Patna High Court
Commissioner Of Income-Tax vs Natraj Processing Industries on 9 April, 1993
Equivalent citations: [1993]203ITR833(PATNA)
JUDGMENT S.K. Chattopadhyaya, J.
1. By an order dated September 16, 1982, this court directed the Income-tax Appellate Tribunal, 'A' Bench, Patna, to submit a statement of case under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and to refer the following question of law to this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessee is engaged in manufacturing and producing articles within the meaning of Section 80) of the Income-tax Act, 1961, thereby entitling it to claim a deduction under that Section ?"
2. As per the aforesaid direction, a reference has been made under Section 256(2) to this court. The present case relates to the assessment year 1977-78. The assessee-firm, namely, Messrs. Natraj Processing Industries, Gaya, started its business in calendering of cloth in the accounting year and thereby claimed the relief under Section 80J of the Act. The relief was denied by the Income-tax Officer on the ground that the assessee-firm was not engaged in manufacturing or producing any article.
3. The assessee filed an appeal before the Appellate Assistant Commissioner but there also the assessee-firm could not succeed as the order passed by the Income-tax Officer was confirmed by the appellate authority. The contention of the assessee before the Appellate Assistant Commissioner was that the appellant's work is that of calendering cloth by which it processes raw cloth or "grey" cloth is rendered marketable by the process of calendering which is imparted to it. This argument did not find favour with the Appellate Assistant Commissioner.
4. Before the Tribunal, the assessee-firm could succeed, inasmuch as, the Tribunal held that the calendering of cloth was an operation of manufacture within the meaning of Section 80J and the Tribunal relied upon its own decision reported in Income-tax Application No. 1426/(Patna) of 1977-78 decided on August 17, 1978, for coming to the said conclusion.
5. The further case of the assessee is that the firm only purchased "grey" cloth to which various chemicals are added and the cloth passes through a steam boiler and thereafter calendering is done. The assessee prints its brand on it and thereafter it is wrapped. The case of the assessee is that as the article produced by the assessee is different from "grey" cloth, he is entitled to get relief under Section 80J of the Act.
6. It is not the case of the assessee-firm that, by the process of calendering, the "grey" cloth becomes a new and commercially different commodity and ceases to be "grey" cloth. This leads to the question whether "calendering" which is merely a finishing process can be said to be equivalent to "manufacturing".
7. The question of determination of this aspect is no more res Integra. In the case of Mafatlal Fine Spg. and Mfg. Co. Ltd. v. Collector of Central Excise, AIR 1989 SC 784, the apex court, while considering a case of almost similar nature, has observed as follows (at page 787) :
"Both 'calendering' and 'shearing' involve an assortment and variety of processes, some of which might and some others might not affect or alter the nature of the fabric. Both the expressions, 'calendering' and 'shearing', are collective expressions representing a number of subspecies of operations which, depending upon the nature of the particular operation, may or may not alter the nature of the 'grey fabric' as such."
8. In the present case, the assessee purchases "grey" cloth and adds to it various chemicals and thereafter the cloth is put in the damping machine. The cloth is thereafter folded according to the size and stamped according to its length and breadth and specific brand is printed on its top. Finally, silk ribbons are tagged horizontally and after being wrapped in plastic bags it becomes a marketable commodity. It is thus apparent that the calendering process employed by the firm was such as to give a temporary finish by pressing the fabric for making it marketable. No lasting change is brought about. There is no finding that, after such process is done by the assessee-firm, the nature of "grey" cloth is altered.
9. I am of the opinion that, if this is the nature of the operation, the "grey" fabric, in the facts of the instant case, does not become a new and commercially different commodity and ceases to be "grey" cloth. For this reason, the assessee-firm is not entitled to relief under Section 80J of the Act.
10. For the reasons stated above, I answer the question referred in this case in the negative and in favour of the Department. There will be no order as to costs.
11. Let a copy of this judgment be communicated to the Assistant Registrar, Income-tax Appellate Tribunal, Patna Bench, Patna, in terms of Section 260 of the Income-tax Act, 1961.
G.C. Bharuka, J.
12. I am in agreement with the opinion given by learned Brother, S. K. Chattopadhyaya, J. Keeping in view the facts and circumstances of the present case, under Section 80J(1) and (4)(iii) of the Act, an industrial undertaking can claim for deduction if it is found that it is engaged in the manufacture or production of articles.
13. The business activity of the assessee is of calendering grey cloth. Apart from what has been found by the Tribunal as a matter of fact regarding the activities of the assessee, as noticed in the Encyclopaedia Britannica, Vol. 2, 15th edition, at page 740, "calendering is also widely used in the manufacture of textile fabrics, coated fabrics, plastic sheeting to provide the desired surface finish and texture". Therefore, calendering of grey cloth is done to make it presentable in the market.
14. In the case of Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791, it has been held by the court at paragraph 14 {at page 794) : "the word 'manufacture' used as a verb is generally understood to mean 'bringing into existence a new substance' and does not mean merely 'to produce some change in a substance', however minor in consequence the change may be". Their Lordships have with approval quoted the following passage from "Permanent Edition of Words and Phrases, Vol. 26, of an American judgment : "'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation ; a new and different article must emerge having a distinctive name, character or use".
15. Again in the case of P. C. Cheriyan v. Mst. Barfi Devi, AIR 1980 SC 86, 89, it has been reiterated that:".... The broad test for determining whether a process is a manufacturing process, is whether it brings out a complete transformation of the old components so as to produce a commercially different article or commodity." In the case of CIT v.
Hinduathan Metal Refining Works (P.) Ltd. [1981] 128 ITR 472 (Cal), while dealing with a question similar to the present one, it has been held by Sabyasachi Mukharji )., that galvanizing of metal sheets does not involve manufacturing since (at page 476) : "this does not bring into existence a different article or an article commonly known to the people differently who deal with it before it was galvanised".
16. In my opinion, the process of galvanizing of metal sheets and calendering of grey cloth are undertaken for the same intent and purpose and can be said to be similar since neither of the two activities result in bringing into existence a new commodity which can be said to be different from its components.