Commissioner of Income Tax vs S.S.M. Finishing Centre

Ratnam, J.—The assessee is a registered firm. It commenced production on September 18, 1969. For the assessment year 1970-71, the

assessee claimed higher development rebate on the machineries used in its business relying on s. 33(1)(b)(B)(i) read with item 32 of the Fifth

Schedule to the Act. The business operations of the assessee consisted of purchasing clothe manufactured by others and then bleaching, dyeing

and sentering the same. Considering the nature of the operations carried on the cloth purchased by the assessee, the ITO was of the view that

these operations did not amount to ""manufacture or production of textiles"". The assessee''s claim for development rebate at the special rate of 35%

was thus negatived. Aggrieved by this, the assessee preferred an appeal and the AAC found that though no ""textiles"" as such were either

manufactured or produced"", the operations carried on by the assessee had the only effect of making the material more presentable and neater and,

in that view, the assessee was held not entitled to claim higher development rebate at 35%. On further appeal by the assessee to the Tribunal, the

Tribunal relied upon the dictionary meaning of the word ""textiles"" as comprehending and including within itself the entire processes from the receipt

of cotton or yarn to the final stage and held, in that view, that the operations carried on by the assessee would amount to ""manufacture"" of

textiles"".

Aggrieved by this, the Revenue obtained a reference to this court on the following two questions :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to the higher

development rebate u/s 33(1)(b)(B)(i) in respect of the machinery used by it in its business ?

Whether, on the facts and in the circumstances of the case, the Tribunal''s view that the operations carried on by the assessee would amount to

manufacture of textiles specified as item 32 in the Fifth Schedule and that, therefore, the assessee should be allowed the higher rate of development

rebate, is sustainable in law ?

It is common ground that the assessee purchased grey cloth manufactured or produced by others. According to the findings of the Tribunal, on

the cloth so purchased, the assessee carried out the following operations : (1) bleaching, (2) dyeing, (3) sentering, and (4) printing. On the basis of

the operations thus carried on by the assessee, the Tribunal took the view that though no cloth had been manufactured by the assessee, yet the

operations carried on by it would amount to ""manufacture of textiles"". The assessee did not manufacture the cloth but merely expended its labour

on the cloth manufactured by others by bleaching, dyeing, sentering and printing the cloth. The basic quality of the commodity as cloth had

remained the same both at the time of its purchase by the assessee and even after the carrying on by the assessee of the operations referred to

above. The assessee started with cloth purchased from outside and ended up with cloth even after performance of the operations. In other words,

the end product in this case is not any different from the feed-in-material. It is the manufacture or production or bringing into existence of textile

material or cloth or fabric that is contemplated under s. 33(1)(b)(B)(i) of the I.T. Act, 1961, read with item 32 of Schedule V and this would

include dyed clothe materials, printed clothing materials or clothing materials otherwise processed, made wholly or mainly of cotton. The important

requirement, therefore, is that the operations carried on must be directed towards the ""manufacture or production"" of textiles as understood above.

In this case, the feed-in-material is only cloth and the resultant product after the operations are done on the cloth by the assessee is again cloth or

probably neater or more presentable cloth as found by the AAC; but that is not the same thing as saying that the assessee has ""manufactured or

produced"" the cloth or textiles. We had occasion to refer and consider in detail all these aspects in T.C. No. 669 of 1978- Commissioner of

Income Tax (Central), Madras Vs. S.S.M. Sizing Centre, and T.C. No. 146 of 1979- Commissioner of Income Tax Vs. Veena Textiles Pvt. Ltd.,

. We are, therefore, unable to share the interpretation put upon the word ""textiles"" by the Tribunal.

We may also point out that where mere processing of goods without resulting in a new end-product as opposed to production or manufacture is

contemplated, provision has been made in the Act in that regard by referring only to the process, as for instance in s. 109(i)(a). In contrast to this,

s. 33(1)(b)(B)(i) reads as follows :

Where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the

articles or things specified in the list in the Fifth Schedule"".

The difference in the language employed between s. 109(i)(a) and the provision extracted above would also appear to indicate that a mere

processing of articles was not in the contemplation of s. 33(1)(b)(B)(i), but the bringing into being or existence of one or more of the articles or

things specified in the Fifth Schedule. We are, therefore, of the view that having regard to the nature of the operations carried on by the assessee in

this case on the cloth manufactured by others but purchased by it and the resulting product even after carrying on of the operations not being a new

or distinct or different commodity from the feed-in-material but remaining the same as before, the assessee cannot claim that it is engaged in the

business of ""manufacture or production"" of textiles within the meaning of item 32 of the Fifth Schedule. We, therefore, answer the questions Nos. 1

and 2 in the negative, and in favour of the Revenue. There will, however, be no order as to costs.