka High Court extending the benefit of Section 32 A to the new machinery employee in digging bore-wells was concerned, the Supreme Court merely held:

“For the reasons given herein above, the leave is granted and the appeal is allowed.”

4. Though no specific reasons are given for allowing the appeal, we must take it that the reasoning of the Karnataka High Court similar to the view adopted by the this court in Super Drillers case must be deemed to have been disapproved by the Supreme Court. The Tribunal's order in so far as it has drawn support from the decision of this court in Super Driller's Case, may not be correct. The submission made by the learned Standing Counsel is correct to this extent. But that does not solve the problem. Even eschewing the decision in Super Driller's case from consideration, we are unable to say that the conclusion reached by the Tribunal is untenable or the interpretation of Section 32 A (2) in the context of the facts of this case gives rise to a debatable question of law. In coming to the conclusion that no debatable quetion of law arises for consideration, we rely on the very decision of the Supreme Court which has been pressed into service by the learned Standing Counsel. The Tribunal held that in extracting coal or winning coal from the coal mine, an article or thing is produced. It is not the case of the Revenue that coal which is extracted from the mine is not an article or thing. What is sought to be contended is that winning or excavating coal is not an activity of production. It is difficult to agree with this contention of the principle laid down by the Supreme Court in CIT v. N.C Bhudharaja and Co., and the Supreme Court observed:

“The word ‘production’ has a wider connotation than the word ‘manufacture’, While every manufacture can be characterized as production, every production need not be manufacture.”

5. It was further observed:

“The word ‘production’ or ‘produce’ when use juxtaposition with the word ‘manufacture’ takes in bringing into existence new goods by a process which may or may not amount to manufacture”.

6. Then it was observed:

“The expression ‘manufacture’ and ‘produce’ are normally associated with movable— articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam.”

7. The Supreme Court also express the view that the expression used ins the relevant clause of 32A must be understood in its normal connotation and accruing to commercial usage. Viewed from that stand point and the legislative history of the provision, their Lordships held that construction of a dam, bridge and the like cannot be understood as a production of article or thing. In Webster's New International Dictionary, the word ‘produce’ is defined as “something which is brought forth or yielded either naturally or as a result of effort and work”. In Shorter Oxford English Dictionary, the following meaning is given: “To bring forward, bring forth or out; to bring into being or existence”. The meaning given in Black's Law Dictionary to the expression “produce” is “To bring forward; to show or exhibit; to bring into view or notice; to bring to the surface”.

8. Applying the principle of interpretation spelt out by the Supreme Court in the aforementioned decision and the ordinary meaning of the word “produce” as disclosed by the dictionaries and by its ordinary connotation, we have no doubt in our mind that the activity or winning or excavating the coal from the mines can be aptly described as production activity. It is common to use the expression that the coal or ore is produced from the mine and the statistics of total production of coal or other minerals are required to be given under statutory provisions governing mines and minerals. It is also not out of place to mention that under Section 35E of the Income Tax Act which deals with deduction for expenditure on prospecting for certain minerals, the following is the language employed.

“…………engaged in any operations relating to prospecting for, or extraction or production of, any mineral….”

(emphasis supplied)

9. Thus, the expression ‘production of mineral’ is used in the all provisions of the Act itself and it is a definite pointer that the Parliament employed the expression ‘production’ to the minerals extracted from underneath the surface as well as just as the legislative history taken into account by the Supreme Court, the internal aid to interpretation furnished by a cognate provision can be ultimately taken into account. Viewed from any angle, we are of the view that the benefit of Section 32-A is available to the Respondent-Assessee. The correct legal position regarding deduction of investment allowance should not be left in doubt and an uncertainty create in the mind of the respondent-assessee which is a public sector undertaking in the guise of raising a question as to nterpretation of a provision which admits of no doubt. We, therefore, decline reference on the second question.

10. In the result, we direct reference only on the first question. We direct the Tribunal to draw up the statement of case and refer the first question of law extracted above for the opinion of this court.

11. I.T.C partly allowed. No costs.