TMI Blog1996 (6) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... se cotton into processed bales, the assessee is entitled to deduction under ss. 80HH and 80-I. The ITO did not agree. According to him, the deduction is available to an industrial undertaking which manufactures or produces articles or things and the processing operation is not covered by these sections. He observed that no ginning was done by the assessee and it only pressed ginned lint relating to others into small bales and charged a fixed rate for each bale. In this process, he ascertained, some grading is done in that some yellow cotton and oil-stained lint lying mixed here and there is removed before putting the lint into the press. This, according to him, could at best be termed as processing. It could not come under the activity of manufacturing or producing. Lint is pressed and the same lint is obtained in a compressed form. This, according to him, is done to facilitate storing and transporting. Bales as such have no utility. The lint has to be taken out again and used as raw material for spinning. In these circumstances, he held that no new product has come into existence by the operations carried on by the assessee. He, therefore, held that the assessee is not manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al vs. CIT (1968) 67 ITR 329 (AP), wherein separating of lint from raw kapas was held to be a manufacturing process. He also referred to the decisions in CIT vs. Perfect Liners (1983) 142 ITR 654 (Mad), State of Punjab vs. Chandu Lal Kishori Lal (1970) 25 STC 52 (SC), CIT vs. Baraka Overseas Traders (1993) 201 ITR 827 (Kar), and Tarai Development Corpn. vs. CIT (1980) 14 CTR (All) 61 : (1979) 120 ITR 342 (All). He thus submitted that the assessee is entitled to deduction under ss. 80HH and 80-I. 5. The learned Departmental Representative supported the order of the departmental authorities. He submitted that the activity carried on by the assessee is only processing but not manufacture. There is no change effected in the commodity; no new thing is made by the processing. It is cotton lint before and after processing. He referred to the decision of the Supreme Court in AIR 1988 SC 1164. 6. We have heard the parties and considered their rival submissions. Sec. 80HH provides for a deduction in respect of profits and gains from a newly established industrial undertaking or hotel in backward area. It reads as under: "80HH. (1) Where the gross total income of an assessee includes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. According to dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacture leading to the production of a commercially new article. In the case of Union of India vs. Delhi Cloth General Mills Co. Ltd. AIR 1963 SC 791, the word 'manufacture' came up for consideration of their Lordships of the Supreme Court and it was observed in that case as under "The word 'manufacture' used as a verb is generally understood to mean as '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...." It has again come up for consideration before their Lordships of the Supreme Court in the case of Empire industries Ltd. vs. Union of India (1986) 162 ITR 846 (SC), wherein the following passage quoted in Permanent Edition of Words and Phrases, Vol. 26, from an American judgment, was quoted with approval: "'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 mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as merchants found it convenient to store cotton in that form because unpressed cotton would require considerable storing space which might ultimately prove uneconomical to the traders dealing in or using cotton. The assessee-company claimed that pressing of cotton fell within the expression "processing of goods" within the meaning of s. 2(7)(c) of the Finance Act, 1973, and that therefore, it was an "industrial company" entitled to the concessional rate of tax. Their Lordships of the Gujarat High Court held: "Loose cotton in bulk quantity with lighter density was, as a result of pressing, converted into cotton bales and to that extent it underwent a change and, therefore, the assessee-company fell within the definition of an 'industrial company' because it processed cotton into cotton bales and was entitled to the concessional rate of tax within the meaning of ss. 2(7)(c) and 2(8)(c) of the Finance Acts, 1973 and 1974, respectively." The question as to whether it amounts to 'manufacture' or not was not the subject-matter of consideration before the Gujrat High Court. The issue therein was whether the pressing of cotton amounted to processing of goods and not whether it amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be recognised as still retaining its original identity." In that case, the Supreme Court referred to leading American cases. One was Anheuser-Busch Brewing Association vs. United States (1907) 207 US 556, wherein it was observed: "At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been manufactured." Another decision was in the case of East Texas Motor Freight Lines vs. Frozen Food Express (1955) 351 US 49, wherein it was held that 'processing of chickens' in order to make them marketable, did not turn them from agricultural commodities into manufactured commodities. It was observed: "Killing, dressing and freezing a chicken is certainly a change in the commodity. But it is no more a drastic change than the change which takes place in milk from pasteurizing, homogenizing, adding vitamin concentrates, standardising and bottling." There was, it was held, no difference between the chicken in the pan and the one that was dressed. 14. The decision of the Supreme Court in the case of Thungabhadra Industries Ltd. vs. CTO 11 STC 827 (SC), is also worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C vs. Varishtha Udyog Ltd. (1990) 34 ITD 10 (Del), wherein twisting of yarn was held to be manufacture, will not advance the case of the assessee. Similar would be the position with regard to the decision of the Karnataka High Court in (1993) 201 ITR 827 (Kar). 18. It may also be mentioned that in Tarai Development Corporation and CIT vs. Union Carbide India Ltd. (1986) 56 CTR (Cal) 66 : (1987) 165 ITR 550 (Cal), 'processed seeds' and 'processed fish including frozen fish products' were held to be entitled to development rebate because of their enumeration in items 28 and 30 of Schedule V of the IT Act, 1961, and that logic was extended to granting of deduction under s. 80J to the assessees in those cases. These decisions also cannot be applied to the present case. 19. On a consideration of the facts and circumstances appearing in the present case, we are of the opinion that the activity carried on by the assessee in sorting out different varieties of cotton, pressing the cotton into bales, covering it with hessian cloth and tightening it by means of iron hoops, packing and converting them into cotton bales may be a process, but it does not amount to 'manufacture' or 'productio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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