1985 PLP (Trib (PTD)

MIAN ABDUL KHALIQ (MEMBER).‑‑These two departmental appeals pertaining to assessment years 1976‑77 and 1977‑78 are directed against the orders of the learned Appellate Assistant Commissioner of Income‑tax, Range (A) Lahore.

2. The facts in brief are that the assessee‑respondent who is a Private Limited Company derived income from preparation and sale of Beverage styled as 'R.C. Cola'. For the charge year 1976‑77 after processing of assessment, in I:T.‑30 super‑tax was calculated at the rate of 20%. Thereafter the Income‑tax Officer while passing order under section 35(1) of the Repealed Income‑tax Act, 1922, rectified the original assessment by calculating super‑tax at the rate of 30%. It was held that the assessee‑Company was not entitled to rebate of 10% as that was allowable to companies deriving income from processing, freezing preserving and canning of food, vegetable, fruit, grain, meat and poultry whereas the assessee was manufacturer of beverages. For the assessment year 1977‑78, at the time of assessment super‑tax was worked out at the rate of 30%.

3. In appeal, the learned Appellate Assistant Commissioner, modified the Income‑tax Officer's orders for both the years holding that beverages were food items used all over the world for all practical purposes and distinction of aerated water and food items created by the Income‑tar Officer was without any precedent. In this behalf reliance on a certificate of Government Public Analyst wherein beverages were classified as a Food Processing Industry. Central Board of Revenue Circular' No.4‑I.T. of 1968‑C.No.4(257)/IT‑1/67, dated 16‑5‑1968 clarifying this issue was also relied. Rebate of 10% being allowable to manufacturers of syrups, the learned Appellate Assistant Commissioner held that the same was allowable in the case of beverage which in itself is also a food item. For both the years under consideration, the assessee Company was held to be entitled to rebate of 10% in super‑tax. The department has come up in appeal against that decision.

4. The Departmental Representative submitted that the learned Appellate Assistant Commissioner erred in allowing rebate of 10$ as the assessee Company was not undertaking processing of any food item; rather was a manufacturer of beverages. According to the Departmental Representative, beverages manufactured by the assessee are neither a food item nor a syrup and as such do not qualify for rebate of 10$ in super‑tax. It was next contended by the Department Representative that the item manufactured by the Assessee is trot food. The assessee respondent's Authorized Representative, in his turn, relied on definition of Food as given in sub‑clause (9) of section 2 of West Pakistan Pure Food Ordinance, 1960, wherein food has bear defined to mean any article used as food or drink for human consumption. The 3ssessee's Authorized Representative further submitted that contents of manu factured beverage contain 60% of sugar mixed with concentrate and one bottle of 7 ounces contains 112 calories. In the preparation of R.C. Cola, the assessee's Authorized Representative stated, that all the constituents; preserving and canning of food are involved. To elaborate its processing, it was urged that initially sugar when mixed in water is converted to syrup, purified and all the dirt bacteria and other foreign matter is removed by using activated carbon Filter aid. This filtered syrup, which contains 60% of sugar is then mixed with concentrate and thereafter this finished syrup is pumped into a machine for chilling at freezing point. In the chilled syrup, water and gas is mixed in proportion and later on it is pumped through machines for filling in canes and bottles. By narrating the aforementioned details of components and stages of processing, the assessee's Authorized Representative elaborated that beverage is not simply manufactured; rather involves .all elements of processing preservation and canning of food. The assessee's Authorized Representative further submitted that 80% cost of beverage is of sugar and the balance 20`o comprised of cost of concentrate at 2% and labour, electricity etc. at 18%. The assessee's Authorized Representative also stated that before undertaking the processing of beverages, 'Food License s is necessarily to be obtained under section 11 of West Pakistan Pure Food Ordinance, 1960.

5. It is pertinent to bring on record the provision pertaining to rebate. The relevant provision of clause (iv) of subsection (2) of section A of Part III of First Schedule of the Finance Act, 1976 and 1977 is as under:‑ "a rebate of 10% to such company 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 in Pakistan from processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry." To elaborate this provision of rebate, Central Board of Revenue vide Circular No.4‑1 of 1968 and Circular C.No.4(257)/IT/I/67, dated 16‑5‑1968 clarified as under:‑‑ "The word 'manufacture' is clearly distinguishable from the word 'processing'. The Legislature has used the latter word in the rebate clause and the deliberate use of the word process' therefore, excludes the act of manufacturing". 'Processing' means to exercise the method of operation in manufacture by a special artificial process. It may fall in the broader sense of manufacture, but it does not mean the plain. derivation of a single something by manufacture.' To take an instance, 'sugar' is manufactured from sugarcane. The food, i.e. sugar manufactured is derivative. But if something is made of the resultant sugar, for instance, ' syrup or similar item, it would fall within the provision." The main 'issue involved is the meaning of word "Food". In. sub‑clause (9) of section 2 of West Pakistan Pure Food Ordinance, 1960, food has been defined as:‑‑ "Food" means an article used as food or drink for human consumption other than drugs and includes‑‑ (i) any substance which is intended for use in the composition or preparation of food; (ii) any flavoring matter or condiment; (iii) any coloring matter intended for use in .food ; (iv) chewing gum and other products of the like nature; and (v) water in any form, including ice, intended for human consumption or for use in the composition or preparation of food. " The relevant provision for obtaining of Food Licence under Pure Food Ordinance, 1960, states:‑ Section 11‑‑ License for manufacture, storage and sale of goods.‑‑ (1) No place shall be used:‑ (a) for the preparation or the manufacturing, processing, blending, preserving, refrigerating, canning or bottling of any food except under a licence to be granted in such manner and by such authority as may be prescribed. Under West Pakistan Pure Food Rules, 1965, Government Public Analyst on 12‑3‑1978 issued the following certificate to the assessee:‑‑ "According to the definition of bottling factories vide Rule 2, definition (v) and Rule 27(1)(c), licensing of food trades, business and premises, your organization falls under the classification of beverages. As such R.C. Cola beverage shall be classified as a food processing industry in accordance with the provisions of West Pakistan Pure Food Rules, 1965, framed under the West Pakistan Pure Food Ordinance, 1960."

6. After giving careful consideration to the contentions of the parties and on going through the provisions of the relevant law and notification we do not find any justification for interference in the impugned orders.) The solitary issue involved in the matter is whether the assessee's item is simple manufacturing or is a food item requiring processing, preserving and canning of food. Dictionary meanings of word "food" are what one feeds on; that which being digested, nourishes the body;, whatever sustains or promotes growth. As per Encyclopedia Britannica, the word "food" includes every article used for food or drink by man other than drugs or water and any article, which ordinarily enters into or is used in the composition or preparation of human food and also flavoring matters and condiments. According to the Book "Words and Phrases (Legally Defined) 2nd Edition by John B. Saunders, "Food" includes any substance ordinarily used in the composition or preparation of food, the seeds of any cereal or vegetable. It includes drink, chewing gum and other products of alike nature and use, and articles and substances used as ingredients in the preparation of food or drink or of such products but does not include: (a). Water, live animals or birds, (b) Fodder or feeding stuffs for animals, birds or fish. (c) Articles or substances used only as drugs. At this stage we would like to take note ‑of the distinction between aerated water and beverages. Aerated water has been defined as "Soda Water meaning thereby water (commonly without sodium bicarbonate) charged with carbon dioxide or other gas". It does not have any element of sugar or value in calories. Whereas beverage is a liquid for drinking, i.e. a mixture of cider and water. As per The, New Encyclopedia Britannica, beverage means "liquid prepared for human consumption including types made by infusion such as tea and coffee; fruit juices and other juices extracted from plants, such as carbonated drinks as ginger ale etc.". As per universally accepted definition of the word "food", it will not be exclusively anything in solid form; rather will be inclusive of drinking material. In both the forms calorific value of the article 1 will be the deciding factor. If any solid form or drinking material does not have any calorific value it cannot be termed as a food. We are fortified in this view by a decision in the case of James v. Jones (189,4)1Q B 304, D.C. wherein at page 308 it was held:‑ "I desire to repeat it that tea is not in itself a food in the sense that it is not nutritious, that you cannot live on it, that will not increase the amount of tissue in a person as the drinking of milk would‑‑food may be solid food or liquid food‑‑it is not simply because it is a drink that tea is not a food; that is an entire mistake‑‑supposing tea were capable of adding to the tissues as milk will do, then it would be quite right to call it simply a food. Tea appears' to be nothing in the world but a stimulant. " Beverage being nutritious is different and distinguishable from an aerated water and tea. In various encyclopedias where food has been defined, beverage has also been included therein. Beverage has been classified in 'the chapter relating to food and food industry. Encyclopedia Americana Vol. II has also included beverages within the classified of food. On these basis any item or substance in the form of solid food or beverage having calorific value shall be deemed to be food for human beings. Throughout the World, beverages are styled as Coca Cola; Seven Up, R.C. Cola, Canada Dry, Ginger Ale etc., containing calorific value as contents of sugar used therein are more than 60%. All these beverages specially prepared for diabetic people are not food being without any calorific value as instead of sugar sodium saccharin is used therein for artificial sweetening. In the World on all‑Canes & Bottles of beverages ingredients specifically mentioning calorific value are to be necessarily printed under law. No such requirement is there in the case of aerated water as the same contains no calorific value. Use of plain water for drinking purposes is very uncommon in civilized and prosperous countries of the World. There beverages are always used with lunch and dinner and aerated water is consumed for drinking of Wine. On these basis we hold that beverage is a food item.

7. Looking the matter from another angle, we arrive at the same conclusion. Under sub‑clause (9) of section 2 of West Pakistan Pure Food Ordinance, 1960, definition of food is inclusive of any drink for human consumption. That provision even prescribes water in any form including ice intended for human consumption as to be food. Food and drink signify the same thing and where an Ordinance brings drink also under Food Laws, nobody can challenge that provision. The fact that the beverage prepared by the assessee is not simple manufacturing as it involves good deal of processing and freezing of syrup, its industry is food industry and that is why licence prescribed under section 11 of West Pakistan Pure Food Ordinance, 1960, had to be obtained. The assessee's business is thus to be treated as Food Industry. Certificate of Government Public Analyst‑, dated 12‑3‑1978 also lends full support to this conclusion. Another aspect of the case is that when syrup prepared from sugar, is termed as food and has been given benefit of rebate under clause (iv) of subsection (2) of section A of Part II of the First Schedule of the Finance Act, 1976, how syrup after chilling and mixture of concentrate could be taken out of ambit of that provision. Realizing such like situation, the Central Board of Revenue had issued Circular No.4(257). In that Circular, after the word 'syrup', word 'similar items' was intentionally provided to safeguard such like situation. Manufacturing of confectionaries, sweet drops and biscuits has been held to be processing of food and entitled to rebate as prescribed under sub‑clause (iv). In that case, rebate was withdrawn by the Income‑tax Officer but the learned Appellate Assistant Commissioner allowed rebate. The Tribunal upheld the orders of the learned Appellate Assistant Commissioner on the issue of rebate vide its decision in I . T . A,: No.784 of 1975‑?6, dated 22‑4‑1977.

8. As a result of the above discussion, we hold that the impugned orders do not suffer from any legal ailment. Both the departmental appeals being devoid of any merits stand dismissed. GHULAM MURTAZA KHAN (MEMBER).‑‑I have gone through the order passed by my learned brother, Judicial Member (I) Lahore and respectfully differ from his reasoning as well as the finding that bottling of R.C. Cola drink/beverage falls within the meaning of food as provided in clause (iv) of subsection (2) of section 8 of Part II of the First Schedule of the Finance Acts 1976 and 1977 to be eligible for a 10% rebate in respect of income derived from its sale etc. A bare reading of the provision mentioned above shows that the rebate would be available to those companies which derive income in Pakistan from:‑ " Processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry." My learned brother has expressed his opinion that R.C. Cola is a food because the word 'food' as defined in subsection (9) of section 2 of 'Nest Pakistan Pure Food Ordinance, 1960, means any article used as food or drink and includes substances used for preparation of food, flavors, coloring matter, chewing gum, water in any form including ice .He also considered the meaning given in Encyclopedia Britannica according to which the word food includes every article used for food or drink by man other than drugs or water or any article which ordinarily enters into or is used in the composition or preparation of human food etc. At the very outset I may submit that the definition of food contained in the West Pakistan Pure Food Ordinance, 1960, is not al all relevant because in that Ordinance food has been defined with a specific purpose i.e. . to set safety and quality standards for food including water and ice etc., in the interest of consumers. The basic aim is to control quality of goods consumed by human beings so as to safeguard their health. The word has been used in the widest possible sense and cannot, be equated with the word used in the First Schedule mentioned above for purpose of allowing the rebate to companies engaged in processing, preserving, freezing, etc." of food, vegetable etc. I am firmly of the view that in the instant case while considering the meaning of a fiscal statute we must adopt the meaning as understood in common parlance or as commonly understood. For this purpose the meaning given in Oxford Dictionary or any other common dictionary can be more ‑appropriate. The Oxford Dictionary defines food as 'what one takes into the system to maintain life and growth and to supply waste'. According to this plain dictionary meaning R.C. Cola may be a drink or a beverage but it cannot be considered as food, which is basically and primarily an item taken into system to maintain life and growth. If sustenance of life or growth be the only consideration then there can be numerous things which can sustain life but they cannot be called food as ordinarily understood. Ordinarily and in common parlance such items can certainly be considered as food. A beverage will remain a beverage and it cannot be equated with or replaced by what is commonly known as food. Secondly, the basic and the most important condition which can entitle a company to get rebate is that it should be engaged in the processing of food, as commonly understood. In the instant case it will have to be seen as, to what exactly is the assessee‑Company processing or preserving. Evidently the assessee‑Company is not processing or preserving R.C. Cola. On the contrary it is simply mixing and diluting the R.C. Cola concentrate with water; sugar and perhaps charging with corbondioxide gas. The R. C. Cola concentrate is a secret formula perhaps bearing an international trade name. It is basically the bottled mixture of water, sugar and R.C. Cola 'concentrate' which has been given the name of the so‑called drink or beverage R.C. Cola. Strictly speaking the main ingredient of R.C. Cola is the concentrate, a secret chemical compound, which does not involve processing, of anything which is ordinarily known or considered as food. One can well understand the processing of meat, vegetables, fruits, grains etc. These are all foods and it is the processing of such items that can make a company eligible for rebate. Mere bottling up process of a concentrate with water and sugar does not tent amount to processing etc., of any food. In these circumstances one can easily understand that the assessee‑Company is not processing any food etc. After having given the aforesaid finding I do not consider it necessary to examine the various definitions of the word "food" which have been discussed at length by my learned brother as also the references to the West Pakistan Pure Food Ordinance, 1960, or the certificates or licences issued by the Government under the aforesaid Ordinance. In my opinion these considerations appear to be extraneous to the main consideration i.e. whether, mixing of R.C. Cola concentrate, the main product being a secret chemical formula, with water and sugar tent amounts to processing of any food. To repeat it again the R.C. Cola concentrate or for that matter any other concentrate used for bottling beverage/ drinks cannot be considered as processing of food. In this view, of the matter, the learned Appellate Assistant Commissioner erred in allowing rebate to the company engaged in bottling R.. C . Cola. Before parting with the matter reference may also be made to the intention of the Legislature in interpreting such provisions of law. The incentive given to the companies is essentially to promote business of processing basic food items so as to preserve them and avoid wastages and encourage their exports. R. C. Cola a beverage made from concentrate being a secret chemical compound, is least important in the economy of a country and it neither requires processing nor preservation for avoiding wastage or encouraging its production /export. SIKANDAR HAYAT KHAN (MEMBER).‑‑The appeals filed by the Income‑tax Department against the impugned orders of the learned Appellate Assistant Commissioner for the assessment years 1976‑77 and 3977‑78 were earlier heard by my learned brothers, the Judicial Member and the Accountant Member. Since there was a difference of opinion between the two, the appeals of the department have been referred to me for adjudication. The precise question referred to me is whether on the facts and circumstances of this case beverage styled as R . C . Cola was food within the meaning of clause (iv) of subsection (8) of Part‑II of the Ist Schedule to the Finance Acts, 1976 and 1977 so as to be eligible for 10% rebate.

2. The learned Accountant Member, has held that R.C. Cola is not food within the meaning of clause (iv) of subsection (8) of 'Part‑II of the Ist Schedule to the Finance Acts, 1976 and .1977 so as to be eligible for 10% rebate. A contrary view has been express by the learned Judicial Member, Lahore.

3. The learned Departmental Representative brought to my notice that according to clause (iv) of subsection (8) of Part II of the 1st Schedule to the Finance Acts,1976 and 1977 a rebate of log was permissible in; the case of such companies in respect of their income, profits and gaits to which subsection (9) of section 10 of the Income‑tax Act, 1922 (Act XI of 1922) applies or which are derived by them in Pakistan from processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry. He argued that the word 'processing' is distinguishable from the word 'manufacture'. He submitted that the deliberate use of the word 'processing' excluded operation of manufacturing. He stated that processing refers to a chemical action/method by the performance of which the actual shape of the articles. does not change. He emphasized that where a particular article is subjected to processing the end product does not lose its identity.‑ On the other hand he argued that where a particular article is subjected to processing the end product is something quite different. In the instant case according to the learned Departmental Representative concentrate when mixed with sugar and treated with gas resulted in the manufacture of R.C. Cola, which is different from its constituents. Hence he stressed that the respondent was not entitled to rebate of 10$. Finally the learned Departmental Representative invited my attention to Pakistan Customs Tarrif (Second Edition) November, 1983, section IV, according to which beverages are listed under Chapter 22 while preparation of meat, sugar and sugar confectionery, Cocoa and Cocoa preparations, preparation of syrups, preparation of vegetables, fruits or other parts of plants and miscellaneous edible preparations are listed in Chapters 16, 17, 18, 19, 20 and 21, respectively, He emphasized that the placing of beverages in Chapter 22 excluded it from the word "food". Consequently, it has been stated that the learned A . A . C . erred in coming to the conclusion that the respondent was entitled to rebate of 10%under clause (iv) of subsection (8) of Part II of the First Schedule to the Finance Acts, 1976 and 1977.

4. The learned counsel of the appellant repeated the same arguments, which are contained in the findings of my learned brother, the Judicial Member. I would not like to repeat them. However, the additional grounds in support of the respondents claim that it was entitled to rebate of 10% are given below:

5. The learned counsel of the respondent invited my attention to the definition of Colanut as given in the Encyclopedia Britannica. This reads as under: Kolanut; Ombence; Temperence nut; Bissy‑bissy nut; Guru nut.

6. He stated that concentrate as used in the preparation of It. C. Cola is obtained from Cola nut, a fruit tree of West African origin. The principle of use of this nut or plant according to the Encyclopedia Britannica falls under the category of food/beverage. The learned counsel of the respondent stated that colanut when mixed with sugar resulted in the end product of R.C. Cola and that this .did not involve any action of manufacturing.

7. Proceeding further the learned counsel for the respondent also drew my attention to Notification No.SRO‑745(K)/65, dated 14th June, 1965, which on adding item 49 to Notification. No.9, dated 27‑6‑1951 exempted from sales tax, fruits, vegetables, preserves, canned or processed. In support of the fact that the respondent was entitled to' rebate of 10%reliance was placed on Central Board of Revenue's Circular No.4‑IT of 1968. Finally my attention was invited to a decision of the Sind High Court cited as S.T.R.‑ Nos. 113 and 114 of 1974, dated 19‑5‑1984 in support of the said Circular.

8. After hearing the learned Departmental Representative and the counsel of the respondent it is my considered view that the appellant Company is not entitled to rebate of 10$ within the meaning of clause (iv) of subsection (8) of Part II of the First Schedule to the Finance Acts, 1976 and 1977. In arriving at this conclusion I am strengthened by the following facts: (i) First of all I would like to reiterate that rebate of 10% available to those companies which derive income in Pakistan from: " processing, freezing, preserving and canning of food, vegetable, fruit, grain, meat, fish and poultry." One basic point which can clinch the issue before me is whether in the preparation of R . C . Cola action of processing was undertaken or that of manufacturing. As has been pointed out by the learned Departmental Representative where a specific article after having been subjected to processing does not change its original form the action so undertaken would fall under the definition of processing. On the other hand should an article change its original form on the basis of such an action it would undoubtedly fall under the definition of manufacturing. (ii) In the present case sugar when mixed with concentrate and treated with gas and after having been subjected to a series of processes in respondent's plant undoubtedly resulted in the manufacture A R.C. Cola. By no stretch of imagination could it be said that concentrate and sugar did not change their original form. In my opinion, after combination of the two articles and subjecting them to a series of actions in the plant of the respondent, the end product was something quite different. This different product was R.C. Cola.

9. In so far as Circular No.4‑IT of 1968 is concerned it dealt with a different issue altogether. At any rate its relevant portion on which reliance was placed by the respondent is set out below: "The food i.e. sugar is a manufactured derivative But if something is made of the resultant sugar, for instance, syrup or similar item, it would fall within the provision."

10. In this case sugar, a manufactured derivative was mixed with concentrate, and treated with gas. Thereafter it was subjected to a series of actions resulting in the manufacture of R.C. Cola. The end product was not syrup or a similar item. The end product is a dis tinguishable commodity from sugar and concentrate. Thus, these series of actions being in the nature of manufacturing did not fall within the definition of processing. This is not the case of the respondent that any freezing, preserving and canning was involved in the present case. Hence I have refrained to say anything with regard to these methods.

11. The learned counsel of the respondent emphasized that officers of the Income‑tax Department were required to follow the instructions of the Board contained in Circular No.4‑IT of 1968. There is no denying the fact that instructions of the Board are binding on the authorities subordinate to it. However, if the instructions are not relevant the authorities subordinate to the Board are not required to follow them. In the present case if the authorities subordinate to the Board could be said to have violated its instructions then the Board alone was competent to take notice of it. The Board did not take notice of the so called infringement of its instructions a5 the authorities subordinate to it did not violate its instructions. In this view of the matter Circular No.4‑IT of 1968 is not attracted on the facts of this case. In the same manner S.T.R. Nos. 113 and 114 of 1974, dated 10‑5‑1989 is also not relevant to the facts of the present case.

12. Finally a word or two with regard to the fact whether beverage styled as R.C. Cola is food or not so as to qualify for 10$ rebate within the meaning of clause (iv) of subsection (8) of Part II of the First Schedule to the Finance Acts, 1976 and 1977. The learned Judicial Member labored hard to prove that the respondent qualified for it while the learned Accountant Member put forth equally weighty arguments to disprove it. After reading the views of both the learned Members, I agree with the findings of the learned Accountant Member, Apart from it R.C. Cola falls within the heading of Beverages according to Pakistan ‑Customs Tariff (Second Edition) November 1983, Section IV, Chapter

22. Thus, according to International nomenclature it is distinguishable from food notwithstanding its definition under the Pure Food Ordinance, 1960, 'which is meant for a specific purpose. R.C. Cola is also not food even according to its definition in Medical Dictionary as its so‑called K nutritive value is confined to the well‑to‑do of the society. Its universality is open, to serious doubts in the Third World Countries where the masses can ill‑afford it. That being the undoubted position a . C . Cola is a beverage and not food as it is understood in common parlance.

13. In view of what I have stated above there is no manner of doubt. left with me that my learned brother the Accountant Member rightly concluded that the respondent was not entitled to rebate of 10'01 within the meaning of clause (fv) of subsection (8) of Part II of the I. First Schedule to the Finance Acts, 1976 and 1977. In this view of the matter appeals filed on behalf of the department succeed. The order of the learned Appellate Assistant Commissioner is accordingly vacated for assessment years 1976‑77 and 1977‑78:" M.B.A. Appeals accepted