TMI Blog1986 (3) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ting cloth of its customers. In other words, in this year it did not dye and print its own cloth. In the subsequent years, namely, 1973-74 to 1975-76, major part of the business of the assessee was to dye and print cloth belonging to itself, though it also did business of dyeing and printing cloth for customers on a comparatively small scale. According to the assessee, it manufactures or produces articles and, therefore, it is entitled to relief for the years under consideration. This claim was allowed by the Income-tax Officer while making assessments for the years under consideration. The Commissioner of Income-tax ("Commissioner" for short) was of the view that the order of the Income-tax Officer allowing deduction under section 80J in the assessment year 1972-73 was prejudicial to the interest of the Revenue., He, therefore, issued notice calling upon the assessee to show cause why relief granted to it should not be withdrawn. After hearing the assessee, the Commissioner found that in the year of account relevant to the assessment year 1972-73, the receipts were only in respect of the job work of dyeing and printing of cloth belonging to the assessee's customers alone and sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 was concerned, the assessee was a mere contractor since it had subjected cloth belonging to its customers to the process of dyeing and printing. In other words, according to the Tribunal, since cloth which was subjected to process of dyeing and printing did not belong to the assessee, the assessee was a mere contractor and not a manufacturer of articles. The Tribunal, therefore, held that the Commissioner was right in holding that the assessee did not fulfil the conditions laid down in section 80J (4) and withdrawing the deduction or relief under the said section for the assessment year 1972-73. So far as the assessment years 1973-74, 1974-75 and 1975-76 were concerned, the Tribunal found that the assessee did the business of dyeing and printing of cloth on its own account as well as for its customers. The Tribunal further found that so far as these years were concerned, the major part of the assessee's business was dyeing and printing of its own cloth and minor part of its business was job work for its customers. The Tribunal did not agree with the Commissioner's finding that there was reconstruction of the undertaking. The Tribunal also did not agree with the Commissioner that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the aggregate of the deduction, if any, admissible to the assessee under section 80H and 80HH) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the manner specified in sub-section (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year) : ....... (2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year : Provided that in the case of an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0J. Once it is established that the assessee has derived profits and gains out of an industrial undertaking in which articles are manufactured or produced, the assessee is entitled to relief or deduction under section 80J. The Tribunal, it was submitted, was, therefore, wrong in denying the relief to the assessee for the assessment year 1972-73. On the other hand, it is contended on behalf of the Revenue that the undertaking of the assessee is not an industrial undertaking, and in any case, no articles are manufactured or produced in this undertaking. Therefore, the essential conditions laid down in section 80J for seeking the said relief are not satisfied, and consequently the assessee is not entitled to claim relief for any of the years under consideration. It is further submitted that even assuming for the sake of argument that the activity which is carried on by the assessee in its undertaking is manufacturing activity, it is not entitled to any relief since there is reconstruction of the business already in existence and the machinery which was previously used is now sought to be used for the business which has been reconstructed. It is submitted that the assessee was original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, its undertaking is an industrial undertaking. Before we go to the main question whether the assessee manufactures or produces articles in its said industrial undertaking, we will dispose of two contentions which are raised on behalf of the Revenue in the context of clauses (i) and (ii) of section 80J(4). As pointed out above, one of the contentions raised on behalf of the Revenue is that the undertaking of the assessee was formed by reconstruction of business already in existence. It is further contended that the building and machinery which were used for business are transferred to the new business. According to the Revenue, the assessee was earlier doing job work by subjecting grey cloth belonging to its customers to the process of dyeing and printing and now its main business is to subject grey cloth belonging to itself to the process of dyeing and printing. There is, therefore, reconstruction of existing business and it also establishes that the building and machinery which were used for job work are now being used for processing the assessee's own cloth. There is no substance in this contention. There is no change in the activity carried on by the assessee. It is do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts wholly of "manufacture of goods" within the meaning of clause (iv) of Explanation to section 23A of the Act of 1922. It was in the context of the above expression used in section 23A of the Act of 1922 that this court considered as to what meaning should be attributed to the words "manufacture" or "processing of goods". These words or expressions were not defined in the Act of 1922 or section 23A thereof. This court, after referring to various decisions and the dictionary meanings of the word "manufacture", went on to observe as follows (at pages 819 and 820) : "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 an article wherein the raw materials are merged and lose their identity, would not make any difference to the facts of the present case. To take the illustration given by Das J. in the Calcutta case (North Bengal Stores Ltd. v. Board of Revenue, Bengal [1938-50] 1 STC 157) of the dispensing chemist, when a goldsmith makes an ornament out of a lump of gold, he does in reality manufacture an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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.". In Empire Industries Limited v. Union of India, AIR 1986 SC 662; [1985] 20 ELT 179 (SC), the petitioner company was an independent processing unit carrying on its activities at Bombay and as an independent processing unit was engaged in job activities of dyeing and printing and finishing man-made/cotton fabrics. It was contended by the petitioner that the processing operation of the petitioner company are job work operation of dyeing, bleaching and printing of said fabrics which are of cotton yarn and man-made fibres. It was its case that it begins with man-made or cotton fabrics before it starts the said processes and also ends with man-made or cotton fabrics after subjecting the fabrics to the various processes. It was contended that the petitioner company received fully manufactured man-made fabrics and cotton fabrics from its customers only for the purpose of carrying out one or more of the aforesaid processes thereon as per the requirement and instructions of the customers, and after n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odity is sufficient to attract levy of excise duty. The taxable event for central excise, it was observed, is the manufacture of excisable goods and the moment there is a transformation into a new commodity having its own character, use and name, whether be it the result of one process or several processes, "manufacture" takes place and liability to duty is attracted. The sale or ownership of the end-product is absolutely irrelevant for the purpose of taxable event under the central excise. We may now refer to the dictionary meanings of the word "manufacture", which have been referred to in the decision of this court in Ajay Printery Private Limited [1965] 58 ITR 811. The dictionary meanings also point out that the meaning to be attributed to the word "manufacture" would be to work up materials into forms for use, making of articles or materials by physical labour or mechanical power and making of goods by hand or by machinery often on large scale by division of labour. In Black's Law Dictionary, the meaning given to the word "manufacture" is the process or operation of making wares or any material produced by hand, by machinery or by other agency ; anything made from raw materia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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