MESSRS CRESCENT SUGAR MILLS AND DISTILLERY LTD., LAHORE Versus COMMISSIONER OF INCOME-TAX, LAHORE ZONE, LAHORE

MUHAMMAD AFZAL LONE, J .-These two applications relating to the assessment years 1967-68 and 1969-70 have been filed by the assessee who manufactured sugar from sugarcane, "Gur" and "Shakkar". During the course of assessment, it claimed a rebate of 10 %, in the computation of its tax liability on the plea that it was engaged in the processing and preservation of food/fruit, within the meaning of clause (vi) of proviso to subsection (1) of Para. `A' of Part II of the Fifth Schedule to the Finance Act, 1968.

2. The Assessing Officer, however, declined to allow the rebate, as in his opinion, the assessee's case was not covered by this provision of law. It appears that for the assessment year 1969-70, because of the assessee's failure to pay the advance tax under section 18-A of the Income tax Act, 1922, the Income-tax Officer levied an additional tax of Rs. 2,65,312. The reason for this imposition was that in the Assessing Officer's opinion, the latest completed assessment Company exceeded Rs. 25,000; this consequently cast an obligation on it to pay the tax in advance.

3. These assessment orders were challenged by the assessee through two separate appeals. The first appeal was dismissed by the Tribunal by its order dated 12-9-1972 which rested on its decision in the` Messrs Premier Sugar Mill's case. This decision on its turn was based on the Tribunal's order dated 23-9-1970 delivered in I. T. A. No. 1424 of 1969-70 filed by the Murree Brewery Company Limited. In view of the rejection of the assessee's appeal for the year 1967-68, its appeal for the subsequent year was also dismissed by an order of even date, with respect to its both the grievances i.e. the refusal of the rebate and imposition of additional tax.

4. It is discernible from the Tribunal's order in I. T. A. No. 1424 of 1969-70 that the Murree Brewery Company Limited also insisted on grant of rebate, in determination of its tax liability, under the aforesaid provision. This claim was founded on. the ground, that it processed barley in the course of preparation of beer. The view taken by the Tribunal was :-

"The action of the assessee is also not one of processing of barely but of using it in order to manufacture beer. There is no doubt at the same time that the two acts of processing and manufacturing are different and one cannot be equated with the other. Since the Legislature has not used the word `manufacturing' the assessee cannot claim the benefit of processing activity which it, does not carry on. As by using the word `processing' the activities of manufacturing had obviously been excluded for concessional purposes envisaged by the relevant provisions of law. Moreover, it is recognized principle of interpretation of statutes that all the words used must be taken together to determine the sense or idea for which the same are used. The use of the four words, processing, freezing, preserving, and canning clearly, therefore, shows that whatever the goods may be the same must undergo a treatment which does not change their identity or in any case retain the same substantially whereas the manufacturing would amount to bringing into existing something clearly different from the original substance. In the present case barley is not processed in any manner when it is used for manufacturing beer."

5. As regards the order under section 18-A the assessee's case was that it enjoyed the status of a Food Processing Industry, claimed 10 % rebate, made the computation of its income accordingly, which fell below Rs. 25,000 and thus did not attract section 18-A. The Tribunal, however, rejected this contention and upheld the imposition of additional tax.

6. It is under these circumstances that the following questions of law have been referred to us under section 66(1) of the Income-tax Act, 1922. The first question is common to both the assessment years whereas the second question relates only to the assessment year 1969-70:

"(1) Whether on facts and in f lie circumstances of the case the Tribunal was right in omitting to allow the assessee a rebate of 10 % under clause (vi) of proviso to sub-para. (1) of para. A of Part II of Fourth Schedule to the Finance Act, 1968, in respect of processing of sugar cane into refined and crystallised Sugar?"

(2) Whether on facts and in the circumstances of the case the learned Members of the Appellate Tribunal were right in holding that the assessee has violated the requirements of section 18-A(1) of the Income-tax Act with regard to the payment of Advance tax and whether the imposition of penal interest of, Rs. 2;65,312 was in accordance with the requirements of law?"

In support of the first question the learned counsel for the assessee submitted that the terms "Food", "Vegetable and Fruit" having not been defined in Part II of the Fourth Schedule of the Finance Act, 1968, the seconds would be deemed to have been used in the sense of their ordinary dictionary meanings and thus the "gur", "sugarcane" or for that matter the sugarcane juice, for the purposes of grant of rebate, could be characterized as food." It was canvassed that the extraction of juice from sugarcane and then the manufacture of sugar from sugarcane juice, and 'Gur' involved various activities, which amounted to preservation and processing of articles of food and thus the Company qualified for rebate. For the connotation of the word "process" and processing, the learned counsel relied on the Words and Phrases Legally Defined (1969 Edition) published by Butter- Worths, London, and an unreported judgment dated 5-12-1974 passed by this Court in tax reference application, filed by Messrs Colony Textile Mills Ltd. He also referred to the Webster's New International Dictionary.

7. For the sake of facility of reference, the relevant provisions of Part II, Para "A" of the Fourth Schedule of the Finance Act are reproduced below : -

"A. In the case of a company ------ Rates

(1) On the whole of the total income excluding income to which sub-paragraph (1) of paragraph B of Part I applies :

30 per cent of such total income.

Provided that -------------

(i) to (v)----------------------------------------------------------

(vi) a rebate of 10 per cent. shall be allowed in the case of a company to which sub-clause (a) of clause (i) applies in respect of its income, profits and gains to which subsection (9) of section 10 of the Income tax Act, 1922 (XI of 1922) applies or which are derived by it from processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry;"

It is thus to be seen that rebate is admissible to only those companies, which derive their income from processing freezing, preserving and canning of food, vegetable and fruit etc. In order to examine the petitioner's contention we would proceed with the assumption that the material namely "gur", "Shakkar" and sugarcane utilized by it for production of sugar, can be treated as food, for the purposes of the provisions relating to the grant of rebate. For proper determination of the matter in issue, it will be useful, to have an idea of the method of the production of sugar. An illuminating discussion on this subject will be found in the New Encyclopaedia Britannica (17th Vol.). At page 772 it has been laid down;----

"Juice processing.--The extracted, mixed juice is heated to about 220 F(105 C) and milk of lime (suspension of calcium hydroxide) added. The mixture then goes to a continuous juice clarifler. From here, clear juice is drawn off the surface of each tray and sent to the evaporator, while settled juice mud is scraped out and sent to mud receivers, continuous rotary vaccum filters."

A reference to page 774 will provide :-

"Raw Sugars

The necessary quantity of raw sugar is carried to a continuous mingler, where it is mixed with warm syrum forming a continuous flow of magma, a thin, pasty mixture of raw sugar and syrup. The magma removes the molasses film that adheres around raw-sugar crystals and is fed into centrifugal machines for separation into affined sugar and affination syrup.

Affined sugar is dissolved at 150 F (66'C) in hot, sweet water with some fresh, hot water added to obtain raw liquor of about 65 Brix. Purification of raw liquor is most efficient and economical when a combination of liquor-carbonation and bone-ash decoloration methods are used. In the carbonation process, milk of lime is added to the continuous flow of raw liquor from the melter and the mixture fed into the carbonation tanks, where carbon dioxide is blown: in from below. Carbonated liquor overflows to a succeeding carbonator tank where the reaction is completed. The liquor carbonation is carried out continuously. Carbonation produces decoloration of 50-60 per cent. and the calcium carbonate precipitates that form are a good filter aid.

The carbonation slurry, or thin mixture, thus obtained is heated to 175 F(80' C) and filtered without added filter, aid. The filtrate is further decolorized by percolation through deep beds of bone-ash, tribasic calcium phosphate which acts as a clarifying agent. A fine liquor is thus obtained and sent to the boiling house. The fine liquor is boiled to obtain sugar and molasses; then the molasses is boiled again to obtain the second sugar yield, and so on. The boiling system is complicated because the purity of fine liquor is higher than 98 per cent. and at least six or seven stages of boiling are required until the molasses is exhausted; three stages of boiling are needed to de-sugar the affination syrup. A mixture of first, second, third and sometimes fourth sugars is sold as white granulated sugar. Yellow or brown soft sugars are produced from low-grade massecuites. Refined products are dried, classified, and stored in sugar bins, from which they are drawn out for packaging or sending to the market in bulk"

7. The argument of the other side is that the extraction of juice from the sugarcane and treatment of juice and `Gur' or `Shakkar' for production of sugar involves manufacturing processes and it cannot be termed as processing of food, in the sense in which this expression was used in clause (vi). We find that in the "Words and Phrases, Legally Defined referred to by the petitioner's learned counsel the term processing has been described as:-

" `Processing' (in relation to fish) includes preserving or preparing fish, or producing any substance or article from fish, by any method for human or animal consumption (See Fish (Preservation) Act, 1967, S. 22(1)."

It appears that this description rests on a provision of some statute rather than to convey the general meaning of the term `processing'. In the unreported judgment the question considered was, whether the waste cotton, was a manufactured article. This was a case under the Sales Tax Act in which the word `manufacturer' has specifically been defined. We do not think that this judgment is of any help to the assessee.

It is to be seen that the fate of these reference applications, largely depends on the construction of the word `processing'. It would be thus the burden of this judgment to search for the true meaning of this expression; in consonance with the intention of the Legislature. Since for construing the word `processing' the connotation of other words occurring in clause (vi) may have to be considered, we quote hereunder, precisely the meanings of all these terms, as given in, `Oxford Universal Dictionary' and the Webster's New International Dictionary :-

Oxford Dictionary

Webster's New International Dictionary.

Process.-The fact of going on or being carried on . . . a particular method of operation in any manufacture.

Freezing.-To be converted or covered with ice, To become hard or rigid as the result of cold. .

To change to a solid form of action of cold.

Preserve.-To keep alive. To keep from decay, make lasting (a material thing, a name, a memory). To maintain (a state of things). To prepare fruit, meat etc.) by boiling with sugar, salting or pickling, so as to prevent its decomposition or fermentation.

Canning.-The preserving of meat, fish etc. by scaling up in cans; tinning.

To prepare for market manufacture, or other commercial by subjecting, to some process . . . . . . . . (processing) cattle by slaughtering them. . . . . . . milk by pasteuring it . . . . . grain by milling . . . . . . . cotton by spinning.

Freezing the method by which foods are frozen to preserve them.

To keep or save from decomposi tion (as by refrigeration, canning, or treating with a preservative. To can pickle, or similarly prepare (as fruits or vegetables) for future use.

To put in a can; preserve by scaling in air tight cans or Jars.

9. It is one of the cardinal rules of the construction of statute that when several words have been used in an enactment, the meaning of the doubtful words may be gathered by reference to the words associated with it. This principle is laid down in Maxwell on the Interpretation of Statutes (12th Ed.) in the following words:- ---

"Where two or more words which are susceptible of analogous meaning are coupled together, noscuntur a sociis. They are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the; more general being restricted to a sense analogous to that of the less general."

The term `manufacture' has often been understood as transformation of one article into a commercially different commodity. The Tribunal does not appear to be wrong in confining the "processing" to undergoing a treatment which does not change the identity of the goods. May be, that in some shades inexactly, the connotation of the word `manufacture' and `processing' overlap but we, feel that here the word processing is not amenable to extended meanings and conceivably 'has been used alongwith the associated words in the cognate sense as a phenomenon of the Food Processing Industry which includes, the canning, freezing and preservation of food through various methods.

10. There is yet another reason for construing the term `processing', narrowly. There is authority for the proposition that the provision granting concession and exemption should be attributed restricted meanings. In Muhammadi Steamship Co. Ltd. v. The Commissioner of Income-tax (Central Karachi PLD 1966 S C 828, the Supreme Court expressed the view

"Provisions granting exemptions or privileges have to be construed strictly against the person claiming the exemption or the privilege."

11. Thus the submission made by the petitioner's learned counsel having been found without any merit, our answer to the first question is in favour of the revenue.

12. As regards the 2nd question, it has been brought to our notice that at the relevant time, the petitioner had been assessed under section 23 for the year 1964-65 at Rs. 23,045. This assessment order was made on 26-4-1967. However, the Income-tax Officer by his order dated 13-1-1969 had also made the provisional assessment for the year 1969-70 and computed the income at Rs. 41,25,730. The order under section 18-A was passed by him on the strength of the provisional assessment dated 13-1-1969 and as the advance tax paid by the assessee was found short by Rs. 5,42,640 he proceeded under section 18-A(6) and imposed a sum of Rs. 2,65,312, on it, as an additional amount of tax. The petitioner's learned counsel assailed the levy of additional tax on the ground that for the purposes of the section 18-A(1), the "income of the latest previous years" was the income computed under section 23, for the assessment year 1964-65 and not the income calculated by the Income-tax Officer for 1969-70 through a provisional assessment.

13. We are unable to agree with the petitioner's learned counsel upon' the language of subsection (1) of section 18-A it is quite clear that when the assessment for the latest previous year has not been made, the liability to pay advance tax, can be founded on the assessment under section 23-B for the latest previous year. In this view of the matter we do not find any wrong with the view taken by the Tribunal. The result is that the second question is also answered in the affirmative and against the assessee.

The costs shall be borne by the assessee.

References answered in the affirmative.