Income Tax Appellate Tribunal - Mumbai
Nandan Textiles (P). Ltd. vs Assistant Commissioner Of Income-Tax on 13 August, 1996
Equivalent citations: [1997]60ITD382(MUM)
ORDER
I.S. Verma, JM
1. This is an appeal by the assessee against the order of the ld. CIT(A) dated 20-1-1989 wherein the assessee has taken seven grounds of appeal out of which ground No. 7 being of general nature do not require any consideration. As regards other grounds of appeal, the assessee's appeal was allowed except Ground No. 4, vide Tribunal's order dated 26th April, 1994 and later on as a result of Tribunal's order dated 14-6-1995 in Misc. Appln. No. 64/Bom./95, ground No. 4 was dismissed on merits. Subsequently, the assessee filed another Misc. Appln. No. 168/Bom/95 on which the Tribunal vide its order dated 18-12-1995 recalled its order dated 14-6-1995 in Misc. Appln. No. 64/Bom/95 relating to ground No. 4 only, which relates to allowability of investment allowance. So far as the other grounds of appeal are concerned, the order of the Tribunal dated 26th April, 1994 stands.
Ground No. 4 :
2. We have heard the counsel for the assessee as well as the ld. D.R., but before considering their submissions, we would like to narrate brief facts of the case which are as under :
2.1 The assessee's business is that of dyeing, bleaching and printing of unbleached grey cloth. During the assessment year under consideration, the assessee added new plant and machinery for the purpose of carrying on the activities of dyeing, bleaching and printing, etc., worth Rs. 18,14,877 which was inclusive of capitalised amount of interest of Rs. 4,36,250. The assessee claimed investment allowance of Rs. 4,53,718 on addition to Plant and Machinery but the Assessing Officer rejected the assessee's claim as per his observation at para 10 of the assessment order reproduced as under :
"10. The assessee has claimed investment allowance of Rs. 4,53,718 on addition to Plant & Machinery of Rs. 18,14,877. It is seen that the amount of Rs. 18,14,877 including capitalised interest of Rs. 4,36,250 paid to IDBI which is not to be considered for allowing investment allowance. Thus, the net cost of machinery which is to be considered for investment allowance is of Rs. 13,78,621. However, no investment allowance is admissible to the assessee-company because it is only processing Unit. No. manufacturing activity is carried out by the assessee-company. The receipts declared are also of only processing charges. Therefore, no investment allowance is allowed to the assessee company."
2.2 When the matter was brought by the assessee before the CIT(A), the CIT(A) decided the issue against the assessee by observing that the processing activity engaged in by the appellant do not amount to manufacture and for bringing out his reasoning, we would like to reproduce para No. 25 of his order wherein the issue under appeal has been discussed and decided by the ld. CIT(A) :
25. I have considered the submissions made. There is no dispute to the fact as admitted by the appellant's representative that the appellant-company is doing the business of processing of cloth. It is the stand of the ITO that investment allowance is not admissible to a processing unit and that no manufacturing activity is carried out by the assessee-company. It is also the stand of the ITO that the receipts declared by the assessee are from processing charges only. Against this, it is the case of the appellant that the processing carried out by the appellant included the processing of cloth, dyeing, printing and finishing of the cloth and that this tantamounted to manufacturing activity. The issue whether processing of cloth entailing bleaching, dyeing, etc., tantamounted to manufacturing or not came up before the Madras High court in the case of CIT v. S. S. M. Finishing Centre [1985] 155 ITR 791. In the said case, the assessee was engaged in purchase of cloth and subjecting it to bleaching, dyeing, sentering and printing, etc. The High Court held that the basic quality of the commodity as cloth remained the same both at the time of the purchase by the assessee and even after the carrying on by the assessee of the various operations on the said cloth. The important requirement contemplated by the provisions for grant of higher development rebate is that the operations carried on must be directed towards manufacture or production of textiles which would include dyed clothing materials, printed clothing material or clothing material otherwise processed made wholly or mainly of cotton. But, in the instant case, the feed-in material was cloth and the resultant product, after the operations on the cloth were done by the assessee was against cloth, probably neater and more presentable cloth. Consequently, the assessee could not be said to be engaged in the business of manufacture or production of textiles."
2.3 In the light of the facts and circumstances of the case narrated in the order of the lower authorities as well as available on record, the counsel for the assessee submitted that for admissibility of investment allowance, the assessee is to prove that the machinery or Plant (i) is owned by the assessee, (ii) is wholly used for the purpose of business carried on by the assessee, (iii) the Machinery or Plant specified in sub-section (2) of section 32A should be new machine installed in the industrial undertaking for the purpose of manufacture or production of article or thing, and (iv) the assessee's case be a case of small scale industrial undertaking. Analysing the requirement for admissibility of investment allowance, the counsel for the assessee submitted that as far as requirement Nos. (i), (ii) and (iv) are concerned, there is not dispute, the only dispute is regarding the requirement of No. (iii) i.e., whether by way of carrying out the activity of dyeing, printing, bleaching and sentering, the assessee is producing an article or a thing or not. In answer to this requirement, the counsel for the assessee submitted that by the process of dyeing bleaching, printing and sentering carried out by the assessee on grey cloth, such grey cloth did undergo some chemical changes and a new thing/or a product/article has come out due to such changes. The ld. counsel, therefore, submitted that the activities carried on by the assessee may not amount to manufacturing but these certainly do amount to production of article or thing, because the final product was definitely a different article or thing in, look, quality, use, as well as saleable commodity. Counsel for the assessee, therefore, stressed that these processing do amount to production as a result of which some article or thing has been produced and, consequently, the assessee was entitled to investment allowance. In support of his submissions, the counsel for the assessee heavily relied on the decision of the Hon'ble Supreme Court in the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846, Mumbai Tribunal's decision in assessee's own case for the assessment year 1982-83, in ITA No. 2070/Bom/1987 and for assessment year 1983-84 in ITA No. 5076/Bom/87, copies of which have been placed in assessee's Paper Book at pages 1/4. In addition to this, the counsel for the assessee has further relied on the Tribunal Special Bench decision in the case of ITO v. J.K.K. Textile Processing Mills [1990] 35 ITD 396 (Mad.).
3. The ld. D.R. on the other had submitted that the activities carried on by the assessee do not amount to manufacture and, therefore, assessee was not entitled to investment allowance. In addition to placing reliance on orders of lower authorities, the ld. D.R. relied on the order of Hon'ble Mumbai High Court in CIT v. Fashion Prints Ltd. [1996] 217 ITR 456 (Bom.).
4. We have considered the submissions put forward by the ld. counsel for the assessee and the ld. D.R. and for deciding the issue in hand we consider it necessary to appreciate the relevant provisions of law on this issue and, therefore, we proceed to discuss the provisions of section 32A :
"Section 32A : (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee :
[Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words 'twenty-five per cent', the words 'twenty per cent' had been substituted :] Provided (further) that no deduction shall be allowed under this section in respect of -
(d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'Profits and gains of business or profession' of any one previous year.
(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely :-
(a) ** ** ** (b) any new machinery or plant installed after the 31st day of March, 1976 - (i) ** ** **
(ii) in a small-scale industrial undertaking for the purpose of business of manufacture or production of any article or thing; or
(iii) in any other industrial undertaking, for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule :"
Rest of the provisions are not relevant for the purpose of this appeal. From the provisions of section 32A(2)(b)(ii) it is clear that the investment allowance is admissible to the assessee in respect of any machinery or plant installed in any industrial undertaking, for the purpose of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list of Eleventh Schedule of the Act carried on by it and as per second proviso, to section 32A this deduction is not allowable in respect of (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house, (b) any office appliances or road transport vehicles, (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33, and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year. It is, therefore, clear that for admissibility of investment allowance it is necessary that the machinery or plant (a) should be owned by the assessee (b) should be wholly used for the purpose of business carried on by it (c) should be new machinery or plant installed in the industrial undertaking for the purpose of business or construction manufacture or production of any article or thing not being article or thing specified in the list in the Eleventh Schedule. So far as the condition Nos. (a) and (b) are concerned, there is not dispute between the parties. The only dispute for our decision in this appeal, is whether machinery or plant installed by the assessee, having been installed for carrying on processes of dyeing, printing, bleaching and sentering can be said to have been installed and used for the purpose of business of manufacture or production or any article or thing not being an article or thing specified in the list of Eleventh Schedule. In other words, the issue revolves around the proposition as to whether as a result of activities in the nature of dyeing, bleaching, printing, etc., carried on by the assessee on the grey cloth, some article or thing is manufactured or produced and if it is so, then the assessee is definitely entitled to investment allowance.
5. To resolve this controversy, we would like to consider as to what for the words "manufacture", "production", "article" and "thing" stand for and for what purpose it is necessary to consider their meanings. :
(i) "Manufacture" : The word 'manufacture' as understood in common parlances as well as meant in various dictionaries conveys a system of manufacturing something made from raw-material by hand or by machinery. According to Black's Law Dictionary (Sixth Edition) "manufacture" means the process or operation of making goods or any material produced by hand by man or by other agency; the production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations whether by hand, labour or machine. The Hon'ble Supreme Court in the case of Dy. CST v. Pio food Packers [1980] 46 STC 63 had an occasion to consider the meaning of the word "manufacture", and the Hon'ble Apex Court, for the purpose of understanding the meaning of word "manufacture", i.e. for the purpose as to whether the manufacture can be said to have taken place or not held that "commonly, the manufacture is the end result of one or more processes through which the original commodity is made to pass". The nature and extent of process may vary from one case to another and indeed there may be several stages of processing and perhaps a different kind of product may result. But if it is only a change which takes the commodity to the point where the commercial commodity can no longer be regarded as original commodity but instead recognised as a new and distinct article that a manufacture case be said to have taken place.
(ii) "Production" : The dictionary meaning of the word 'production' is something that is produced naturally or as a result of labour and effort. As per Black's Law Dictionary, the word 'production' means : the process or act of producing. The word 'produce' means to bring forward; to show or exhibit; to bring into view or to notice.
(iii) "Article" : The dictionary meaning of the word 'article' is : a particular item of business or a particular object or substance.
(iv) "Thing" : As per Webster's Third New International Dictionary, 'thing' means : object of value; a product of work or activity; whatever exists or is conceived to exist as a separate entity or as a distinct or individual quality; fact, or idea; an entity that can be apprehended or known as having existence in space or time; an inanimate object as distinguished from living being a written of spoken disclosure. As per Random House Dictionary of the English Language (College Edition), the word 'thing' means : a material object without like or consciousness, an inanimate object; something that is signified or represented as distinguished from a word symbol or idea representing it.
(v) The words 'manufacture', 'production' or 'produce', 'article' and 'thing' used under the Act in section 32A and section 80HH of the Act cam up for interpretation before the Supreme Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312 and the Supreme court held that :
"The word 'production' has a wider connotation than the word 'manufacture'. While ever manufacture can be characterised as production, every production need not amount to manufacture.....
The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The next word to be considered is the 'article' occurring in the said clause. What does it means ? The word ('article') is not defined in the Act or the Rules. It must, therefore, be understood in its normal connotation. The sense in which it is understood in the commercial world. It is equally well to keep in mind the context, since the word takes its colour from the context.... The expression 'manufacture' and 'produce' are normally associated with movable articles and goods, big and small...." (p. 423) While interpreting the world 'thing', the Supreme court held that :
"..... So far as the use of the word 'thing' is concerned, it has no special significance inasmuch as both the Ninth Schedule and the Eleventh Schedule contain a list of articles or things. Both the Ninth Schedule to which along the unamended sub-clause (ii) applied, as well as the Eleventh Schedule, the articles and things wherein are excluded from the purview of amended sub-clause (iii), refer only to movable objects 'called articles or things....' The association of words in former sub-clause (ii) and the present sub-clause (iii) is also not without significance. The words are 'construction, manufacture or production of any one or more of the articles and things....' and 'construction, manufacture or production of any articles and things......' respectively. It is equally evident that in these sub-clauses as well as in the Ninth and Eleventh Schedules, the words 'articles' and 'things' are used interchangeably. In the scheme and context of the provision, it would not be right to isolate the word 'thing', ascertain its meaning with reference to Law Lexicons and attach to it a meaning which it was never intended to bear....." (p. 433)
6. Considering the assessee's case in the light of requirement of provisions of section 32A as well as the meanings of various words extracted hereinbefore, we are of the opinion that the assessee's activities of bleaching, dyeing, printing and sentering on grey cloth may not be manufacturing of "textile" but these processes are definitely mfg. or production of articles or thing, because, the final produce, i.e. the finished printed and pressed product is a different commercial commodity/article/thing that the raw material, i.e, grey cloth. Our aforesaid view is based on the consideration that the requirement of the provisions of section 32A(2)(b)(iii) is that the machinery or plant should have been used for the manufacture or production or article or thing excluding the items listed in Eleventh Schedule and as the bleached, printed, final product is different in quality, use and is understood as a different commodity in common parlances as well as in commercial world so by carrying on the processes the assessee's machinery has been used for manufacturing and production of article and thing. Consequently the assessee is entitled to the investment allowance. Our view is further supported by the decision of Hon'ble Supreme Court in the case of Empire Industries Ltd. (supra), decision of Rajasthan High court in the case of CIT v. Trinity Hospital [1996] 87 Taxman 127 and Tribunal's decisions relied upon by the assessee (supra).
7. Before parting with the matter, we would like to state with due regards & respect to the Hon'ble Mumbai High Court that the decisions in the case of Fashion Prints Ltd. (supra) on which the ld. D.R. has placed strong reliance is not applicable to the facts and circumstances of this case, because, in that case, the issue for the consideration of the Hon'ble High Court was as to whether activities of the assessee. i.e., dyeing, printing and processing grey cloth produced by others amounted to manufacture or production of 'textile' as specified, under item No. 21 of the List in the Ninth Schedule of I.T. Act, 1961 so as to entitle the assessee to additional depreciation under section 32(1)(vi) of the I.T. Act, 1961 as is clear from the question referred for the opinion of the Hon'ble Mumbai High Court which is reproduced hereunder :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the activities of the assessee in dyeing, printing and processing grey cloth produced by others amounted to manufacture or production of textiles as specified under item No. 21 of the List in the Ninth Schedule of the Income-tax Act, 1961, so as to entitle it to additional depreciation under section 32(1)(vi) of the Act ?"
From the question and the requirement of section 32(1)(vi) it is very much clear that the Hon'ble High Court was to give opinion on the question as to whether the activities of dyeing, printing and processing grey cloth produced by others, amounted to manufacture or production of 'textile' and not article or thing. In other words, in this case, the Hon'ble High Court was to decide as to whether as a result of assessee's activities by way of dyeing, printing and processing of grey cloth, it may be said that the assessee has manufactured or produced 'textile' and this was, so, because section 32(1)(vi) says that for claiming additional depreciation the assessee's machinery or plant should have been used for manufacture or production or any one or more than of the articles or things specified in the list in the Ninth Schedule, and because according to the assessee, 'textile' was covered under item No. 21 of the list of articles or things mentioned in the Ninth Schedule of the Act, so the assessee's claim in this case was that by carrying on the processes of dyeing, printing and bleaching, etc., it had produced textile, and was entitled additional depreciation. It was therefore, in this context that the Hon'ble High Court has held that it may not be said that by merely carrying out the processes of dyeing or printing on grey cloth manufactured or produced by others, the assessee manufactured or produced "textile" to comply with the requirement of section 32(1)(vi) of the Act with the said Item No. 21. In order to highlight the distinguishable nature of the decision of Hon'ble Mumbai High Court, we would like to reproduce the relevant portion of the judgment, in the case cited (supra) :
"Since under section 32(1)(vi) of the Act, what is required is to manufacture or produce any one or more of the article or things specified in item Nos. 1 to 24 (both inclusive) in the list of articles or things mentioned in the Ninth Schedule to the Act, in the present case, to be entitled to initial depreciation allowance, the assessee was required to manufacture or produce textiles including those dyed, printed or otherwise processed made wholly or mainly of cotton including cotton yarn, hosiery and rope. Admittedly, it is not the case of the assessee that the assessee manufactured or produced grey cloth on which the process of dyeing or printing was carried out by the assessee. Textiles in the form of grey cloth were already manufactured or produced by some person other tan the assessee before the process of dyeing or printing was carried out thereon by the assessee. By the process of dyeing or printing carried out by the assessee on the grey cloth already manufactured or produced by others, the grey cloth did not cease to be a textile. By the process of dyeing or printing carried out by the assessee on grey cloth manufactured or produced by others, such grey cloth did undergo some chemical changes but it retained the characteristics and/or property of the textiles and, as such, it cannot be said that by merely carrying out the process of dyeing or printing on grey cloth manufactured or produced by others, the assessee manufactured or produced textiles to comply with the requirements of section 32(1)(vi) of the Act read with the said item No. 21. The language or expression used in the said item No. 21 is unambiguous and clear and is capable of no two interpretations. In a taxing Act, as observed by Rowlatt. J. in Cape Brandy Syndicate v. IAC [1921] 1 KB 64, one has to look merely at what is clearly said. There is no room for any intendment. There is not equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. We feel, a judge must not alter the material of which the Act is woven though he can and should iron out the creases. In view of wordings of section 32(1)(vi) and the said item No. 21, it is not possible for us to hold that the assessee, by applying the process of printing or dyeing on the grey cloth admittedly manufactured by others carried on the business of manufacture or production within the meaning of section 32(1)(vi) of the Act."
With due respect to the Hon'ble Bombay High Court, after considering the fact and circumstances of the case and the issue which was before the Hon'ble High Court for its opinion, we are of the view that the decision in this case is not applicable to the fats and circumstances of the case under appeal before us and is distinguishable on facts. Consequently, we do not agree with the ld. D.R. that the processes carried on by the assessee did not amount to production of articles or thing. In the result, we hold that the assessee is entitled to investment allowance and we direct the Assessing Officer to grant the assessee investment allowance in accordance with provisions of law after verifying the admissible quantum. Assessee's ground No. 4 is allowed.
8. In the result, appeal stands allowed.