O.P Nos. 1769 and 1839 of 1975

Decided on April 5, 1977

The Judgment of the Court was delivered by

Chandrasekhara Menon, J.:— In these two original petitions filed by the Travancore Rayons Ltd. wherein the respondents are the Income-tax Officer, A-Ward, Companies Circle, Ernakulam, and Commissioner of Income-tax, Kerala I, Ernakulam, the same question arises for consideration. The first writ petition relates to the assessment year 1967–68, while the second is in respect of the succeeding year 1968-69.

2. The facts, in brief, are these:

The petitioner is a company engaged in the manufacture and sale of rayon yarn, cellulose film and other products. The company is an assessee on the file of the first respondent. In respect of the assessment years 1967–68 and 1968–69, the petitioner had made applications on November 16, 1967, and February 3, 1969, respectively, for the issue of a tax credit certificate under section 280ZB of the Indian Income-tax Act before the first respondent. The said section provides that:

“Where any company engaged in the manufacture or production of any of the articles mentioned in the First Schedule to the Industries (Development and Regulation) Act, 1951 (LXV of 1951), is, in respect of its profits and gains attributable to such manufacture or production,—

(i) liable to pay any tax for the assessment year commencing on the 1st day of April, 1965 (hereinafter referred to as the base year), and for any one or more of the five assessment years next following that year; or

(ii) not liable to pay any tax for the base year but becomes so liable for any succeeding, year (hereinafter referred to as the succeeding base year) and also for any one or more of the assessment years following that year, not being an assessment year commencing on the 1st day of April, 1971, or any subsequent assessment year, and the tax for any such succeeding year exceeds—

(a) in the case referred to in clause (i), the tax payable for the base year;

(b) in the case referred to in clause (ii), the tax payable for the succeeding base year,

then the company shall be granted a tax credit certificate for an amount equal to twenty per cent. of such excess:

Provided that the amount of the tax credit certificate shall not for any assessment year exceed ten per cent. of such tax payable by the company for that year.”

3. By letter dated May 9, 1968, the petitioner had confirmed that the income offered for regular assessment was made only from manufacture and sale of articles listed in the First Schedule to the Industries (Development and Regulation) Act. The articles mentioned were alleged to be man-made fibres including regenerated cellulose, rayon, paper for packing and pulp. As regards assessment year 1967–68 the first respondent passed an order dated June 13, 1968, determining the tax credit at Rs. 3,67,627. By application dated February 7, 1969, the petitioner applied for grant of additional credit. Thereafter, the 1st respondent determined the additional tax credit at Rs. 1,63,849 making the total tax credit for the year to Rs. 5,31,476 by his order dated April 17, 1969.

4. In respect of assessment year 1968–69 the first respondent was requested by the petitioner to correct certain mistakes in its original application and grant tax credit certificate as per letter dated February 11, 1969. Thereafter, the first respondent determined the tax credit at Rs. 3,30,394.

5. However, in both the cases, by notices dated February 9, 1972, and December 8, 1972, respectively, under section 148 of the Income-tax Act, the first respondent proposed to reassess certain income alleged to have escaped assessment. By letter dated March 10, 1972, and January 12, 1973, respectively, the petitioner-company filed its returns of income for the respective years as originally determined by the first respondent and modified by him. The company also pointed out that no income chargeable to tax have escaped assessment. However, in respect of the two years the first respondent issued notice of date January 31, 1973, under rule 8(4 of the Tax Credit Certificates (Corporation Tax) Scheme, 1966.. In this notice the first respondent pointed out that cellulose film did not come in the list of articles mentioned in 24(4) of the First Schedule to the Industries (Development and Regulation) Act and the company was not entitled to tax credit certificate in respect of such films.

6. In reply the petitioner-company pointed out that cellulose film is one of the industries mentioned in the First Schedule to the Industries (Development and Regulation) Act, 1951, and that the Government of India had actually issued a licence for setting up a unit for manufacture of cellulose film. The Ministry of Commerce and Industry had by order dated March 4, 1954, granted a licence under rule 15(2) of the Registration and Licensing of Industrial Undertakings Rules, 1952, to effect a substantial expansion of the company's existing industrial undertaking for the manufacture of “transparent paper”, which the company states is the goods in question. The petitioner-company also obtained and filed before the first respondent a confirmatory letter from the Ministry of Commerce, Government of India, to the effect the cellophane— c llulose film— industry is included in the First Schedule of the Industries (Development and Regulation) Act, 1951. But the first respondent passed orders dated February 28, 1973, withdrawing the excess relief in respect of the two assessment years— Rs. 3,41,937 in regard to 1967–68 and Rs. 2,62,041 in regard to 1968-69. The respective order is marked as exhibit P-8 in each of the two cases.

7. Appeals were filed from these orders to the second respondent in these writ petitions— the Commissioner of Income-tax, Kerala I, Erna-kulam. Without going into the merits of the case they were rejected on the ground that the order passed by the first respondent which is under rule 8(1) of the Scheme was not appealable. The respective appellate order is marked as exhibit P-10 in each of the petitions.

8. The vires of these orders, exhibits P-8 and P-10, are challenged on various grounds in the writ petitions. It is submitted by the petitioner-company that the tax credit certificate was originally granted after proper enquiry. According to the petitioner, the first respondent ought to have held that cellulose film is one of the industries listed in the First Schedule of the Industries (Development and Regulation) Act, 1951, and, therefore, entitled to the grant of tax credit certificate. The said article, it is alleged, falls under item 24(4) of the First Schedule which entry reads as follows: “Paper for packing (corrugated paper, kraft paper, paper bags, paper containers and the like).” The cellulose film falls, it is contended, within the above classification. The omission to claim the benefits of deduction under section 80-I of the Income-tax Act or development rebate at a higher rate, the argument of the petitioner proceeds, would not disentitle the petitioner to claim the tax credit certificate as the petitioner could have claimed the reliefs based on the entry “paper and pulp including newsprint” in the 5th and 6th Schedules to the Income-tax Act, 1961. The petitioner points out that the Government of India has actually issued a licence for setting up a unit for the manufacture of cellulose film and the Government would not have granted the licence, if it did not fall within the First Schedule to the Industries (Development and Regulation) Act, 1951. The petitioner also stresses on the fact that the Ministry of Commerce had clarified under exhibit P-7 (in both the writ petitions) that cellophane is one of the items covered under the First Schedule to the Industries (Development and Regulation) Act, 1951.

9. The petitioner questions the first respondent's action in passing the impugned orders under rule 8(1) of the Tax Credit (Corporation Tax) Scheme, 1966, while he had already initiated proceedings under section 148. It is also contended that rule 8(1) only enables the first respondent to pass an order with a view to rectifying any mistakes apparent from the record which could only mean that such mistakes must be obvious, glaring or self-evident. Where the matter in issue is controversial or debatable and there are two views possible, the alleged mistake cannot be said to be a mistake apparent from the record. It is submitted by the petitioner that if two interpretations are possible in respect of a statutory provision, one most favourable to the assessee should be adopted.

10. In regard to the appellate order, exhibit P-10, what is contended for is that the second respondent has not properly appreciated the scope and contents of paragraph 5 of the Scheme, which provides for a right of appeal. Paragraph 5(1) provides that any company aggrieved by the order of the Income-tax Officer passed under paragraph 4 may appeal to the Commissioner against such an order. Under paragraph 8 when an order is sought to be rectified, he shall proceed to make a fresh determination under paragraph 4. According to the petitioner, the effect of this provision is that the rectified order gets the attributes of an order under paragraph 4 and is, therefore, appealable under paragraph 5. The petitioner also takes up the plea that the second respondent in summarily dismissing the appeal acted in violation of the principles of natural justice. There is no statutory remedy, according to the petitioner, available for questioning exhibit P-10 order dismissing the appeal.

11. The Tax Credit Certificate Scheme under section 280ZB of the Income-tax Act provides for the grant of tax credit cretificate to companies engaged in the manufacture or production of any of the articles specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, for a period of five years from the assessment years 1966–67 to 1970-71. As the officer, the 1st respondent himself points out in the impugned order it is a precondition to the grant of tax credit certificate that the articles manufactured or produced by the company finds a place in the First Schedule to the Industries (Development and Regulation) Act, 1951. According to the revenue, cellulose film does not appear in the list of articles mentioned in the First Schedule to the Industries (Development and Regulation) Act while according to the petitioner it will squarely fall within item 24(4) of the Schedule, namely, “Paper for packing (corrugated paper, kraft pager, paper bags, paper containers and the like)”.

12. To understand the question raised which as pointed out earlier would reduce the enquiry whether item 24(4) of the First Schedule to Act LXV of 1951 would take in cellulose film, it would be useful to extract the whole entry in the said item 24. That reads as follows:

“Paper and pulp including paper produces:

(1) Paper— writing, printing and wrapping.

(2) Newsprint.

(3) Paper board and straw-board.

(4) Paper for packaging (corrugated paper, kraft paper, paper bags, paper containers and the like).

(5) Pulp— wood pulp, mechanical, chemical, including dissolving pulp.”

13. Now, cellulose film or cellophane is a transparent sheet or tube of regenerated cellulose highly impermeable to dry gases, grease and bacteria made by extruding alkaline viscose solution through a narrow straight or circular die into an acid bath, usually moisture-proofed by thin coatings and sometimes dyed and used chiefly as wrappers or bags for packaging food and merchandise, window envelope, or bags for dialysis (meaning given in Webster's Third New International Dictionary)

14. Cellulose is the most widely distributed plant polysachharide. It forms the main constituent of the cell walls of plants. “Paper”, as the Chambers' Twentieth Century Dictionary gives the meaning is—

“a material made in thin sheets as an aqueous deposit from linen rags, esparto, wood-pulp, or other form of cellulose, used for writing and printing, wrapping and other purposes: sometimes extended to similar materials not so made, as papyrus, rice-paper, to the substance of which some wasps build their nests, to card-board, and even to tin-foil (‘silver paper’).”

15. Cellophane is really the transparent cellulose sheet. It is prepared as follows (as succintly stated in Organic Chemistry by Cram and Hammond— International Student edition—2nd edition, page 695):

“Perhaps the best known product from cellulose is cellophane, a clear sparkling film having approximately the same composition as cellulose. Cellophane is made by a complicated process that is understood in principle but not in detail. First the cellulose is dissolved in concentrated aqueous sodium hydroxide. Then the alkali cellulose is treated with carbon disulphide to produce cellulose xanthate. Finally, sulphuric acid is added to coagulate the cellulose. As coagulation occurs, the cellulose is stretched into a film. On paper the chemistry looks like simple dissolution and reprecipitation:

ROH + NaOH RONa + H 2O Cellulose Alkali Cellulose S RONa + CS2 ROC Na S Cellulose Xanthate S S ROC +H ROC ROH + CS2 S SH Cellophane”

16. It is a well-known rule of construction of statutes that the construction of a word or words in a statute is to be adapted to the fitness of the matter of the statute. The first rule is that general statutes will prima facie be presumed to use words in their popular sense. In Attorney-General v. Winstanley, [1831] 2 Dow & CL 302 (HL) Lord Tenterden said at page 310:

“the words of an Act of Parliament which are not applied to any particular science or art, are to be construed as they are understood in common language.”

17. Cameron J. observed in regard to the words, ‘fruit or vegetables’ in considering the question whether salted peanuts and cashewnuts fell within the category of either fruit or vegetables for the purpose of Part XIII of the Excise Tax Act, 1927, in His Majesty the King v. Planters Nut and Chocolate Co. Ltd., [1951] CLR Exchequer Court 122 at pages 127 and 128:

“To the words ‘fruit’ and ‘vegetables’, therefore, there must be given the meaning which they would have when used in the popular sense— that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it. Now the statute affects nearly everyone, the producer or manufacturer, the importer, wholesaler and retailer, and finally, the consumer who, in the last analysis, pays the tax. Parliament would not suppose in an Act of this character that manufacturers, producers, importers, consumers, and others who would be affected by the Act, would be botanists. The object of the Excise Tax Act is to raise revenue, and for this purpose to class substances according to the general usage and known denominations of trade. In my view, therefore, it is not the botanist's conception as to what constitutes a ‘fruit’ or ‘vegetable’ which must govern the interpretation to be placed on the words, but rather what would ordinarily in matters of commerce in Canada be included therein. Botanically, oranges and lemons are-berries but otherwise no one would consider them as such.”

18. The Supreme Court said in Commissioner of Sales Tax v. Jaswant Singh, [1967] 19 STC 469 (SC):

“A sales tax statute, being one levying a tax on goods, must, in the absence…… be presumed to have used an ordinary term as coal according to the meaning ascribed to it in common parlance. Viewed from that angle both a merchant dealing in coal and a consumer wanting to purchase it would regard coal not in its geological sense but in the sense as ordinarily understood and would include ‘charcoal’ in the term ‘coal’. It is only when the question of the kind or variety of coal would arise that a distinction would be made between coal and charcoal; otherwise both of them would in ordinary parlance as also in their commercial sense be spoken as coal.”

19. On the same principle in Sree Rama Trading Company v. State Of Kerala, [1971] 28 STC 469 (Ker) this court held that cellophane— cellulose film— is not paper falling within entry 42 of the First Schedule in the Kerala General Sales Tax Act, 1963, which entry reads, “paper (other than newsprint), card boards, straw board and their products”. The court said that though paper and cellophane are both manufactured from cellulose and that cellophane sheets are used as packing materials, that does not mean paper and cellophane are the same in commercial and popular sense. However, that does not mean that cellophane— cellulose films— will not come within the meaning of the expression “paper for packaging (corrugated paper, kraft paper, paper bags, paper containers and the like)”, occurring in item 24(4) of the First Schedule to Act LXV of 1951. The meaning of an expression has to be deduced from a consideration of the subject or occasion on which it is used. The principle has been well-stated by Justice Blackburn in Rein v. Lane, [1867] LR 2 QB 144, 151:

“It is, I apprehend, in accordance with the general rule of construction in every case, that you are not only to look at the words, but you are to look at the context, the collocation, and the object of such words relating to such a matter, and interpret the meaning according to what would appear to be the meaning intended to be conveyed by the use of the words under such circumstances.”

20. Justice Fry pointed out in Holt & Co. v. Collyer, [1881] 16 Ch D 718 at page 720:

“If it is a word of technical or legal character it must be construed according to its technical or legal meaning. If it is a word which is of a technical and scientific character, then it must be construed according to that which is its primary meaning, namely, its technical and scientific meaning.”

21. The following passage from Craies on Statute Law, 7th edition, under the heading “Subject and occasion of use of words may affect meaning” in Chapter 9—Interpretation of Words (pages 169 and 170) would be apposite in this connection (the learned author is referring to a number of decisions):

“‘Except in mathematics’ said Grove J. in Wakefield L.B v. Lee, [1876] 1 Ex D 336 at 343, ‘it is difficult to frame exhaustive definitions of words’; consequently, as the court said in R v. Hall, [1822] 1 B & C 123 at 136, ‘the meaning of ordinary words, when used in Acts of Parliament, is to be found, not so much in a strict etymological propriety of language, nor even in popular use, as in the subject or occasion on which they are used, and the object which is intended to be attained’. Similarly, Brett M.R said in The Dunelm, [1884] 9 PD 164 at 171:

‘My view of an Act of Parliament which is made applicable to a large trade or business is that it should be construed, if possible, not according to the strictest and nicest interpretation of language, but according to a reasonable and business interpretation of it with regard to the trade or business with which it is dealing.’ For, as Lord Blackburn said in Edinburgh Street Tramways Co. v. Torbain, [1877] 3 App Cas 58 at 68: ‘Words used with reference to one set of circumstances may convey an intention quite different from what the self-same set of words used in reference to another set of circumstances would or might have produced’, and therefore it sometimes happens that, as Best C.J said in Wynne v. Griffith, [1825] 3 Bing 179 at 196, ‘the same words receive a very different construction in different statutes.’”

22. It might be noted in this connection that the Industries (Development and Regulation) Act, LXV of 1951, is an Act to provide for the develop, ment and regulation of certain industries. Provisions have been made in the Act for regulation of scheduled industries, procedure for grant of licences, power to cause investigation to be made, etc., under the Act. Petitioner was granted a licence for setting up a unit for the manufacture of cellulose film, the Commerce and Industries Department of the Union Government taking the view that the industry is included in the First Schedule to the Act. I am not referring to it as if the department's view in the matter is conclusive or should affect the court's decision, but only to point out how persons connected with the industry or who should have a technical knowledge of the expression understood it. Item 24 to the First Schedule is also rather widely worded so as to take in cellophane— cellulose films— used for wrapping. Item 24(4) indicates that paper for packaging takes in corrugated paper, kraft paper, paper bags, paper containers and the like. Moreover, item 24 has the heading “paper and pulp including paper products” so as to take in all sorts of paper products and not merely as to what in common parlance is called paper.

23. I am also impressed with the contention of the petitioner that rule 8(1) of the Tax Credit Certificate Scheme Under which the impugned orders have been passed by the officer only enables the officer for rectifying an error which is apparent from the records. As the Supreme Court has pointed out in Satyanarayanan Laxminarayanan Hegde v. Mallikarjun Bhavanappa Thirumale, [1960] 1 SCR 890, AIR 1960 SC 137, an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. In Sidhramappa Andannappa Manvi v. Commissioner of Income-tax, [1952] 21 ITR 333 (Bom), a decision on a debatable point of law is not a mistake apparent from the record. These decisions are quoted with approval by the Supreme Court in T.S Balaram, Income-tax Officer v. Volkart Brothers, [1971] 82 ITR 50 (SC). If a statutory provision is capable of two interpretations, taking one such interpretation cannot give rise to an error apparent on the record even if one is of the view that the other interpretation was more correct in the context.

24. On the above conclusions, I hold that exhibit P-8 (in both cases) is illegal and ultra vires. I quash the same. In the circumstances, the order in appeal (in both the O. Ps.) could have no legal effect of confirming exhibit P-8. The original petitions are disposed of as above. No costs.