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S.T.A. No.18 (Pb) to 23 (Pb) of 1980‑81, decided on 19th September, 1984.

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‑‑‑S.7‑‑Cottage industry‑‑Exemption from sales tax‑‑Words and phrases‑‑Words "Assets employed in its trade or business or undertaking"‑‑Meaning‑‑Use of word 'employed' in past tense necessarily connotes that this refers to something which has already been done and does not include capital that is available for being employed in future or all assets of business.

P L D 1966 S C 828 rel.

Maqbool Hussain Shah, D.R. for Appellant

Akhtar Hussain for Respondent.

Date of hearing: 18th September 1984.

‑In these six appeals at the behest of the department objection has been taken to the exemption allowed to the respondent by the learned Appellate Assistant Commissioner vide Appeals Nos. 1252, 1253, 1554, 1555, 1556 and 1557, dated 5‑3‑1981. The common ground in respect of these appeals is that as the case of the respondent does not fall within the purview of cottage industry and since the capital employed in the business exceeded Rs.10,000, the learned Appellate Assistant Commissioner fell into an error in coming to the conclusion that the case of the respondent fell under the head cottage industry. It was accordingly prayed that the order of the Sales‑tax Officer may now be restored by the Income‑tax Appellate Tribunal.

2. Briefly speaking the facts of this case are that the respondent namely M/s. S... S...H...derives income from the manufacture of sweets. In this case respondent was assessed to sales‑tax for the charge years 1972‑73 to 1977‑78 by virtue of a consolidated order. While subjecting the respondent to sales tax the Sales Tax Officer held as under:

It was concluded after considering the above that the concern does not fall in the category of cottage Industry as the initial investment exceeds Rs. 10,000."

3. The learned Appellate Assistant Commissioner by virtue of a consolidated order, dated 5‑3‑1981 concluded that the respondent was not liable to sales‑tax as the capital employed in the business did not exceed Rs.10,000. In this connection relevant part of the appellate order is set out below:

"The Inspector's report, dated 20‑4‑1980 regarding the investment of the appellant also confirmed the contention of the appellant in the last sentence, the case falls in the category of cottage Industry."

4. The learned Departmental Representative reiterated that capital employed in the business exceeded Rs.10,000 and consequently the orders of the Sales Tax Officer may be restored. However, he could not support his contention. On the other hand, the learned counsel of the respondent drew our attention to the fact that in this case on the basis of spot enquiries the Income‑tax Inspector had given a report that the case of the respondent fell under the definition of cottage industry.. This report it was argued was not even considered by the Sales Tax Officer. Proceeding further he described at length the implication of the words capital employed. In this connection he invited our attention to Tax Reference No.108 of 1972, dated 23‑4‑1980. In this case S.S.J., J. who delivered the judgment observed as under:

"The expression 'capital employed' has not been defined in the Act or in any of the rules framed there under. It has, therefore, to be understood in its ordinary sense. It is also to be noticed that, as the wording of the clause suggests, for the purpose of ‑computing the capital employed the capital expended or utilized in the relevant assessment year alone has to be taken into account. The shop here was transferred to the assessee long before the assessment years in question. No doubt it does form part of fixed capital of the assessee but it will be stretching "of clause (c), ibid., a bit too far if the value of the shop is added in every assessment year towards the capital ‑employed in the business for the purpose of determining the upper limit of Rs‑.10,000. If this were permissible hardly any cottage industry will qualify for exemption under the notification for it located either in the back yards of premises owned by the proprietors thereof. It is exemption clause in a taxing statute should be so as not to increase the general burden but then it ought also not to be interpreted in a manner that the persons is intended are also denied its benefit."

5. The learned counsel of the respondent in support of the fact that a distinction has to be made between the assets employed in its business with a view to finding correct of the words employed in the under taking drew our attention to a case cited as Commissioner of Sales Tax, N . . . . . . Z . . . . . (W . . . . . . . . . . . . L ..) v. M/s. A------------S--------M. In this case the implication of the words capital employed in the abusiness was examined in the light of a case cited as P L D 1966 SC 828. On page 838 it was held by the Supreme Court as under:‑

"A distinction had, in our opinion, to be, made between assets of a company and assets employed in or undertaking in order to give a meaning to the words 'employs in the undertaking.‑ The use of the word 'employed' in the past tense necessarily connotes that this refers to something which has already been done and does not include the capital that is available for being employed in the future or all the assets of the company. By the use of the said words in this restricted sense it could not have been the intention of the Legislature to include all the capital as capital employed simply because the assessee thought, and may be though with good reason, that it wanted to extend its business in the future by acquiring more shops and other assets. The wider connotation that can possibly be given to these words is that they represent capital which has already been put into the business, of course, during the relevant accounting year."

6. We would first refer to the report of the Income‑tax Inspector as it is important with the object of coming to conclusion whether the case of the respondent fell under the definition of Cottage Industry or not. The Income‑tax Inspector on the basis of physical verification concluded that the case of the respondent fell in the category of Cottage Industry. This finding of fact based on enquiry was ignored by the Sales Tax Officer without any cogent reasons. On the other hand, the Sales Tax Officer in his consolidated order did not put on record any material for coming to the conclusion that investment employed in the business exceeded Rs.10,000. In this connection we would like to put on record that the ceiling fixed on capital employed in business is a matter of serious calculation as well as quantification in terms of money. This exercise unfortunately was not undertaken at the assessment stage. Thus on the basis of facts there is nothing on record which could have entitled the Sales Tax Officer in coming to a conclusion that capital employed in the business exceeded Rs.10,000.

7. Taking up the interpretation of the word capital employed in the business we have no hesitation in coming to a conclusion that it refers to something which has already been done and does not include the capital that is available for being employed in the further of all t the assets of the business. This conclusion has the support of a case cited as Commissioner of, Sales Tax, North Zone (W P L .)v. A....S....M....L....and Tax Reference No.108 of 1972, dated 23‑4‑1980. In this view of the matter, we confirm the findings of the learned Appellate Assistant Commissioner as a result of which all the departmental appeals being devoid of any merit stand dismissed.

M. B. A. Appeal dismissed.

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