Indian Kanoon - Search engine for Indian Law

The Commissioner of Income Tax set aside part of the order passed by the Assessing Officer whereas the finding recorded by the Commissioner of Income Tax are upheld by the Tribunal.

The only issue raised by learned counsel for the assessee in the present appeals is that process of dry cleaning is a part of the manufacturing process and thus, the income derived from dry cleaning, job work of the third parties, is also income derived from industrial undertaking having direct and proximate nexus with its manufacturing activities and, therefore, the assessee is entitled to deductions under Section 80-I of the Act. Since the said activity is in the process of export activity as well, therefore, the assessee is entitled to deduction under Section 80-HCC as well. Though the learned Tribunal has referred to the decision of the Tribunal in the assessee's own case for the year 1988-89 and 1989-90 but it is asserted by learned counsel for the assessee that the question of dry cleaning charges, as an income derived from industrial undertaking, was not the issue raised and decided. Similarly, in four other cases, i.e., in ITA No.2251/Chandi/92, assessment year 1991-92, Greatways, No.599/Chandi/94, assessment year 1991-92, Eastman and No.1601/Chandi/93, assessment year 1990-91, Nav Bharat Knitwears and (2007)288 ITR 494, Nahar Exports & Chemicals v. CIT, the orders of the Income Tax Appellate Tribunal also do not deal with dry cleaning process as income derived from industrial undertaking. We have proceeded to examine the issue in the said background.

Learned counsel for the assessee has vehemently argued that dry cleaning process is a part of the manufacturing activity and, thus, is income derived by an industrial undertaking. It is contended that it is not necessary that the assessee should earn such income in respect of the raw material of the assessee alone but even if the assessee has undertaken such job of a third party, it is still part of the manufacturing process, therefore, it is an income derived from industrial undertaking and, thus entitled to deduction under Section 80-I of the Act. Reliance is placed upon an order passed by this Court in CIT v. Impel Forge and Allied Industries Ltd. (2009) 183 Taxman 38 and also judgments of the Delhi High Court reported as NU-Look (P) Ltd. v. CIT (1957)157 ITR 25 and CIT V. Northern Aromatics Ltd. (2005)196 CTR 479. Reliance was also placed upon the Full Bench judgment of this Court reported as CIT v. Sovrin Knit Works, (1993)199 ITR 679 wherein the question which arose was whether the process of dyeing, furnishing, singeing would fall within the ambit of manufacturing or production of textiles as envisaged by Entry 23 of Schedule I of the Industries (Development and Regulations) Act, 1951. It was found that bleaching, dyeing and printing of grey cloth amounts to manufacture or production of an article or thing within the meaning of Section 32 of the said Act. Learned counsel for the assessee also placed reliance upon a recent judgment of the Hon'ble Supreme Court in (2010)320 ITR 665 (SC), Commissioner of Income Tax, Mumbai v. Emptee Poly-Yarn (P) Ltd., wherein it was held that twisting and texturising of partially oriented yarn (POY) constitutes manufacturing in the context of POY into a textile yarn. Thus, it is argued that even though a new product has not come into existence with the process of dry cleaning but the process of dry cleaning is necessary process before using the yarn for weaving, therefore, dry cleaning is a part of the manufacturing process and, thus, is income derived from industrial undertaking.

On the other hand, learned counsel for the revenue relies upon the Supreme Court judgment reported as (2001)251 ITR 323, Aspinwal & Co. Ltd. v. CIT, wherein it has been held that expression 'manufacturing' is to be given meaning as understood in common parlance, which means the production of articles for use from raw or prepared material by giving such material new forms, qualities or combinations whether by hand, labour or machine. It is, thus, contended by the learned counsel for the revenue that the process of dry cleaning does not give rise to any new article or qualities in the product, therefore, dry cleaning cannot be treated to be a part of manufacturing process. Reference is also made to (2009)317 ITR 218 (SC), Liberty India v. CIT, wherein it has been held that Sections 80-IA and 80-IB have a common scheme. The words "derived from" are narrower in connotation as compared to the words "attributable to". By using the expression "derived from", the Parliament intended to cover sources not beyond the first degree. That was a case where benefit/entitlement pass scheme was declined as an income derived from an industrial undertaking. It is, thus, argued that process of dry cleaning is not a process falling in the first degree which may be considered for claiming deduction under Section 80-I of the Act.

16.5 ... We hold that the CIT(A) was justified in not allowing deduction u/s 80I in respect of trading profits, rental income which also does not have a direct nexus with the industrial undertaking, dry cleaning charges and interest income. We confirm her order and dismiss the ground of the cross objection filed by the assessee."

We have heard learned counsel for the parties at length. We find that the income derived from a job work or from a process by an industrial undertaking, would be eligible for deduction under Section 80-I of the Act is a question of fact keeping in view the nature of the process. The two Division Benches of the Delhi High Court in Northern Aromatics, NU Look (P) Ltd. and Impel Forge and Allied Industries Ltd., have found so in view of the facts of the case. But we find that the facts on record do not suggest a finding that the process of dry cleaning undertaken by the assessee is such which relates to a step in the manufacturing process. Though, in the case of Emptee Poly-Yarn (P) Ltd. it has been held that texturising and twisting of yarn constitute manufacturing, i.e., even without giving such materials a new formation, qualities or combinations as observed in the case of Aspinwal & Co. Ltd., but the fact remains that there are details available as to what was being dry cleaned and whether the process of dry cleaning is a part of the manufacturing process.