Kotval, C.J:— The question of law referred for our decision is:
“Whether, on the facts and in the circumstances of the case, the activities of the assessee in assembling chassis out of C.K.D (complete knocked down) packs imported from West Germany during the previous year relevant to the assessment year 1955–56 amounted to manufacture or production of articles within the meaning of section 15c(2)(ii) of the Income-tax Act?”
2. The assessee is the Tata Locomotive & Engineering Co. Ltd., Bombay, and the assessment year is 1955–56 corresponding to the accounting year ending March 31, 1955. The circumstances under which the reference came to be made are briefly as follows:
The assessee is carrying on business in the manufacture of locomotives and other engineering products. On 28th November, 1953, the company applied for permission to manufacture bus/truck-chassis at their workshop at Jamshedpur in collaboration with the German firm of automobile manufacturers, Messrs. Daimler Benz A.G of West Germany. In their application the assessee-company proposed that they would be undertaking “a realistic manufacturing scheme comprising a purely assembly stage followed by four progressive stages of manufacture, each of one year duration….” With the proposal they set out in some detail the four gradual stages of the manufacturing process which they proposed to adopt during the period of four years. As part of the same proposal they also indicated that prior to the starting of the manufacturing process the company would assemble 500 chassis within an initial period of 9 months. The scheme was approved by the Government of India by their letter dated 1st May, 1954, D.O No. Eng. Ind. 20(89)/53.
3. During the accounting period ending on 31st March, 1955, the assessee had assembled 443 vehicles from out of C.K.D (complete knocked down) packs imported from West Germany and it is not in dispute that those vehicles were sold by the company, and the sale resulted in a certain profit to the company. In respect of the profits arising out of such bus/truck-chassis assembled during the year of account they claimed relief under section 15C of the Indian Income-tax Act. Initially it was the company which claimed the relief but the Income-tax Officer was not willing to grant it. By his letter dated 12th February, 1957, he rejected the company's claim. The company then agreed with the view of the Income-tax Officer by their reply dated 12th June, 1957. That unwonted agreement by the assessee seems to have engendered a premonition in the Income-tax Officer. He soon thought the better of it, changed his view and arrived at a decision that the company would be entitled to the exemption under section 15C. To the company this apparent benefit sought to be thrust upon it was useless and indeed disadvantageous. Under section 15C a company can only claim exemption for a period of five years in all and it becomes entitled to the exemption only if it makes a profit. The period of five years commences from the year in which the company “has begun or begins to manufacture or produce articles”. The consequence of the order of the Income-tax Officer therefore would be that the company could only claim exemption for a period of five years from the assessment year 1955–56, but in that year it had made a loss. Thus it would be deprived of the exemption for one out of the five years. If on the other hand the assessee were not entitled to the exemption under section 15C in the assessment year 1955–56, but from the next assessment year, then it could claim the benefit of section 15C in the fifth year from that year which would be 1961–62 when its profits would also be much larger. The company therefore appealed to the Appellate Assistant Commissioner against the order of the Income-tax Officer. It pointed out that all that it had undertaken in the year of account was the mere assembly of automobiles from imported parts and it had not manufactured or produced automobiles within the meaning of those words in section 15C subsection (2)(ii) and sub-section (6). The Appellate Assistant Commissioner held that in the first place the assessee was not entitled at all to the exemption under section 15C, because the assessee had not earned a profit but the overall result of their business was a loss and, therefore, section 15C would not be attracted in the year under assessment. Nevertheless he also proceeded to decide the merits of the other question. He held that since the assembly off automobiles from imported parts “was merely the first stage in the company's scheme for the manufacture of automobiles, the company should be held to have begun to manufacture or produce articles during the accounting period relevant to the assessment under consideration.”
4. A further appeal was taken to the Income-tax Tribunal and it was urged before the Tribunal that the mere assembly of chassis did not form a part of the manufacturing scheme submitted to the Government of India by the assessee but was simply in the nature of an exploratory venture for which permission was sought from the Government with a view to try the particular make of bus/truck-chassis, namely, those manufactured by Messrs. Daimler-Benz A.G of West Germany and with a view to put them on the market and incidentally also to find out the scope of the future market in this country for that kind of vehicle. The Tribunal observed in their order that “there was no dispute as between the appellant-company and the department that all that was done by the automobile division of the company during the relevant previous year, i.e, 1954–55 account year, was to assemble certain trucks and bus chassis from out of the C.K.D packs imported from West Germany and put them on the market to explore future prospects”. The Tribunal held that the assembling of trucks did not fall within the words “manufacture” or “produce” “because evidently trucks/bus chassis had already been manufactured in all their component parts in West Germany and what the appellant-company had done was merely to fit up and join the components”. They referred to the intention of the Legislature in enacting section 15C which was to help the industrial progress of the country and held that the mere assembling of trucks/bus chassis from “completely knocked down” packs as the appellant-company had done Could not be called either manufacture or production of articles. They added that the words “manufacture” and “produce articles” appear to signify no other meaning except some kind of creative work which transforms raw materials or basic materials and/or semi-finished articles into finished goods. Accordingly, the Tribunal reversed the decision of the tax authorities below and held that the provisions of section 15c were not applicable to the assessee during the previous year for the assessment year 1955–56. Against the Tribunal's order the Commissioner asked for a reference and the question, which we have reproduced above, has been posed for our decision.
5. The principal contention on behalf of the department has been that, even assuming that the company had merely assembled trucks from C.K.D packs imported from West Germany, they have by assembling those parts, “manufactured” or “produced” trucks and that since the article which they have in the result brought into existence is something radically different from the parts which they assembled, it must be held that they “manufactured” or “produced” the automobiles. On behalf of the assessee it has not been disputed that “manufacture” or “produce” may include “assembly”, but Mr. Palkhivala's argument has been “Assuming that the assembly of trucks from the imported spare-parts amounts to manufacture or production, could it be said that it was manufacture or production in the context in which the relief under section 15C is required to be granted?” If an industrial undertaking is started in order to assemble trucks/bus chassis (as distinct from manufacturing their component parts) and manufactures the trucks after an initial trial period, would the trial period be still covered by the words “manufacture” or “produce”? The true question according to counsel is this: Having regard to the particular circumstances under which this activity was undertaken by the assessee-company, and having regard to the totality of the company's programme and the terms on which the Government granted them permission to undertake the manufacture of bus/truck-chassis, was the mere assembling of the 443 units from the imported parts in C.K.D condition manufacture or production of those units?
6. An allied point raised is that having regard to the provisions of section 15C(1) read with sub-section (2)(ii) and sub-section (6) of section 15C, the exemption is on the profits or gains derived from any industrial undertaking and sub-section (6) indicates that the exemption applied to the assessment for the financial year next following the previous year in which the assessee begins to manufacture or produce articles. The words “manufacture” or “produce” cannot be read without reference to the industrial undertaking which is contemplated in sub-section (1), and having regard to the facts and circumstances of the present case the industrial undertaking of the assessee was only to manufacture truck/bus chassis and did not include the first stage or phase which he called a trial phase or an experimental phase or one intended merely to give experience to the company's workmen when they did undertake the actual manufacture.
7. The relevant portions of section 15C are as follows:
“15C.(1) Save as otherwise hereinafter provided, the tax shall not be payable by an assessee on so much of the profits or gains derived from any industrial undertaking to which this section applies as do not exceed six per cent, per annum on the capital employed in the undertaking, computed in accordance with such rules as may be made in this behalf by the Central Board of Revenue.
(2) This section applies to any industrial undertaking which—
(i) is not formed by the splitting up, or the reconstruction of, business already in existence or by the transfer to a new business of building, machinery or plant previously used in any other business;
(ii) has [begun or begins to manufacture or produce articles in any part of the taxable (territories at any time within a period of eighteen years from the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;
(iii) employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power:
Provided that the Central Government may, by notification in the Official Gazette, direct that the exemption conferred by this section shall not apply to any particular industrial undertaking.
(3) The profits or gains of an industrial undertaking to which this section applies shall be computed in accordance with the provisions of section 10…
(6) The provisions of this section shall apply to the assessment for the financial year next following the previous year in which the assessee begins to manufacture or produce articles and for the four assessments immediately succeeding:
Provided that where the assessee is a Co-operative Society, this subsection shall have effect as if for the words ‘four assessments’ the words ‘six assessments’ had been substituted.”
8. It is clear that the exemption granted by section 15C is only to new industrial undertakings in which new capital is employed, the purpose being to encourage industrial enterprise and the investment of capital in new industrial undertakings. The exemption is six per cent of the capital employed and after computing the benefit the amount so computed is to be deducted from the profits derived from the undertaking. Secondly, the exemption applies only to profits or gains to be derived from an industrial undertaking and is not available when there is a loss. Sub-section (2) virtually defines or rather indicates to which industrial undertakings the provisions of the section apply. Thirdly, sub-section 2(ii) read with subsection (6) indicates from when the exemption is to come into force. Subsection 2(ii) shows that section 15C begins to apply as soon as the industrial undertaking “has begun or begins to manufacture or produce articles….” and sub-section (6) lays down the commencement period for the purpose of assessment which is the financial year next following the previous year in which the assessee begins to manufacture or produce articles. Thus, if once manufacture or production of articles has commenced the period of exemption runs. The commencement is not dependent upon profits being earned from the industrial undertaking, though the benefit of the exemption is dependent upon the industrial undertaking making a profit, for if it makes a loss then it is not entitled to the exemption under section 15C though the period of exemption has begun to run. It is only against the profits that the amount of the exemption can be set off. In the case of the assessee that was one difficulty so far as the accounting year was concerned, because overall the assessee-company had made a loss and, therefore, one of the grounds upon which it was held disentitled to the exemption was that there were no profits for that accounting year, though otherwise the period of exemption had begun to run, according to the department. The assessee contends that the exemption period had not commenced so far as they were concerned because they had not begun to manufacture or produce articles.
9. The first question, therefore, that falls to be determined is whether the mere assembling of bus/truck chassis would fall within the meaning of the words “manufacture” or “produce articles” in sub-section (6) and in subsection (2)(ii) of section 15C. In this connection it is well to remember that though the process is conveniently labelled as “mere assembling of bus/truck chassis”, what was actually done was that the parts (including parts of the engine) were received in a knocked down condition, put together and a completely new running truck was prepared (we avoid using the word “manufactured” or “produced” for the time being) ready to be put on the road. In short, a complete diesel automobile was prepared except for the body. The question is whether that constituted manufacture or production of articles.
10. In its roots the word “manufacture” comes from the Latin word “manus” which means “hand” (and “manu” is the ablative of the word “manus”) and the word “facere” which means “to make”. In origin, therefore, the word implied the making of anything by hand, but with the passing of time and in the context of industrial development the word has acquired a number of shades of meaning. In connection with industry or an industrial undertaking, two shades of meaning are important. In the Oxford Dictionary, vol. 6, the two shades of meaning are given as follows: (1) The first is “the action or process of making articles or material (in modern use, on a large scale) by the application of physical labour or mechanical power”. This is the most generic meaning in its application to industry or industrial undertakings or establishments. (2) There is also another more limited meaning which is found referred to in the authorities as meaning the transforming of raw materials into a commercial commodity or a finished product which has a separate identity (Commissioner of Income-tax v. Ajay Printery Pvt. Ltd. [1965] 58 I.T.R 811, 816.. This shade of meaning is more appropriately used in the past participle “manufactured”. See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is “fabricated from raw material”. In Aswathanarayana v. Dy. Commercial Tax Officer, at page 801 one finds a useful compilation of meanings attached to the word “manufacture” from various dictionaries and other sources.
11. Similarly, the word “produce” with reference to its meaning in industry or political economy has two different senses. In vol. 8 of the Oxford Dictionary, at page 1422, the two meanings are given as follows: “To bring forth, bring into being or existence (a) generally to bring (a thing) into existence from its raw materials or elements or as the result of a process;” and “(d) To compose or bring out by mental or physical labour (a work of literature or art); to work up from raw material, fabricate, make, manufacture (material objects)”.
12. In the Ajay Printery's case, a Division Bench of the Gujarat High Court pointed out that the word “manufacture” has a wider and a narrower connotation. In the wider sense it simply means to make, or fabricate or bring into existence an article or a product either by physical labour or by power. The word “manufacturer” in ordinary parlance would mean a person who makes, fabricates or brings into existence a product or an article by physical labour or power. The other shade of meaning which is the narrower meaning implies transforming raw materials into a commercial commodity or a finished product which has an entity by itself, but this does not necessarily mean that the materials with which the commodity is so manufactured must lose their identity. Thus both the words “manufacture” and “produce” apply as well to the bringing into existence of something which is different from its components. One manufactures or produces an article which is necessarily different from its components.
13. In North Bengal Stores Ltd. v. Board of Revenue, Bengal 1938-50 1 S.T.C 157, a Division Bench of the Calcutta High Court were considering the trade of a dispensing chemist and whether his activity fell within the words “To manufacture or produce goods for sale” under the Bengal Finance (Sales Tax) Act (VI of 1941) and in that connection the well known distinction between a mechanical mixture and a chemical compound was adverted to and the court held that the words “manufacture or produce” would equally apply to the bringing into being of an article or product which was different from its ingredients or components, whether the identity of the ingredients or components was in the process completely destroyed or whether they were only mechanically mixed up to form the article manufactured or produced. Das J. (as he then was) observed, at page 163:
“When a dispensing chemist mixes different drugs according to the prescription of a physician, the drugs may or may not be transformed into a different matter. The mixture may become a chemical compound in which the drugs used may have been transformed into a totally different thing in their character and properties, or it may result in what is called a mechanical or physical mixture in which each drug retains its original properties. But in either case, the resulting mixture is a distinct product brought into being in a particular form suitable for the particular use for which it is intended and capable of being sold or supplied for a price.”
14. Thus looked at from any point of view and whether one takes into account the wider or narrower meaning of the word “manufacture”, it is clear that assembling of automotive bus/truck chassis from imported parts in a knocked down condition would give rise to an article which is totally different from the parts. This so even though the component parts from which the automotive chassis is made, retain their individual identity in the whole article which is thus manufactured or produced. To take the simplest illustration, if a child takes strips of metal, bolts, nuts, bars and wheels from out of a “meccano” set and assembling them together makes a wheelbarrow or a chair, we would say that the child has produced a wheel-barrow or a chair if not manufactured it. In the present case, the process is the same but only more sophisticated. The transformation of the components into the finished product is only more marked. Innumerable parts are put together with considerable effort and skill with the aid of specialized tools and machinery run on some form of power; and sometimes modified to fit each other by mechanical process. The bars which go to make up the chassis on which the foot-boards rest are either welded or rivetted together to make the chassis. Ultimately, the completed chassis is fitted with an engine and the whole becomes an automobile, which propels itself. The initial parts or components could not propel themselves. Beyond doubt, therefore, it must be held that the assembling of those parts into the finished product which is an automobile, amounts to the manufacture or production of the automobile.
15. In the cases of two industrial undertakings where similar assembling of automobiles from parts imported in a knocked down condition was involved, it has been held (that assembling amounts to manufacture. The cases are Ashok Motors Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Standard Motor Products of India Ltd. [1962] 46 I.T.R 811 Of course the principal question involved in those cases was whether the mere sale of surplus spare-parts was an activity which entitled the assessee to relief under section 15C, but in both the cases it was assumed that the assembling of cars is a process of manufacture or production. We have no doubt that upon any shade of meaning of the words “manufacture” or “produce” what the company was doing in (this industrial undertaking was to “manufacture” and “produce” automobiles without bodies.
16. Realising the impact of these authorities, Mr. Palkhivala with consummate discretion sought to steer clear of them by urging that no doubt as a matter of law the assembling of cars may amount to manufacture or production, but having regard to the facts and circumstances of this case and particularly to the overall intention of the company and the totality of its programme it should not be so held. At this stage, therefore, it will be convenient to set forth those facts upon which the parties relied.
17. Annexed to the statement of the case is a letter enclosing a note written on behalf of the company to the Inspecting Assistant Commissioner of Income-tax dated 12th June, 1957. This was written in answer to an enquiry from the department as to the facts relating to the process that took place in the industrial undertaking of the assessee.
18. The case on behalf of the assessee is thus put in the letter:
“As the provisions of the section apply only to industrial undertakings which ‘manufacture’ or ‘produce’, we claim exemption from tax under the section for five years from April, 1955, when the first progressive stage of ‘manufacture’ commenced. In the accounting year; 1954–55 about 500 chassis were only assembled from the imported complete CKD packs in order to gain necessary initial training and experience. The provisions of the section do not apply to this purely assembly stage in which no manufacture was ivolved.”
19. Appended to this letter was a note of the automobile division of the assessee-company and in the note the activity of the company is described— a description, on which Mr. Joshi on behalf of the department strongly relied —as follows:
“After fully establishing the manufacture of locomotives and boilers, the company diverted its attention to the possibility of extending and diversifying its activities. A realistic manufacturing scheme comprising a purely assembly stage followed by four progressive stages of manufacture, each of one year duration, was framed in close consultation with the company's associates, Messrs. Daimler-Benz A.G, West Germany, approved by Government in 1954. The capital cost of this project is about Rs. 9 crores.”
20. These are the only documents appended to the statement of the case but Mr. Palkhivala brought to our attention a letter written on the 28th November, 1953, by the chairman of the company to the then Finance Minister of the Government of India enclosing the proposals of the company for the manufacture of Mercedes Benz diesel engines at the Telco Works in collaboration with Messrs. Daimler-Benz, Germany. When counsel referred to these documents which are not to be found annexed to the statement of the case, an objection was taken on behalf of the department by Mr. Joshi that these documents could not be referred to but we were unable to accept that objection. We overruled it, because the letter of the 28th November, 1953, is expressly referred to in paragraph 2 of the statement of the case itself and it is not in dispute that it formed part of the record before the tax authorities.
21. The chairman's letter of the 28th November, 1953, states that the company which was already manufacturing locomotives would be at an advantage, because the combination of truck manufacture with locomotive and boiler production will place the company in a position to produce trucks on an economic basis despite the modest scale of 3,000 units per year which was contemplated in the initial stages. In paragraph 4 it is stated that “with the help and advice of Messrs. Daimler-Benz A.G, the company has framed a realistic and practical production programme to secure the fullest and quickest possible development of indigenous manufacture. The programme is so formed that by the end of the fourth year, the work to be done in the Telco Works will represent 75% of the value of the truck, involving the manufacture of a greater number and variety of parts and components within a single work than is normally the practice.” In paragraph 5 an assurance was given that “by the end of the four-year development period not only will the Telco Works manufacture over 75% of the parts and components, but practically all the raw materials will be obtained from indigenous sources”. To the letter was appended an elaborate note of the proposals of the company containing in paragraph 7 a tabular statement showing how the several phases of the programme were going to be worked out. Mr. Palkhivala strongly relied upon this tabular statement which was as follows:
Extent of work at Telco No of productive and non-productive men including an allowance of 10% for absenteeism. Stage Principal groups Extent of the period. Based on Production time. Based on materials consumed. % Cumulative Total % Cumulative Total CKD Assembly. (500 chassis) 9 moths 10.0 100 1.7 1.7 106 Manufacturing: 1 (3,000 units per year) 1 Yr. 26.5 36.5 47.4 49.1 278 Stage I. Frames, front axles, springs, f uel tanks, pedals, control system brakes, exhaust system, chassis, sheet metal parts & misc. work Stage II Rear axles with propeller shafts 1 Yr. 17.5 54.0 13.6 62.7 183 Stage III Gear. boxes 1 Yr. 13.2 67.2 3.3 66.0 116 Stage IV Engines with clutch 1 Yr. 32.8 100.0 34.0 100.0 342 4 Yrs. 9 months 100.0 100.0 1,023*
*Excluding 300 additional men required for Foundry.
22. He pointed to two important circumstances which, he said, showed that the assembly stage was not a manufacturing stage as contemplated in the proposals of the assessee, firstly, because the assembly stage is not at all referred to in the letter of the company chairman, and throughout, that letter refers to the production programme or manufacturing programme which is distinct and apart from the assembly stage. Secondly, he pointed to the tabular statement in which in the first column four stages are shown under the heading “Manufacturing”, and he emphasized that the C.K.D Assembly (500 chassis) is not a stage under the head “Manufacturing”. He, therefore/, urged that the very purpose and intention of the undertaking from its inception was to manufacture 300 units of bus/truck chassis per year, but that in express terms did not include the assembling of 500 chassis. It should, therefore, be held that such a trial stage or experimental stage was undertaken with a view to manufacture or production but was not manufacture or production itself.
23. Counsel also stressed the purpose behind the undertaking, the initial or trial stage, as he put it, of assembling 500 chassis. We have already referred to the letter of the 12th June, 1957, written on behalf of the company and in that letter the purpose of this assembly stage is mentioned as “in order to gain necessary initial training and experience”. This is also stated in paragraph 7 of the proposals of the company attached to the chairman's letter dated 28th November, 1953: “The programme envisages development of the manufacture of chassis for trucks and buses in four stages of one year each; this excludes the initial assembly stage of about 9 months during which about 500 chassis will be assembled from C.K.D packs imported from Daimler-Benz for the purpose of the necessary initial training and experience.” In paragraph 11 of the proposal also it is stated that the initial programme of assembly of C.K.D packs can be started within a period of six months to nine months from the time the project is approved by Government and by the board of directors and that the first stage of manufacture would follow nine to twelve months after the commencement of the C.K.D assembly. Counsel urged that it is clear from these categorical statements that the assembly stage was only a stage undertaken with a view to the actual manufacture or production of the truck chassis and that in the clearest language it was stated especially in paragraph 7 that the “manufacturing” consists of four stages and that excludes the initial assembly stage.
24. Now though in the letters of the company the purpose is stated to be “necessary initial training and experience”, that purpose has not been found established. It is nowhere found stated in any of the orders of the tax authorities or of the Tribunal, but on the other hand, there is an express finding in the order of the Income-tax Tribunal that the purpose of the assembly stage was to explore future prospects in the market. The finding of the Tribunal was, “there appears to be no dispute as between the appellant-company and the department that all that was done by the automobile division of the company during the relevant previous year, i.e, the account year 1954–55, was to assemble certain trucks and bus chassis from out of C.K.D packs imported from West Germany and put them on the market to explore future prospects.” (The underlining is ours). In the statement of the case also that is stated to be the purpose. In fact what was urged before the Tribunal has been stated in paragraph 3 of the statement of the case as follows:
“… it was pleaded on its (assessee's) behalf that the assembling of chassis did not form a part of the manufacturing scheme submitted to the Government of India but was simply in the nature of an exploratory venture for which permission was sought for from the Government with a view to try the particular make of bus/truck chassis, namely, those manufactured by Messrs. Daimler-Benz A.G of West Germany with a view to put them on the market on trial and incidentally to find out the scope of the future market for that kind of vehicles in the country.” (The underlining is ours).
25. In this state of the record it seems to us impossible to accept that the reason for the experimental stage was to allow the employees of the assessee-company to gain experience and acquire some training. The statement of the case was an agreed statement and it does not appear that any objection was taken to any of the facts stated therein. Moreover, that statement is supported by the findings of the Tribunal and on this point no other findings are to be found in the orders of the tax authorities below. We do not say that this is decisive of the question before us but if the purpose of the assembly stage was to probe the market it would certainly be an element to be taken into consideration and would favour the conclusion that the assembly stage was for manufacture or production of the goods for the market.
26. That apart, even on the facts and circumstances here we are unable to accept the contention that the assembly stage was a completely independent and separate stage. Counsel called it a separate “business” of the assessee-company. It seems to us, however, that it was one composite business and the assembly stage cannot be divorced from the rest of it. The overall purpose of the company in commencing this industrial undertaking was the production of trucks on an economic basis from indigenous materials in progressive stages. The programme was one whole integrated programme and it is so delineated in the letter of the chairman of the company as well as in the note of proposals appended to that letter. No doubt in paragraph 7 of that note it is stated that the programme envisages development of the manufacture of chassis for trucks and buses in four stages of one year each and that excludes the initial assembly stage of about 9 months during which about 500 chassis would be assembled. But even the assembly stage is referred to as the initial stage of the programme and cannot be divorced from the programme. If the purpose of that initial stage was, as the Tribunal has found it to be, to probe the market and find out whether the trucks and buses when manufactured would be acceptable to the automobile trade and the public, it was a part of the industrial undertaking itself.
27. A consideration of the tabular statement which we have reproduced above does not weaken that conclusion. The programme of production was on the condition that within about five years the material used would be 100% indigenous material and in computing how the 100% indigenous material would be utilised, it is mentioned that 1.7% of that material would be usable in the assembly stage. Similarly, in showing the extent of the work at Telco based on production time, the break-up of 100% of the production time includes the labour employed in assembling the 500 chassis which is computed to be 10% of the total at the end of five years. The scheme, therefore, was an integrated scheme submitted for acceptance by the Government as one scheme including what the assessee calls the initial stage or the assembly stage. The initial stage was undertaken only with a view to assist the subsequent stages and indeed it is doubtful if without serious impediment to their effort the subsequent stages could have been directly undertaken without the initial stage. That is precisely also how it is put in the chairman's letter in paragraph 4, “… With the help and advice of Messrs. Daimler-Benz A.G we have framed a realistic and practical production programme to secure the fullest and quickest possible development of indigenous manufacture.” The mere division, therefore, for the sake of convenience of statement, between the assembly stage and the stage of actual manufacture does not indicate that the assembly stage was not part of the scheme for manufacture of trucks or that it was something other than manufacture. We do not think that the mere making of a distinction of this kind by the assessee would alter the true position that it was one scheme, one integrated programme including within it the “assembly stage”. We have already shown that upon any construction of the words “manufacture or produce” the assembling of these 500 chassis would be included within the ambit of those words.
28. Moreover, if one turns to the letter of the Government of India according sanction (letter No. Eng. Ind. 20(89)/53, dated 1st May, 1954) to the scheme, it puts an end to the argument advanced. The letter granting the sanction states:
“I am directed to refer to your letter No. SCL-595 dated the 28th November, 1953, with which a scheme for the manufacture of diesel trucks in your works at Jamshedpur in collaboration with Messrs. Daimler-Benz A.G of Stuttgart, West Germany, was forwarded to this Ministry and to say that the Government of India are pleased to extend their approval to your programme of manufacture subject to the following conditions:
(a) that the scheme of manufacture of trucks does not interfere with the fulfilment of the targets set for the manufacture of locomotives and boilers in the Telco factory—there should be no slowing down of the agreed programme for the supply of locomotives and boilers to the Railways…”
29. It is clear from the letter granting the sanction that whatever the company may have said, the Government of India regarded the whole, including the so-called assembly stage, as one scheme for the manufacture of diesel trucks. The approval communicated was “to your programme of manufacture”
30. Having thus considered the position upon the facts we now turn to a further contention of Mr. Palkhivala. The contention as he urged it was as follows:
“The exemption under section 15C is not in respect of business profits generally but profits derived from the industrial undertaking which has been established for a specific purpose. The object of the legislature was to give a limited exemption—limited in point of time and not in quantum— the limit in point of time is 5 years but the object of the legislature being to give full five years' exemption, the exemption starts not from the year when the undertaking is set up but from the year in which the undertaking begins to manufacture articles.
The words ‘manufacture’ and ‘articles’ are not to be read in the abstract but in relation to the particular industrial undertaking before the court
Therefore, applying these principles to the facts of this case, the manufacturing undertaking cannot be held to be started in the relevant year in Which no manufacturing activity as distinct from assembly was carried on and ‘the Indian truck’ which the undertaking was established to manufacture was not produced. In fact, such an undertaking as was contemplated had not come into existence as the amount spent on the plant, machinery and buildings shows. The Tribunal's finding of fact that the assembly operation was only to test or a trial operation is not disputed.”
31. In short, the contention is that the industrial undertaking which the assessee-company embarked upon pursuant to the proposal contained in the letter of 28th November, 1953, was an industrial undertaking to manufacture an “Indian truck” meaning thereby an automobile with wholly Indian components in progressive stages. Mr. Palkhivala says that at the assembly stage the business or undertaking resulted only in the manufacture of 443 chassis, no part of which was Indian. It was truly a German truck. Therefore, that was not the business or undertaking for which permission had been obtained from the Government of India nor the industrial undertaking to which section 15C applied. That must, therefore, be treated as an independent industrial undertaking to which section 15C should never be attracted. In this respect he pointed out that the commencement period as mentioned in sub-section (6) of section 15c is “the financial year next following the previous year in which the assessee begins to manufacture or produce articles and for the four assessments immediately succeeding”. He says that this has to be read in the context of the wording of sub-section (1) of section 15c which establishes the right to the exemption. sub-section (1) of section 15c grants exemption on “so much of the profits or gains derived from any industrial undertaking to which this section applies” computed on the basis of the capital employed in the undertaking. Counsel emphasises the words “industrial undertaking to which this section applies” and urges that the “undertaking” of the assessee was the undertaking to manufacture the “Indian truck” and not the 500 units of the foreign truck in the sense that they were made out of parts imported from foreign country and were wholly foreign articles. He, therefore, urged that the exemption has been given up on an undertaking which was a completely separate undertaking from the undertaking which claimed the exemption.
32. In this respect he also relied upon the two cases referred to earlier of the Ashok Motors Ltd. and the Standard Motor Products of India Ltd. In both these cases the two motor companies had, in addition to importing parts of motor cars and motor trucks and assembling motor cars and trucks from those parts, also sold the surplus spare-parts in their possession and what was held in both the cases was that the sale of the surplus spare-parts was not the same industrial undertaking as the industrial undertaking whereby the cars and trucks were assembled. Counsel urged that these decisions emphasise that the exemption should attach only to the “industrial undertaking which manufactures or produces articles” and not to any other industrial undertaking and that in the present case the industrial undertaking of the assessee which manufactured or produced the bus/truck chassis was the industrial undertaking which commenced from the year 1956–57 (the first stage of manufacture as indicated in the tabular statement and not the assembly stage).
33. This argument in essence is no more than another shade of the same arguments which we have dealt with above. No doubt, the exemption granted by section 15C attaches only to an industrial undertaking which manufactures or produces articles but having regard to the particular facts and circumstances here, (the facts and circumstances with which we have already dealt), we cannot but hold in the present case that the assembly stage was a part and parcel of the entire industrial undertaking of the assessee whereby they manufactured or produced bus truck/chassis which were wholly indigenous. The assembly stage upon the facts was not a different industrial undertaking but one intimately connected with the subsequent stages whereby the Indian bus/truck chassis were progressively manufactured. The whole was one integrated scheme; one programme and this notional division of that programme into two industrial undertakings is unjustified upon the facts.
34. This argument which Mr. Palkhivala has advanced moreover entails reading into the provisions of sub-section (6) of section 15C something more than the words of the section warrant. When sub-section (6) uses the words “the previous year in which the assessee begins to manufacture or produce articles” it has no reference to any particular manufacture or production or to any particular article. The words certainly do not refer to the particular articles manufactured by a particular assessee. The contention really amounts to this that the words of the section quoted above really mean “the previous year in which the assessee begins to manufacture or produce articles which he intended to manufacture”. We can see nothing in the provisions of the sub-section to warrant reading into the sub-section the additional words which we have underlined above nor is that the intention disclosed from the language of the section. Sub-section (1) also does not support that conclusion.
35. The Tribunal in paragraph 5 of its order remarked that the Income-tax Officer “seems to have been guided by the ordinary meaning of the words ‘manufacture’ or ‘produce’.” But we are unable to see what other meaning could be attributed to those words even assuming that they have to be read in the context of the other provisions of section 15c.
36. The Tribunal, however, seems to have construed those words having regard to the supposed intention of the legislature in enacting section 15C as can be seen from the following remark: “Supported as it is by the intention of the legislature we cannot hold that merely assembling of parts and especially assembling of trucks/bus chassis from complete knocked down packs as the appellant-company had done can be called either manufacture or production of articles because evidently trucks/bus chassis had already been manufactured in all their component parts in West Germany and what the appellant-company had done was merely to fit up and join the components.” The passage which we have just quoted does not indicate how the intention of the legislature affects the interpretation of those words and it may as well be that with the intention to foster new industries and to induce investment of new capital the legislature used the words in the sense in which we have construed them. In any case we think that when the words are plain it is wrong to construe the meaning of the words in a section with reference to some presumed intention of the legislature. The Tribunal has in a later passage specified what that presumed intention was by stating “Further if it was the intention of the legislature to bring the processes of assembling of imported parts within the scope of the section, then evidently that could not have helped the industrial progress of the country which was the underlying idea for providing the tax relief to the new industrial undertakings.” We are unable to find any such intention of the legislature from the statute but assuming that such was the intention where the words are plain we do not think that the Tribunal would be right in attempting to construe the meaning of the words “manufacture” and “produce” in the light of what the legislature may have intended. It is only in the event of there being any doubt or difficulty as to the construction of a statute that it would be proper to go behind a statute and ascertain the intention as manifested in the objects and purposes of the Act. Ordinarily the legislature expresses its intention in the words it uses and if the words are plain and susceptible of no doubt or difficulty, the intention manifested by the words alone can be given effect to. We have already shown what the true meaning of the words “manufacture” and “produce”is as construed by the authorities, and that meaning is, in our opinion, also quite consistent with the said intention of the legislature.
37. Another reason given by the Tribunal is “In their context to each other as appearing in section 15c(2)(ii) the words ‘manufacture’ and ‘produce articles’ appear to convey no other meaning excepting some kind of creative work which transforms raw materials or basic materials and/or semi-finished articles into finished goods.”
38. This remark suggests that the Tribunal accepted the narrower meaning of the word “manufacture” and the word “produce” to which we have adverted above. But as we have pointed out, the word “manufacture” has also a wider connotation which is the connotation which the language of section 15C suggests. Even upon the meaning which the Tribunal accepted, that the word “manufacture” involves some kind of creative work which transforms raw materials or basic materials and/or semi-finished articles into finished goods, we think that the assembling of the parts received by the assessee in C.K.D condition and transforming those basic materials into the finished product, namely, a fully automotive truck/bus chassis would amount to “manufacture”. For these reasons, we are unable to accept the reasoning of the Tribunal. The answer to the question referred, therefore, is in the affirmative. The assessee to pay the costs of the Commissioner.
39. Question answered in the affirmative.
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