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TMI Blog1965 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... dend to the extent of 43 per cent. of its net income, but later on, on receiving a notice from the Income-tax Officer, it declared a further dividend of 2 per cent., thereby making the total quantum of dividend declared at 45 per cent. The Income-tax Officer however was of the view that it was incumbent upon the respondent-company to declare dividend to the extent of 60 per cent. of its net income and since the respondentcompany had not done so, he passed an order under section 23A against the respondent-company. The Income-tax Officer declined to accept the contention of the respondent-company that it was a manufacturing or a processing concern and was therefore bound to declare dividend to the extent of 45 per cent. of its net income only and held that the respondent-company did not fall under clause (ii) of Explanation 2 to section 23A. The Appellate Assistant Commissioner also rejected the contention of the respondent-company that the business of printing balance-sheets, pamphlets, share certificates, etc., which was carried on by the company, amounted to either manufacturing or processing and confirmed the order passed by the Income- tax Officer. Before the Tribunal, the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of any super-tax payable under this section, by the amount of any other tax levied under any law for the time being in force on the company by the Government and in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949, the Income-tax Officer shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of 50 per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of 37 per cent. in the case of any other company as the undistributed balance of the total income of the previous year, etc. Explanation 2 defines the "statutory percentage" mentioned in sub-section (1) of section 23A and, inter alia, provides that statutory percentage means in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(3)(b) of the Central Sales Tax Act and rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957. One of the questions that arose there was whether the process of designing would be included in the expression "in the manufacture of the finished goods produced by the company". The Supreme Court held in that case that the expression "in the manufacture of goods" in section 8(3)(b) of the said Act should normally encompass the entire process carried on by the dealer in converting raw materials into finished goods. Where any particular process was so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". The Supreme Court also held that the expression "in the manufacture" took in within its compass, all processes which were directly related to the actual production. Drawing and photographic materials falling within the description of goods intended for use as "equipment" in the process of designing, which was directly related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly his customers and which he had agreed to sell to them. The resultant mixtures, after dispensing prescriptions were, therefore, the goods sold by a dispensing chemist to his customers and the process of dispensing was to produce those goods for sale, without which process sales of mixtures or compounds could not be effected by a chemist. Even if that process was not the manufacture of goods, as articles of furniture, mechanical appliances and paints were made from raw materials, nevertheless, since it was the production of goods for the purpose of selling to customers, the chemist who dispensed prescription thereby produced goods for sale. Das J., who delivered a separate judgment, stated that since there was no definition of the words "manufacture" and "produce" in the Act, the expressions would have to be construed by the ordinary natural meaning according to the accepted usages of English speech. After giving the dictionary meanings of the word "manufacture" he also came to the conclusion that when a dispensing chemist mixed different drugs according to the prescription of a physician, the drugs might or might not be transformed into a different m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a dealer who from materials produced goods by manual or animal labour or by machinery. Dixit J., as he then was, at page 328 of the report, observed that in common parlance, apart from the special definition contained in the Act, "manufacture" meant bringing goods into being and "to manufacture goods for sale" therefore meant to bring into being something in a form in which it was capable of being sold or supplied in the course of business. He held that to constitute "manufacture" for the purposes of that Act, it was not necessary that there must be a transformation in the materials and that the transformation must have progressed so far that the manufactured article became commercially known as another and different article from the raw materials. All that was necessary was that the material should have been changed or modified in an acceptable form to satisfy some want or desire or fancy or taste of man. On this reasoning, he held that the assessee was engaged in the work of printing and dyeing textiles purchased by him and in the business of selling or supplying printed or dyed materials and a manufacturer within the meaning of the Act. In an unr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the provisions of law they had to deal with. Where the laws provide special definitions or where the word "manufacture" or "manufacturer" have been used in the context of some special object of the Act, decisions which have given a particular meaning to those words would hardly be of any use. Therefore, it is safer to take the particular provision with which the court is concerned and ascertain what was the meaning intended to be given by the legislature. There is, and can be, no doubt that the distinction made between different kinds of companies in Explanation 2 to section 23A was made in order to give encouragement to manufacturing concerns as against purely investment and non-manufacturing concerns. We must also take into consideration along with that object the fact that the Act has not given any artificial or technical meaning to the expression "manufacture" in Explanation 2 or elsewhere in the Act. That being so, we must adopt for the interpretation of clause (ii) of Explanation 2 the meaning given to the expression in ordinary parlance in commercial and business circles. The learned Advocate-General agreed that, in the absence of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionery to the order of individual customer, he produced a commercial commodity which was capable of being sold or supplied. The printer in such a case was a manufacturer and when the printed material was sold to the customers, there was a sale of the finished goods to the customers. The learned judge observed that it was not correct to say that the essential character of the work was the printing and not the supply of stationery and that in executing the printing work the paper came into existence and became the property of the client or customer only incidentally. He also observed that when a printer accepted orders from his customers for job works, such as receipt books, registers, forms, letter-heads, etc., and printed them in accordance with the requirements of his customers on paper supplied by the printer himself, the orders placed by the customers for such job works were contracts for sale of goods and not contracts for work and labour. In the present case, whether we adopt the limited or the larger meaning given by the courts to the word "manufacture", that is to say, whether it is necessary or not that the raw materials must be converted into a new commodity or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otally different article from the materials, namely, paper and ink, which are consumed in making it. The paper and ink which are used in the process of making pamphlets, balance-sheets or the book, by themselves would be of no value and cannot have apart from the contents a realisable value if sold as such materials. When they are used the only commodity which would have any commercial value would be the finished product, namely, the balance-sheet or the profit and loss account, the share certificate, the pamphlet, etc. Considering the consistent view that has been adopted by the various High Courts while deducing the meaning of the word "manufacture" or "manufacturer" and the object with which Explanation 2 has been inserted in section 23A of the Act, we are of the view that the business carried on by the respondent-company of printing balance-sheets, profit and loss accounts, dividend warrants, pamphlets, share certificates, etc., required by the textile mills referred to in the statement of the case and other textile mills would be a business which consists wholly of manufacture and, therefore, clause (ii) of Explanation 2 to section 23A would apply in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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