Commissioner of Income Tax vs Kashiram Textiles Mills (P) Ltd.

J.M. Panchal, J.

At the instance of the revenue, the Income Tax Appellate Tribunal, Ahmedabad Bench ''C'', has referred the following two questions of law for the opinion of this court for the assessment year 1978-79 :

"1. Whether, in law and on facts, the assessee is entitled to investment allowance u/s 32A of the Income Tax Act, 1961 on the ground that the process carried out by the assessee amounts to manufacturing activity ?

Whether, in law and on facts, the assessee is entitled to relief u/s 80J of the Income Tax Act, 1961 in respect of Unit No. 1 as claimed ?"

The assessee in this case is a private limited company engaged in the business of bleaching, dyeing, printing and processing of grey cloth purchased from the market and its resale. During the period under consideration, the Income Tax Officer made an addition in respect of the purchase alleged to have been made from two parties aggregating to Rs. 2,07,800. The Commissioner (Appeals) held that the assessee was carrying on activity of manufacturing and, therefore, the assessee was entitled to benefit of investment allowance, but as the rates could not be verified, the Commissioner (Appeals) disallowed 40 per cent of the claim. The revenue came in appeal against the deletion of addition by the Commissioner (Appeals) whereas the assessee chose not to do so for the amount retained. The Tribunal confirmed the action of the Commissioner (Appeals).

The learned counsels for the parties state at the Bar that the controversy raised in the present reference is answered by the decision of this court in Commissioner of Income Tax Vs. J.B. Kharwar and Sons, and also in the case of this very assessee in IT Reference No. 66 of 1984 decided by the Division Bench comprising C.K. Thakker, J. (as he then was) and Rajesh Balia, J. (as he then was) on 24-3-1995 as well as CIT v. Kashiram Textiles Mills (P) Ltd., (1999) 240 ITR 487 (Guj) .

In view of the decision of this court in Kashiram Textiles Mills (P) Ltd.''s case (supra), we hold that the assessee is entitled to investment allowance u/s 32A of the Income Tax Act, 1961 (hereinafter referred to as ''the Act''). The said question is answered in favour of the assessee and against the revenue.

As far as the second question is concerned, the question is squarely covered by the decision of this court in J.B. Kharwar & Sons'' case (supra) wherein this court has held that when the assessee subjects grey cloth to the process of dyeing and printing, it produces a distinct article having distinct use as distinguished from the grey cloth, though grey cloth still subsist. What is emphasized therein is that as a result of the process to which grey cloth is subjected, there is transformation of grey cloth into a new commodity commercially known as a distinct and separate commodity having its own character, use and name. As observed earlier, this judgment has been followed subsequently by another Bench in IT Reference No. 66 of 1984. Thus, having regard to the principle laid down in the abovereferred two decisions, we are of the opinion that the assessee is entitled to relief u/s 80J of the Act in respect of Unit No. 1 as claimed. The said question is also answered in favour of the assessee and against the revenue.

The reference, accordingly, stands disposed of with no order as to costs.