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TMI Blog1967 (2) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... bus/truck-chassis at their workshop at Jamshedpur in collaboration with the German firm of automobile manufacturers, Messrs. Daimler Benz A. G. of West Germany. In their application the assessee-company proposed that they would be undertaking "a realistic manufacturing scheme comprising a purely assembly stage followed by four progressive stages of manufacture, each of one year duration ......" With the proposal they set out in some detail the four gradual stages of the manufacturing process which they proposed to adopt during the period of four years. As part of the same proposal they also indicated that prior to the starting of the manufacturing process the company would assemble 500 chassis within an initial period of 9 months. The scheme was approved by the Government of India by their letter dated 1st May, 1954, D. O. No. Eng. Ind. 20(89)/53. During the accounting period ending on 31st March, 1955, the assessee had assembled 443 vehicles from out of C. K. D. (complete knocked down) packs imported from West Germany and it is not in dispute that those vehicles were sold by the company, and the sale resulted in a certain profit to the company. In respect of the profits arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e merits of the other question. He held that since the assembly of automobiles from imported parts "was merely the first stage in the company's scheme for the manufacture of automobiles, the company should be held to have begun to manufacture or produce articles during the accounting period relevant to the assessment under consideration." A further appeal was taken to the Income-tax Tribunal and it was urged before the Tribunal that the mere assembly of chassis did not form a part of the manufacturing scheme submitted to the Government of India by the assessee but was simply in the nature of an exploratory venture for which permission was sought from the Government with a view to try the particular make of bus/truck-chassis, namely, those manufactured by Messrs. Daimler-Benz A. G. of West Germany and with a view to put them on the market and incidentally also to find out the scope of the future market in this country for that kind of vehicle. The Tribunal observed in their order that "there was no dispute as between the appellant-company and the department that all that was done by the automobile division of the company during the relevant previous year, i. e., 1954-55 account yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures the trucks after an initial trial period, would the trial period be still covered by the words "manufacture" or "produce" ? The true question according to counsel is this : Having regard to the particular circumstances under which this activity was undertaken by the assessee-company, and having regard to the totality of the company's programme and the terms on which the Government granted them permission to undertake the manufacture of bus/truck-chassis, was the mere assembling of the 443 units from the imported parts in C. K. D. condition manufacture or production of those units ? An allied point raised is that having regard to the provisions of section 15C(1) read with sub-section (2)(ii) and sub-section (6) of section 15C, the exemption is on the profits or gains derived from any industrial undertaking and sub-section (6) indicates that the exemption applied to the assessment for the financial year next following the previous year in which the assessee begins to manufacture or produce articles. The words "manufacture" or "produce" cannot be read without reference to the industrial undertaking which is contemplated in sub-section (1), and having regard to the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 15C is only to new industrial undertakings in which new capital is employed, the purpose being to encourage industrial enterprise and the investment of capital in new industrial undertakings. The exemption is six per cent. of the capital employed and after computing the benefit the amount so computed is to be deducted from the profits derived from the undertaking. Secondly, the exemption applies only to profits or gains to be derived from an industrial undertaking and is not available when there is a loss. Sub-section (2) virtually defines or rather indicates to which industrial undertakings the provisions of the section apply. Thirdly, sub-section 2(ii) read with sub-section (6) indicates from when the exemption is to come into force. Sub-section 2(ii) shows that section 15C begins to apply as soon as the industrial undertaking "has begun or begins to manufacture or produce articles. . . ." and sub-section (6) lays down the commencement period for the purpose of assessment which is the financial year next following the previous year in which the assessee begins to manufacture or produce articles. Thus, if once manufacture or production of articles has commenced the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or material (in modern use, on a large scale) by the application of physical labour or mechanical power". This is the most generic meaning in its application to industry or industrial undertakings or establishments. (2) There is also another more limited meaning which is found referred to in the authorities as meaning the transforming of raw materials into a commercial commodity or a finished product which has a separate identity (Commissioner of Income-tax v. Ajay Printery Pvt. Ltd.). This shade of meaning is more appropriately used in the past participle "manufactured". See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is "fabricated from raw material". In Aswathanarayana v. Dy. Commercial Tax Officer, at page 801 one finds a useful compilation of meanings attached to the word "manufacture" from various dictionaries and other sources. Similarly, the word "produce" with reference to its meaning in industry or political economy has two different senses. In vol. 8 of the Oxford Dictionary, at page 1422, the two meanings are given as follows : "To bring forth, bring into being or existence (a) generally to bring (a thing) into existence from its raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is called a mechanical or physical mixture in which each drug retains its original properties. But in either case, the resulting mixture is a distinct product brought into being in a particular form suitable for the particular use for which it is intended and capable of being sold or supplied for a price." Thus looked at from any point of view and whether one takes into account the wider or narrower meaning of the word "manufacture", it is clear that assembling of automotive bus/truck chassis from imported parts in a knocked down condition would give rise to an article which is totally different from the parts. This so even though the component parts from which the automotive chassis is made, retain their individual identity in the whole article which is thus manufactured or produced. To take the simplest illustration, if a child takes strips of metal, bolts, nuts, bars and wheels from out of a "meccano" set and assembling them together makes a wheel-barrow or a chair, we would say that the child has produced a wheel-barrow or a chair if not manufactured it. In the present case, the process is the same but only more sophisticated. The transformation of the components into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking of the assessee. The case on behalf of the assessee is thus put in the letter : "As the provisions of the section apply only to industrial undertakings which 'manufacture' or 'produce', we claim exemption from tax under the section for five years from April, 1955, when the first progressive stage of 'manufacture' commenced. In the accounting year 1954-55 about 500 chassis were only assembled from the imported complete CKD packs in order to gain necessary initial training and experience. The provisions of the section do not apply to this purely assembly stage in which no manufacture was involved." Appended to this letter was a note of the automobile division of the assessee-company and in the note the activity of the company is described---a description, on which Mr. Joshi on behalf of the department strongly relied---as follows : "After fully establishing the manufacture of locomotives and boilers, the company diverted its attention to the possibility of extending and diversifying its activities. A realistic manufacturing scheme comprising a purely assembly stage followed by four progressive stages of manufacture, each of one year duration, was framed in close consult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... programme were going to be worked out. Mr. Palkhivala strongly relied upon this tabular statement which was as follows : ------------------------------------------------------------------------------------------------------------------------------------------------- Extent of work at Telco No. of ------------------------------------------ productive and Stage Principal Extent of Based on Based on non-productive groups the period. Production materials men time. consumed. including ------------------- ---------------------- an allowance % Cumulative % Cumulative of 10% for Total Total absenteeism. -------------------------------------------------------------------------------------------------------------------------------------------------- CKD Assembly. 9 months 10.0 10.0 1.7 1.7 106 (500 chassis) Manufacturing : (3,000 units per year) 1 Yr. 26.5 36.5 47.4 49.1 278 Stage I. Frames,front axles,springs, fuel tanks, pedals, control system, brakes, exhaust system, chassis, sheet metal parts & other misc. work. Stage II Rear axles with propeller shafts 1 Yr. 17.5 54.0 13.6 62.7 183 Stage III Gear boxes 1 Yr. 13.2 67.2 3.3 66.0 116 Stage IV Engines with clutch 1 Yr. 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... six months to nine months from the time the project is approved by Government and by the board of directors and that the first stage of manufacture would follow nine to twelve months after the commencement of the C. K. D. assembly. Counsel urged that it is clear from these categorical statements that the assembly stage was only a stage undertaken with a view to the actual manufacture or production of the truck chassis and that in the clearest language it was stated especially in paragraph 7 that the "manufacturing" consists of four stages and that excludes the initial assembly stage. Now though in the letters of the company the purpose is stated to be "necessary initial training and experience", that purpose has not been found established. It is nowhere found stated in any of the orders of the tax authorities or of the Tribunal, but on the other hand, there is an express finding in the order of the Income-tax Tribunal that the purpose of the assembly stage was to explore future prospects in the market. The finding of the Tribunal was, "there appears to be no dispute as between the appellant-company and the department that all that was done by the automobile division of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le integrated programme and it is so delineated in the letter of the chairman of the company as well as in the note of proposals appended to that letter. No doubt in paragraph 7 of that note it is stated that the programme envisages development of the manufacture of chassis for trucks and buses in four stages of one year each and that excludes the initial assembly stage of about 9 months during which about 500 chassis would be assembled. But even the assembly stage is referred to as the initial stage of the programme and cannot be divorced from the programme. If the purpose of that initial stage was, as the Tribunal has found it to be, to probe the market and find out whether the trucks and buses when manufactured would be acceptable to the automobile trade and the public, it was a part of the industrial undertaking itself. A consideration of the tabular statement which we have reproduced above does not weaken that conclusion. The programme of production was on the condition that within about five years the material used would be 100% indigenous material and in computing how the 100% indigenous material would be utilised, it is mentioned that 1.7% of that material would be usable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the manufacture of locomotives and boilers in the Telco factory-there should be no slowing down of the agreed programme for the supply of locomotives and boilers to the Railways . . ." It is clear from the letter granting the sanction that whatever the company may have said, the Government of India regarded the whole, including the so-called assembly stage, as one scheme for the manufacture of diesel trucks. The approval communicated was "to your programme of manufacture". Having thus considered the position upon the facts we now turn to a further contention of Mr. Palkhivala. The contention as he urged it was as follows : "The exemption under section 15C is not in respect of business profits generally but profits derived from the industrial undertaking which has been established for a specific purpose. The object of the legislature was to give a limited exemption---limited in point of time and not in quantum---the limit in point of time is 5 years but the object of the legislature being to give full five years' exemption, the exemption starts not from the year when the undertaking is set up but from the year in which the undertaking begins to manufacture articles. The words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense that they were made out of parts imported from foreign country and were wholly foreign articles. He, therefore, urged that the exemption has been given up on an undertaking which was a completely separate undertaking from the undertaking which claimed the exemption. In this respect he also relied upon the two cases referred to earlier of the Ashok Motors Ltd. and the Standard Motor products of India Ltd. In both these cases the two motor companies had, in addition to importing parts of motor cars and motor trucks and assembling motor cars and trucks from those parts, also sold the surplus spare-parts in their possession and what was held in both the cases was that the sale of the surplus spare-parts was not the same industrial undertaking as the industrial undertaking whereby the cars and trucks were assembled. Counsel urged that these decisions emphasise that the exemption should attach only to the "industrial undertaking which manufactures or produces articles" and not to any other industrial undertaking and that in the present case the industrial undertaking of the assessee which manufactured or produced the bus/truck chassis was the industrial undertaking which commenced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15C. The Tribunal, however, seems to have construed those words having regard to the supposed intention of the legislature in enacting section 15C as can be seen from the following remark : "Supported as it is by the intention of the legislature we cannot hold that merely assembling of parts and especially assembling of trucks/bus chassis from complete knocked down packs as the appellant-company had done can be called either manufacture or production of articles because evidently trucks/bus chassis had already been manufactured in all their component parts in West Germany and what the appellant-company had done was merely to fit up and join the components." The passage which we have just quoted does not indicate how the intention of the legislature affects the interpretation of those words and it may as well be that with the intention to foster new industries and to induce investment of new capital the legislature used the words in the sense in which we have construed them. In any case we think that when the words are plain it is wrong to construe the meaning of the words in a section with reference to some presumed intention of the legislature. The Tribunal has in a later passage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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