The Judgment of the Court was delivered by

K.P Radhakrishna Menon, J.:— The reference is at the instance of the assessee. The question referred is:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the business of running a lodging house is not ‘an industrial undertaking’ for the purpose of section 54D of the Income-tax Act?”

2. Facts relevant and requisite to decide the issue lie in a narrow compass. The assessee is an individual. He was owning an ice factory by name Beena Ice Factory. During the assessment year 1976-77, Government acquired the land and building forming part of the ice factory. The land value was fixed at Rs. 5,000 while the value of the machinery and plant was fixed at Rs. 29,988. The capital gains relating to this acquisition was fixed at Rs. 23,325 by the assessing authority. Allowing the statutory deduction, the long-term capital gains was fixed at Rs. 13,844. The assessee filed an appeal against the aforesaid order before the Appellate Assistant Commissioner. In the said appeal the assessee contended that the amount declared as capital gains had been utilised by him for the construction of a lodging house. He further contended that the business of running the lodge is ‘an industrial undertaking’ and since the capital gains arising from the compulsory acquisition of the land and building forming part of the ice factory, had been utilised for setting up the lodging house, the same was exempt from tax under section 54D of the Income-tax Act, 1961, for short, “the Income-tax Act”. The Appellate Assistant Commissioner, however, found that the business of running the lodge cannot be treated as an “industrial undertaking” within the meaning of section 54D of the Income-tax Act and hence the assessee is not entitled to the exemption. On further appeal, the Appellate Tribunal sustained the above finding of the Appellate Assistant Commissioner and, as a result of which, the second appeal was dismissed. The above question arises from the said order of the Appellate Tribunal.

3. That the assessee will be entitled to the exemption from tax under section 54D of the Income-tax Act in case it is found that the running of the lodge is an “industrial undertaking” is beyond dispute. That the assessee has used the capital gains for the purpose of setting up the lodging house is beyond challenge. So the issue arising for consideration is whether the “running of a lodge” is an industrial undertaking within the meaning of section 54D of the Income-tax Act. The scope of section 54D(1) which is relevant here is: where any capital gain arises from the transfer by way of compulsory acquisition under any law, of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding the date of transfer, Was being used by the assessee for the purpose of the business of the said undertaking and the assessee has, within a period of three years after the date on which the acquisition had taken place, purchased any other land or building or any right in any other land or building, or constructed any other building, for the purpose of shifting or re-establishing the said undertaking or setting up another industrial undertaking, then, the capital gain is not to be charged to tax as the income of the previous year in which the transfer took place to the extent it has been utilised for acquiring such land, building or right or, as the case may be, constructing such building. Where the amount of capital gain exceeds the cost of acquisition or construction, only the excess is to be charged to tax. This concession, however, is liable to be forfeited if the assessee transfers such land or building within a period of three years from the date of his purchase or construction.

4. What then is an “industrial undertaking”? The Income-tax Act does not define what is “an undertaking” or what is an “industrial undertaking It has, therefore, become necessary to construe these words. Words used in a statute dealing with matters relating to the general public are presumed to have been used in their popular rather than their narrow, legal or technical sense. Loquitur ut vulgus, that is, according to the common understanding and acceptation of the terms, is the doctrine that should be applied in construing the words used in statutes dealing with matters relating to the public in general. In short, if an “Act is directed to dealings with matters affecting everybody generally, the words used have the meaning attached to them in the common and ordinary use of language.” (Vide Unwin v. Hanson, [1891] 2 QB 115 (CA), per Lord Esher M.R at page 119). That the Income-tax Act is of general application, is beyond dispute. It, therefore, follows that the meaning that should be given to these words “industrial undertaking” must be the natural meaning. It is all the more so because the Income-tax Act is one consolidating and amending the law relating to income-tax and super tax. (See Rao Bahadur Ravulu Subba Rao v. CIT, [1956] 30 ITR 163 (SC) at 169).

“Undertaking” in common parlance means an “enterprise”, “venture”, “engagement It can as well mean” the act of one who undertakes or engages in a project or business' (Webster). An undertaking mentioned in section 54D must be one maintained by a person for the purpose of carrying on his business. “Undertaking” for the purpose of this section, however, must be an “industrial undertaking The demonstrative adjective “industrial” qualifying the word “undertaking” unmistakably and with precision shows that the undertaking must be one which partakes of the, character of a business. That that is the meaning that is intended by Parliament is clear from the context in which these words have been used in the section. A reference in this connection to the following clause, namely:

“………being land or building or any right in land or building, forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said undertaking…….”

(Emphasis* supplied) is profitable. The word “business” has been defined in the Income-tax Act. The definition reads:

“‘Business’ includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.”

5. Construing this word “business”, the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner Of Excess Profits Tax, [1954] 26 ITR 765 has observed that “the word “business” connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose.” Endorsing this construction, the Supreme Court in a later decision in Mazagaon Dock Ltd. v. CIT, [1958] 34 ITR 368 has observed (at page 376):

“The word ‘business’ is, as has often been said, one of wide import and in fiscal statutes it must be construed in a broad rather than a restricted sense.”

6. The words “industrial undertaking” therefore, should be understood to have been used in section 54D in a wide sense, taking in its fold any project or business a person may undertake. The “running of a lodge”, by the assessee, therefore, can be said to be an “industrial undertaking” within the meaning of section 54D of the Income-tax Act.

7. The learned counsel for the Revenue, however, argues that the words “industrial undertaking” require to be construed keeping in view the provisions contained in sections 10A, 33B, 80M, 80J, 80K and such other similar sections in the Income-tax Act. These sections according to him, clearly state what an “industrial undertaking” is. An “industrial undertaking” should be a vocation, occupation, activity or business which manufactures or produces articles; it is not enough if the activity is one for the rendering of material service to the community at large or part of such community with the help of employees, he submits. In other words he argues, an activity, vocation or business to be an “industrial undertaking”, within the meaning of the Income-tax Act, must be one which manufactures or produces articles. This construction alone is warranted in the context in which these words are used in the various sections in the Income-tax Act. He argues that if the words are thus understood, there is no scope for contending that these words have differently been used in section 54D of the Act. It, therefore, follows that the meaning suggested by the Revenue must be the meaning attributable to the said words in section 54D also. Manufacture or production is the sine qua non, to call an activity, vocation, business or trade, an industrial undertaking. Merely because an activity partakes of the character of an industry or has some connection with an industry in some way, it cannot be said that the said activity comes within the scope of the words “industrial undertaking”; and such an extension of the words is unwarranted. These words cannot be dissociated from the primary significance thereof, which is manufacture or production, the learned counsel submits. In support of this argument, he relied on the dictum of the Supreme Court in CIT v. Raja Benoy Kumar Sahas Roy, [1957] 32 ITR 466. The dictum reads (at page 510):

“We are however of opinion that the mere fact that an activity has some connection with or is in some way dependent on land is not sufficient to bring it within the scope of the term and such extension of the term ‘agriculture’ is unwarranted. The term ‘agriculture’ cannot be dissociated from the primary significance thereof which is that of cultivation of the land and even though it can be extended in the manner we have stated before both in regard to the process of agriculture and the products which are raised upon the land, there is no warrant at all for extending it to all activities which have relation to the land or are in any way connected with the land. The use of the word ‘agriculture’ in regard to such activities would certainly be a distortion of the term.”

8. If these words are thus understood, then the assessee who invested the capital gains only on “a lodging house”, is not entitled to the benefit of section 54D because by running a lodging house, the assessee cannot be said to be owning an industrial undertaking where articles/goods are being manufactured or produced. A hotel or lodging house, though a trading concern, cannot be said to manufacture or produce goods, in the light of the ruling of this court in CIT v. Casino (Pvt.) Ltd., [1973] 91 ITR 289, the learned counsel for the Revenue argues.

9. There cannot be any quarrel on this aspect of the matter. But the real controversy here is whether the words “industrial undertaking” should be given the popular meaning or the restricted meaning attributed to them by the Revenue. The meaning attributed by the Revenue has, as its basis, the provisions contained in sections 10A, 33B, 80M and such other similar provisions. While considering this aspect of the argument, it should be remembered that a provision for exemption or relief in a fiscal statute should be construed liberally and in favour of the assessee. (See Maharajadhiraj Sir Kameshwar Singh v. CIT, [1957] 32 ITR 587 (SC)). Let us consider the object with which these sections are introduced. A reading of these sections makes it clear that owners of industrial undertakings, ships, hotel business, etc., which satisfy the requirements prescribed under these sections, are eligible for certain deductions while computing their assessable income. For instance, under section 33B, the rehabilitation allowance can be claimed only by an assessee who could establish that the “industrial undertaking” owned by him is one which satisfies the requirements prescribed by the Explanation appended to the section. The Explanation reads:

“In this section, ‘industrial undertaking’ means any undertaking which is mainly engaged in the business of generation or distribution of elecricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.”

10. This Explanation makes it abundantly clear that it is not every “industrial undertaking” that is entitled to the benefit envisaged in the section, but only such industrial undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture of goods, etc. An industrial undertaking, though it manufactures or produces articles, will none the less be not entitled to the tax concession prescribed under section 80J, unless the said industrial undertaking is a “new industrial undertaking” within the meaning of that section. The said industrial undertaking must also satisfy that it is not formed by the splitting up, or the reconstruction, of a business already in existence although it manufactures or produces articles. We do not propose to burden the judgment with more illustrations which could be culled out from similar sections.

11. Learned counsel for the Revenue then submits that from the collocation of the words “industrial undertakings, ships, hotel business”, it is clear that the words “industrial undertaking” cannot have a wide import. If these words do have a wide import, why should the Legislature mention “ships” and “hotel business” separately in some of these sections? He asks. The answer is simple. The Legislature never wanted the concessions and exemptions provided for in these sections to be enjoyed by every assessee who owns an “industrial undertaking”. The ratio legis thus is clear that such industrial undertakings which satisfy the particular requirements prescribed under these sections alone are eligible for these benefits; and not every “industrial undertaking” which comes within the meaning of those words. For instance, an “industrial undertaking” in order to avail of these benefits, must first of all be a new industrial undertaking; not only that, it should also satisfy the further conditions prescribed under these sections. We have already found that there can be industrial undertakings neither manufacturing nor producing goods. Such industrial undertakings, therefore, are not entitled to these special benefits. One such undertaking is “hotel business The Legislature in its wisdom thought that such undertakings also should enjoy the said benefits provided they satisfy the requirements prescribed under these sections. The Legislature, therefore, included them also along with the “industrial undertakings” which manufacture or produce articles, in the category of “industrial undertakings” eligible for the benefit. If that were not the position, neither the owner of “hotel business” nor the owner of “the ship” would be eligible for these benefits, because these industrial undertakings admittedly are neither manufacturing nor producing any articles. They are only rendering some sort of a service to the community with the help of employees. This being the position, the above approach of the Revenue cannot be taken cognisance of.

12. The above discussion would make it abundantly clear that the argument of the Revenue that the words “industrial undertaking” must be given the meaning suggested by it, in our view, is not sustainable. These sections, instead of supporting the argument of the Revenue, in fact, cut at the root of its argument.

13. It should, therefore, be held that the “lodging house.” constructed by the assessee is an “industrial undertaking” within the meaning of the Act and since the assessee satisfies the requirements prescribed under section 54D, he is not liable to pay tax on the capital gains.

14. The Tribunal, however, has held that “the running of a lodging house” could not be considered as carrying on an “industrial undertaking”. This finding, in the light of the above discussion, is erroneous.

15. The question accordingly is answered in the negative, against the Revenue. We direct the parties to bear their respective costs in this tax referred case.

16. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal Cochin Bench.