@JUDGMENTTAG-ORDER
S.H. Kapadia, J.@mdashBy this reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the assessee, the Income Tax Appellate
Tribunal has referred the following questions of law to this Court for opinion.
1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that proportionate salary of employees of
assessee for the period of their stay outside India in the ordinary course of their employment should not be excluded from the total salary while
computing disallowance u/s 40-A(5) of the Income Tax Act, 1961?
2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount representing medical
reimbursement given to employees which was not treated as perquisite in computing disallowance u/s 40-A(5) of the Income Tax Act, 1961
should be treated as part of salary for computation of disallowance under said provision?
3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that amount payable towards surtax was not
liable to be deducted in computing the profits and gains of the business of the assessee?
2. Counsel for the parties are agreed that question No. 1 is covered by the decision of the Supreme Court in Commissioner of Income Tax, Delhi
(Central-I) Vs. M/s. Continental Construction Ltd., , and following the same, it should be answered in the negative and in favour of the assessee.
The question is answered accordingly.
3. The Counsel for the parties are agreed that question No. 2 is covered by the decision of this Court in Commissioner of Income Tax, Bombay
City-II Vs. Indokem Private Ltd., , and following the same, it should be answered in the negative and in favour of the assessee. Question No. 2 is
answered accordingly.
4. The Counsel for the parties are agreed that question No. 3 is covered by the decision of the Supreme Court Smith Kline and French (India)
Ltd. and Others Vs. Commissioner of Income Tax, , and following the same, it should be answered in the affirmative and in favour of the revenue.
The question is answered accordingly.
5. The Income Tax Appellate Tribunal has also referred the following question of law to this Court for opinion at the instance of the revenue :
1. Whether on the facts and in the circumstances of the case, the tribunal was justified in law in allowing investment allowance of Rs. 26,50,507/-
to the assessee by treating the chemicals manufactured by the assessee as heavy chemicals as listed in Ninth Schedule to the Income Tax Act,
1961?
6. During the relevant accounting year, the assessee acquired and installed machinery at the cost of Rs. 1,06,02,027/- for manufacture of the
following tanning agents viz. 1) Diketene, 2) Acetoacet Arylides and Acetocetamides 3) Acetic Anhydride 4) Synthetic Tanning Agents. u/s 32-A
of the Act, investment allowance at the rate of 25% of the cost is allowable on new machinery or plant for the purpose of manufacture or
production of one or more of the articles or things specified in the Ninth Schedule. Entry 26 and Entry 27 of the 9th Schedule reads as follows :
26. Inorganic heavy chemicals (other than soda ash and caustic soda mentioned in items 12 and 13 respectively).
27. Organic heavy chemicals.
The assessee claimed that chemicals manufactured or produced by the assessee came within the ambit of Entries 26 and 27 as the above tanning
agents constitute heavy chemicals. The assessee accordingly made reserve for making claim for investment allowance. The assessing officer held
that the items manufactured by the assessee were not heavy chemicals and he, therefore, disallowed the claim of the assessee. The disallowance
was confirmed by the Commissioner of Income Tax (Appeals). The assessee came in appeal before the Tribunal. The Tribunal accepted the plea
of the assessee and came to the conclusion that the assessee was entitled to claim investment allowance. The product manufactured by them came
within the ambit of Entries 26 and 27 of the 9th Schedule as heavy chemicals.
7. The short point which arises for consideration is : whether the chemicals manufactured or produced by the assessee were heavy chemicals? The
assessing officer came to the conclusion that the word ''heavy chemical'' must be understood in common parlance. That the word ''heavy'' being
used as an adjective qualifying the quality of the chemical, such as large specific gravity, large molecular weight or chemical made up of heavier
elements or consisting of heavier isotope of a particular element like ''heavy water'' which consists of a heavy isotope of hydrogen. This reasoning
of the assessing officer was accepted by the Commissioner of Income Tax (Appeals). However, the Tribunal relied upon the dictionary meaning
given to word ''heavy chemical''. In condensed Chemical Dictionary, IXth Edition, published by Van Norestrand, Reinhold company-page 430 the
word ''Heavy chemicals'' has been defined to mean ""A chemical produced in tonnage quantities often in a relatively impure state. Examples :
Sodium Chloride, Sulphuric Acid, etc."" Whereas the word ''Fine chemicals'' is defined at page 384 of the same Dictionary as ""A Chemical
produced in comparatively small quantities and relatively pure state. Examples : Pharmaceutical and biological products, perfumes, photographic
chemicals etc."" Similarly in The New Encyclopaedia Britannica, 15th Edition, Vol. 4, page 128 gives the definition of the word ""Heavy organic
chemicals"" to mean chemicals like phenol, ethylene etc. Similarly, Websters Third New International Dictionary Unabridged-1968 Edition page
1047 has defined the word ''Heavy chemical'' to mean ""A chemical produced and handled in large lots"" whereas the word. ''Fine Chemical'' is
defined to mean ""A chemical which is produced and handled in relatively small amounts like a perfume"".
8. Looking to the above meanings given by the Chemical Dictionaries, it is clear that ''heavy chemical'' is described as heavy chemical on the basis
of the tonnage whereas ''Fine Chemical'' is defined on the basis of the smaller quantity. In other words, the parameter of tonnage applies in order to
ascertain whether the chemical is a heavy chemical or a fine chemical. The assessing officer has applied a different test which normally applies to
cases of molecular weight. That test is not correct as indicated by the above meanings given by the Dictionaries to heavy chemicals.
9. In the circumstances, the above question is answered in the affirmative i.e. in favour of the assessee and against the revenue.
10. Reference is disposed of accordingly with no order as to costs.
11. Reference answered in favour of assessee.
