1973 PLP 312 (PTD)

FAKHRUDDIN G. EBRAHIM, J.‑

The petitioners are carrying on business of manufacturing of cotton yarn and cloth at Karachi. Prior to 1961 the petitioners were manufacturing only carded yarn. Between February 1961 and December 1963, the peti tioners imported 22 doubling frames and 12 combing sets to be able to produce better varieties of yarn and to manufacture combed yarn and finer quality of cloth from combed yarn. The petitioners applied to the Central Board of Revenue, the respondent No. 1 herein, under section 15‑BB of the Income‑tax Act, 1922 for its approval, for the purpose of enabling them to avail of exemption from income‑tax in respect of the income derived from doubling and combing processes The respondent No. 1 by its memo dated 25th February 1967 informed the peti tioners that the company had been approved as an industrial undertaking in respect of its expansion unit comprising of 22 doubling frames for the manufacture of double yarn under sec tion 15‑BB of the said Act, subject to use of local raw materials and compliance of other statutory conditions by the petitioners but‑ "The statutory period of exemption would be reduced by the period from the date of production to 30th June 1964 as the Company was using old building for the above unit 8 and the conditions relating to the use of new building has deleted with effect from 1‑7-1964: In respect of the expansion comprising of 12 combing sets the approval was tot granted as the combing sets, "has not been treated as an independent and identifiable unit and that the combed yarn Is being produced on the machinery of the existing yarn manufacturing unit and the case, therefore, falls within the mischief of subsection (4) of section 15‑BB of the Income‑tax Act." a copy of this memo. was forwarded to the Commissioner of Income‑tax with an endorsement that the‑ "Company had given an undertaking that separate accounts would be maintained for each industrial undertaking in respect of which tax holiday had been allowed and that the Company had intimated that 97% of the total raw material consumed in the undertaking were produced in Pakistan and the exemption was subject to this condition along with other statutory conditions" A representation was made against this memo. but was rejected by the Central Board of Revenue by its letter dated 30th May 1967.

2. This petition under Article 98 (2) of the 1962‑Constitution, challenges the said memo. dated 25th February 1967 as being illegal and invalid and seeks from this Court a declaration that the petitioners are entitled to the approval of the industrial undertaking comprising of the 12 combing sets under sub‑section (4) of section 15‑BB of the Income‑tax Act, 1922 and to direct the respondent No. 1 to accord the said approval, and In respect of the 22 doubling frames the declaration sought is that the petitioners are entitled to the full statutory period of exemption and for quashment of that part of the respondent's memo., which reduced the statutory period of exemption.

3. Before I come to the contentions raised by the learned counsel for the parties I may reproduce here subsection (4) of section 15‑BB of the Income‑tax Act, 1922, for the sole question involved is its interpretation.,‑ "15‑BB (4).‑The provisions of this section shall also apply to an industrial undertaking consisting of an expansion of an existing industrial undertaking if such expansion constitutes (a) an Identifiable industrial unit for production of similar or other goods or class of goods or, (b) a similar unit for the carrying out of an identifiable industrial process and such Identifiable or similar unit is owned and managed by a company registered under the Companies Act, 1913. all the voting shares of which are owned by the company owning the said existing industrial undertaking, or such system of accounting based on recognised accounting practices is adopted for the determination of the income, profits and gains of such identifiable or similar unit as may be approved by the Central Board of Revenue for the purposes of this section, but nothing contained in this section shall apply to an Industrial undertaking which is formed by the splitting up or the reconstruction or reconstitution of business already in existence or by the transfer to a new business or any machinery or plant used in a business which was being carried on in Pakistan on or before the first day of April 1959,"

4. As I read the aforesaid subsection it exempts from income‑lax and super tax, income profits and gains derived from an expansion of an existing industrial undertaking, if the expansion constitutes (a) an identifiable industrial unit for production of similar or other class of goods, Or (b) a similar unit for carrying out an identifiable industrial process, and the person claiming exemption maintains a system of accounting based on a recognised accounting practice for the determination of income, profits and gains of such identifiable or similar unit as may be approved try the Central Board of Revenue for the purposes of section 15‑BB. Provided, however, no industrial undertaking which is formed by the transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan on or before the 1st day of April 1959 will qualify for this exemption.

5. Reverting now to the installation of 12 combing sets by the petitioners in their existing industrial undertaking, It is not denied by the respondent that it constitutes expansion. What has, however, to be resolved is whether the expansion is of the type which is entitled to relief under this subsection. In the impugned memo the Central Board of Revenue's contention is that the expansion does not constitute "an independent identifiable unit." The section however, does not require the unit to be independent for it is sufficient if it is identifiable. Mr. A. K. Brohi, the learned counsel for the petitioners rightly pointed out that if the unit was independent then there was no necessity for claiming relief as an expansion of the existing unit, for such a relief would be available under subsection (1) of section 15‑BB which applies to the independent units constituting an Industrial undertaking, set up between certain statutorily specified dates, That this unit produces similar class of goods can not be denied. The petitioner's alternative case that the combing sets constitute an identifiable industrial process has not even been considered by the Central Board of Revenue. According to the American Cotton Hand Book by Messrs Gilsert R. Merrill Professor of Textiles, Lowell Textile Institute, Alfred R. Macormac Fellow. Textile Institute and A. A. A. S. and Herbert R. Mauersberger, Textile Consultant and Lecturer, "the fundamental purpose of combing is to separate the short cotton fibres from the long ones so that the combed fibres will be of a much more uniform length and of a longer average staple. In separating short from longer fibres, the longer fibres are straightened to a considerable degree and neps as well as small dirt particles are generally removed." The Book further goes on to state that combing adds to a value of the cotton yarn by improving the uniformity and strength, spinning a finer count, producing a smoother, more lustrous and cleaner yarn." It would thus appear to me that by combing an identifiable Industrial process a qualitatively superior yarn is produced.

6. It was, however, further contended on behalf of the Central Board of Revenue that the petitioners were hit by the proviso as they were manufacturing combed yarn from the existing yarn manufacturing unit, which according to them, dis entitled the petitioners to any exemption. For the purposes of the present petition, the proviso denies exemption to a new business set up with machinery and plant which was in use prior to 1st April 1959. Mere exploitation of old machinery will not bring an industrial undertaking, otherwise entitled to exemption, within the mischief of the proviso. The expression "expansion" would itself indicate that the existing machinery or plant cannot be ignored. While I agree that the expression "transfer" occurring in the proviso should not be strictly construed to connote what the law regards as transfer of interest and that it would suffice if the old machinery or plant are allocated for the use of or appropriated for the use of "new business," there is no warrant for the proposition that the expansion must be completely divorced from the existing machinery and plant. What is contemplated by tie proviso is the denial of exemption to income derived from old machinery even though independently installed, for the purpose of a new business and not that an additional identifiable industrial process cannot be superimposed on the existing plant. In the present case the expansion has introduced an identifiable industrial process in the existing machinery. It must necessarily be an adjunct to the old machinery or else the result would not be an expansion, but the setting up of a new industrial unit and such an undertaking would be entitled independently to tide benefit of exemption under subsection (1) of section 15‑BB. The argument would further find support from the fact that the Central Board of Revenue has granted benefit of this section with reference to doubling frames, which cannot function except as an adjunct to the old machinery. The sole function of doubling frames is to double the yarn and if there is no objection to tie use of the old machinery with reference to doubling frames it is not understood as to how the Central Board of Revenue can press into service this objection in the case of combing sets. It would, therefore, appear to me that the reasons advanced by the Central Board of Revenue for denying to the petitioners the approval under subsection (4) of section 15‑BB of the said Act in respect of the 12 combing sets are unjustified.

7. At the hearing of this petition two additional reasons were advanced by Mr. S. A. Nusrat, the learned counsel for the respondents, in support of the said memo. of the Central Board of Revenue. The first being that no goods different from the raw materials consumed were produced. Now this is not the requirement of the subsection. Moreover, in the present case a different quality of goods are produced as a result of combing. Furthermore, if this objection had any validity it would equally apply to doubling frames which according to the Central Board of Revenue, are entitled to the benefit of this subsection. The second objection was relating to the marketability of the goods. More particularly it was contended that the goods before and after the process of combing were not marketable and the profits and gains attributable to this process, therefore, cannot be determined separately and consequently the process cannot be said to be identifiable. It would appear to me that there is no connection between the concepts of marketability and an identifiable Industrial unit. If, however, the argument is that the profits or gains from combing sets cannot be ascertained, the petitioners were always ready and willing to adopt such method of accounting as was approved by the Central Board of Revenue and the occasion for grant of such approval did not arise as the expansion itself was, according to the Central Board of Revenue, not an independent identifiable process. Moreover, under section 15‑BB the profits and gains of an industrial undertaking exempted under this section are to be computed In accordance with tae provisions of section 10 or the Income‑tax Act and it will be, therefore, for the Income‑tax Officer to ascertain the profits or gains arising out of the present expansion at the time of assessment.

8. This brings me to the petitioner's application seeking approval of 12 doubling frames as an industrial undertaking consisting of an expansion of an existing industrial undertaking under subsection (4) of section 15‑BB. As aforesaid this approval was granted but the statutory period of exemption, for the period commencing from the date of production up to 30th June 1964 was disallowed on the ground that the proviso to section 15‑BB as contained in subsection (4) prior to 1st July 1964 denied tax holiday to an industrial undertaking formed by the transfer to a new business of any building used in a business which was carried on in Pakistan on or before the 1st day of April 1959, as the petitioners had admittedly installed the doubling frames in a building which was in use by them since prior to 1st April 1959. For the period subsequent to 30th June 1964 the exemption was allowed notwithstanding the use of the said building as the expression "building" occurring in the proviso was deleted by Act V of 1964 with effect from 1st July 1964. I have already held in relation to the 12 combing sets that mere exploita tion of old machinery will not bring an industrial undertaking, otherwise entitled to exemption within the mischief of this proviso. What is necessary is setting up of a new business with the old machinery. It will, therefore, follow that when the provide included the word "building" in addition to machinery and plant, mere use of old building will not bring the industrial under‑h taking, otherwise entitled to exemption, within the mischief of the proviso. It is not the case of the respondent that a new business has been set up by the use of the old building and, accordingly, the proviso as it stood prior to 30th June 1964 was not attracted and the respondent's action in reducing the statutory period of exemption was, therefore, not warranted by its terms.

9. For reasons aforesaid I hold that the petitioners are entitled to the approval by the respondent No. 1 of the industrial undertaking comprising of 12 combing sets under subsection (4) of section 15‑BB of the Income‑tax Act, 1922 subject, of course to other statutory conditions and I will, therefore, direct the respondent No. 1 to accord this approval. The petitioners are further entitled to full statutory period of exemption in respect of 22 doubling frames and I will quash that part of the res pondent's memo which reduces the statutory period of exemption. The petitioners will also be entitled to the cost of this petition. TUFAIL ALI A. RAHMAN, C. J.‑

I have had the advantage of reading in advance the judgment which my learned brother Fakhruddin, J. has just delivered and I am in entire agreement with the decision that he has announced and also the reasons which have led up to it.

2. I must confess, however, that I had felt some doubts of our power to direct the Central Board of Revenue to grant the approval prayed for. The question really depends upon the further question whether the Central Board of Revenue, upon being satisfied that the other conditions of the statute arc fulfilled, is bound to grand the approval or may without any reason relevant to the said conditions and the purpose of the section withhold it at its own pleasure. It is only if there is no such discretionary, or perhaps it would be more accurate to say, arbitrary, power in the Central Board of Revenue that this Court would be entitled, upon a proper case being arcade out to requite the Board to accord its approval. In order to under stand why I have come to the conclusion that there is no such reserved power it is necessary to make some comments upon the language of the statute.

3. My learned brother has already reproduced subsection (4) of section 15‑BB of the Income‑tax Act and I do rot desire to burden my judgment with another reproduction. In passing it might be noted that the word "or" where it is last used in the subsection appears to be, and now admittedly is, a mistake for "of". Clearly as the printed copy stands the expression "or" does not make very sensible meaning and there is previous I authority in support of the admission now made at the bar by Mr. S. A. Nusrat for the proposition that this is a mistake and that, therefore, Courts ought to substitute the word "of" in order to give the statute its proper meaning. Subsection (4) is in some ways inartistically drafted. It will be seen that the later part of the subsection, although not drafted as such amounts really to a proviso and a proviso not to the subsection merely but to the entire section. It is unusual, to say the least, to provide within a subsection a proviso intended to govern the entire section, anti yet plainly the language is such that the words in question must be held to govern the entire section. The division of a statute into sections, subsections, clauses or paragraphs has never been held to limit the meaning of any such clauses to the division within which they appear if the meaning of the language is otherwise plain. Indeed the earlier parliamentary practice of England was not even to insert such divisions. Plainly, therefore, despite the incorporation of this proviso in subsection (1) tie words themselves, bring not merely capable of controlling the whole section but upon their ordinary grammatical meaning so intended to mean, it would be our duty to give effect to it as a proviso. A little under standing of the history of the section, however, shows why this inartistry in language has resulted. Section 15‑BB as it originally stood did indeed contain subsection (4) but subsection (4) as it then stood contained only the words which now operate as a proviso, namely, the passage beginning "Nothing contained in this section". In that context it was clearly understandable why a proviso intended to govern the whole section should have stood as a separate subsection; to have phrased it as a proviso might have lent itself to other question, namely, whether it was intended to cover merely the previous subsection or the whole section. In 1961 it was decided apparently to extend the principle under lying this question but certain other undertakings not originally covered. It might then have been better to introduce the new provisions as a separate subsection probably numbered 3‑A but it was decided to re‑draft subsection (4) so as to include what was now intended to be included leaving the portion amounting to a proviso untouched. It is not for us to question the wisdom of the Legislature in drafting it as it did and I think it is our plain duty to carry out the intention of the Legislature as it is reflected in the language which it has chosen to use. Now when the subsection starts by saying that the "provisions of this section shall also apply to . . . . . ." what is meant by the word "this section"? That word would seem to include subsection (4) itself. T think it is obvious and indeed learned counsel at the bar took it as obvious that the purpose of this language was to extend to the industrial undertakings in question the benefit of the tax‑holiday with wh1ch the entire section is, In the main, concerned. The operative part of section 15‑BB, however, which confers the x right to a tax‑holiday is, stated in subsection (1). That subsection having described in general the industrial undertakings which were to be so entitled subsection (2) then makes detailed mention of the various conditions which are to be fulfilled in order that the exemption should be applicable. Subsection (3) deals with the computation of the profits and gains of an industrial undertaking. If, therefore, effect is to be given fully to the Intention of the Legislature, and I have no doubt that i has to be, then really subsection (4) means that precisely as certain industries qualify for tax‑holiday by reason of subsection (1)t those mentioned in subsection (4) shall also qualify. In that light subsection (2) must be read as qualifying subsection (1) at least as indicating the indicia of the undertakings in question, therefore by reference, qualifying similarly the undertakings mentioned in subsection (4).

4. Now subsection (2) contains as many as five separate conditions which the undertaking must fulfil in order so to qualify. The sixth condition is laid down in clause (e) to sub; section (2) which reads: "that it is approved by the (Central Board of Revenue) for the purposes of this section." The question, therefore, really is, is this requirement of the approval of the Central Board of Revenue a separate condition which, without reference to the previous conditions, must be fulfilled before a company can ask for exemption or is it intended only to ensure that at tie very earliest stage a responsible body charged with many of the duties pertaining to the collection of tax has satisfied itself that all the other conditions are fulfilled? Having given the matter my most careful thought I am not able to see that the clause was intended to do mom than the latter If in spite of the company fulfilling all the detailed requirement which the other clauses provide for it was yet to be open the Central Board of Revenue, without any reason or at any rate without a reasonable reference to the other five, to refuse approval it seems to me that this would not have been the manner in which the Legislature would have put it and that furthermore M the entire proceeding clauses elaborately drafted though they were, were intended to mean virtually nothing, the right to exempt still depending upon the uncontrolled will of the Central Board of Revenue. I refuse to believe that the Legislature intended any such trickery.

5. It is true that the clause itself does not in :o many words say that such is the purpose of granting this power to the Central Board of Revenue; it is to be remembered, however, that the Central Board of Revenue is a statutory body and I think that powers which are conferred upon it must be construed to mean powers intended to carry out the purpose of the statute and, therefore, necessarily combined with certain duties.

6. Such a mode of contruing statutes is I think not only permissible but required by the courts. In the 12th Edition of Maxwell Interpretation of Statutes appears the following passage ;‑ "Before adopting any proposed construction of a passage susceptible of more than one meaning, it is important to consider the effects or consequences which would result from it, for they often point out the real meaning of the words. There are certain objects which the Legislature is presumed not to intend, and a construction which would lead to any of them is therefore to b. avoided. It is not infrequently necessary, therefore, to limit the effect of the words contained in an enactment (especially general words), and sometime to depart, not only from their primary anti literal meaning, but also from the rules of grammatical construction in cases where it seems highly improbable that the words in their wide primary or grammatical meaning actually express the real intention of the Legislature. It is regarded as more reasonable to hold that the Legislature expressed its intention in a slovenly manner, than that a meaning should be given to them which could not have been intended." (Page 105). The courts will not, I think, permit a construction to be placed which will result in destroying the purpose of the enactment. I rely again upon another passage in the same well known authority at page 228: "

1. Modification of the language to meet the intention. Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some in convenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence. This may be done by departing from the rules of grammar, by giving an unusual meaning to particular words, or by rejecting them alto gether, on the ground that the Legislature could not possibly have intended what its words signify, and that the modifications made are mere corrections of careless language and really give the true meaning. Where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in c a case of necessity, or the absolute intractability of the language ‑used. Lord Reid has said that he prefers to see a mistake on the part of the draftsman in doing his revision rather than deliberate attempt to Introduce an irrational rule, "the canons of construction are not so rigid as to prevent a realistic solution."

7. The manifest purpose of the statutory provisions which I am considering was to grant a tax‑holiday in certain cases. I cannot believe that it was intended by the Legislature to reserve p power to say of a company, which otherwise fully qualified for the exemption, that it shall not qualify for the exemption.

8. The requirement for an approval is mentioned again in subsection (4) where it is needed for a system of accounting; here again the obvious purpose is to ensure that the purposes of the Legislature are being fulfilled. In these circumstances I have come to the conclusion that the power given to the Central Board of Revenue carries with it a duty to accord an approval if that p Board is satisfied that the conditions necessary for a company to qualify for exemption are fulfilled. In that view of the matter I now entertain no doubt as to our power to issue the direction needed. Petition accepted. Writ issued.