1974 (5) TMI 24 - HC - Income Tax

High Court: 'Straw-board' qualifies as 'paper and pulp' under tax laws, granting assessee benefits.

The High Court ruled in favor of the assessee, holding that 'straw-board' falls within the definition of 'paper and pulp' under both the Finance Act, ... Concessional Rate, Other Statutes, Priority Industry, Taxing Statutes Issues Involved:1. Whether 'straw-board' is covered by the term 'paper and pulp' as per the Finance Act, 1965.2. Whether 'straw-board' is covered by the term 'paper and pulp' as per item 16 of the Fifth Schedule to the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68.Detailed Analysis:Issue 1: Whether 'straw-board' is covered by the term 'paper and pulp' as per the Finance Act, 1965.The assessee, a manufacturer of straw-board, claimed concessional rates of income-tax, higher development rebate, and deductions under section 80E of the Income-tax Act, 1961, on the grounds that straw-board manufacturing was a priority industry. The Income-tax Officer (ITO) rejected these claims, asserting that straw-board was not covered by 'paper and pulp' in the relevant schedules. The Appellate Assistant Commissioner upheld the ITO's decision. However, the Income-tax Appellate Tribunal (ITAT) accepted the assessee's plea, recognizing straw-board as part of the 'paper and pulp' industry.The High Court examined the interpretation of 'paper' in common parlance, referencing Supreme Court judgments which emphasized that words in taxing statutes should be construed in their popular sense. The Court noted that the manufacturing process of straw-board is similar to that of paper, and straw-board is used primarily for packing, which can be considered a use of paper. The Court also referred to the Industries (Development and Regulation) Act, 1951, where 'paper and pulp' includes 'paper-board and straw-board.' Consequently, the Court concluded that straw-board falls within the definition of 'paper and pulp.'Issue 2: Whether 'straw-board' is covered by the term 'paper and pulp' as per item 16 of the Fifth Schedule to the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68.For the assessment years 1966-67 and 1967-68, the assessee claimed deductions under section 80E of the Income-tax Act, asserting that straw-board manufacturing was a priority industry as per item 16 of the Fifth Schedule. The ITO and the Appellate Assistant Commissioner rejected these claims, but the ITAT upheld them.The High Court reiterated its earlier reasoning that 'paper and pulp' includes straw-board, referencing the Industries Act and the common understanding of the term in the industrial world. The Court dismissed the department's argument that the absence of a specific reference to straw-board in item 16 indicated legislative intent to exclude it. The Court emphasized that the addition of 'including newsprint' to item 16 in 1966 was meant to clarify, not limit, the scope of 'paper and pulp.'The Court also highlighted the principle of statutory interpretation that favors the taxpayer in cases of ambiguity. Thus, the Court affirmed the ITAT's conclusion that straw-board is included in 'paper and pulp,' entitling the assessee to the claimed benefits.Conclusion:The High Court answered both questions in the affirmative, ruling in favor of the assessee. The Court held that straw-board is covered by the term 'paper and pulp' under both the Finance Act, 1965, and item 16 of the Fifth Schedule to the Income-tax Act, 1961. Consequently, the assessee was entitled to the concessional rates, higher development rebate, and deductions under section 80E as claimed. No order as to costs was made.