TMI Blog1983 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... and bleaching of cotton yarn. The company had incurred certain expenditure amounting to Rs. 11,678 between April 1, 1969, and November 16, 1969, the date of commencement of its operations. The company claimed this amount as a revenue expenditure or in the alternative as a pre-production expenditure to be capitalised and allocated to depreciable asset. Development rebate was also claimed in case it is capitalised. The said expenditure consisted of factory wages, interest, travelling, advertisement, etc. The ITO disallowed these items and also did not allow these to be capitalised and allocated for purposes of development rebate and depreciation. The company had also incurred expenditure in the earlier years amounting to Rs. 27,467. This consisted of mortgage deed expenses, interest, salary, guarantee commission, etc. This has been allocated between building and plant and machinery at Rs. 9,156 and Rs. 18,312. The company also claimed enhanced development rebate under s. 33(1)(b)(B)(i) in respect of the machinery on the ground that they have been used for the manufacture of textiles. This claim was negatived by the ITO. The assessee took the matters in appeal to the AAC but withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebate provided for in s. 33(1)(b)(B)(i) of the Act. The Tribunal rejected the contention put forward on behalf of the Revenue that the expression " textiles " occurring in item 32 will cover only manufacture of cloth from raw material and will not take note of any intermediary process. The question is whether the view taken by the Tribunal is correct. Item 32 of the Fifth Schedule to the I.T. Act is as follows: " Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope." The scope of the item was considered by a Division Bench of this court in an unreported decision an T.C. No. 151 of 1977 (CIT v. North Arcot District Co-operative Spinning Mills Ltd.) dated June 15, 1982 since reported in [1984] 148 ITR 406 (Mad), to which one of us was party. In that case also, the Tribunal upheld the assessee's claim on the ground that cotton yarn will fall within the expression " textiles ". On reference, this court considered the scope of s. 33(1)(b)(B)(i)(a) and held that the purpose of Schedule V is to specify the articles or things which will be covered by s. 33(1)(b)(B)(i) and item 32 actually specifies te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Schedule I to the Central Excises and Salt Act, 1944, held that the Central Excises and Salt Act charges duty on manufacture of goods, that the word " manufacture " implies a change but every change in raw material is not manufacture, that there must be such a transformation that a new and different article must emerge having a distinctive name, character or use and that the gas generated by the parties in that case was kiln gas and not carbon dioxide as known to the trade and, therefore, the kiln gas generated is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and hence cannot attract item 14H in the First Schedule. In that case, the court was concerned with the question whether the gas generated did not amount to manufacture of gas so as to make the gas generated as excisable. Therefore, that decision cannot be taken to throw any light on the issue before us. In McNicol v. Pinch [1906] 2 KB 352, the court was construing the scope of the expression " manufacture of saccharin " occurring in the Finance Act of 1901 and the Revenue Act of 1903, and the expression was construed as meaning " bringing into being saccharin ". We do not see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be taken to have used the machinery for the manufacture of cotton yarn as such. In Deputy Commissioner of Sales Tax v. Sadasivan [1978] 42 STC 201 (Ker), the question arose as to whether dyed and coloured cotton yarn falls under entry 4(ii) of the Second Schedule to the Kerala General Sales Tax Act, 1963. The court held that despite the process of dyeing and colouring, cotton yarn would remain cotton yarn and it does not undergo any process of transformation so as to make sales tax exigible separately on that commodity after the process of dyeing and colouring. In that case, the Revenue contended that after dyeing and colouring, the cotton yarn has become a commercially different product and, therefore, separate sales tax is exigible on the dyed and coloured cotton yarn but that contention was rejected by the court and held that even after dyeing and colouring, the cotton yarn continues to be the same article. In Commissioner of Sales Tax v. Harbilas Rai Sons [1968] 21 STC 17, the Supreme Court had occasion to construe the word " manufacture ", occurring in Explanation II(ii) to s. 2(h) of the UP Sales Tax Act, 1948. The Supreme Court held that the word " manufacture " ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem 32 of the Fifth Schedule. In that case, the assessee engaged in the construction of bodies for buses, motor-trucks, etc., on chassis supplied by the customers, purchased various items of new machinery and installed the same in its plant. The assessee's claim for grant of development rebate at a higher percentage under s. 33(1)(b)(B)(i) of the I.T. Act, 1961, was rejected by the ITO but it was allowed by the Tribunal and that was upheld by this court holding that a bus body can be regarded either as an automobile ancillary or the end result of the construction, on the very skeleton of a chassis, the body of a motor-truck or bus and hence the items of machinery engaged in this kind of process would be entitled to higher development rebate. The Tribunal found that the machinery will fall under items 5, 10 and 20 of the Fifth Schedule. Item 5 refers to internal combustion engines, item 10 refers to the machinery engaged in the construction, production or manufacture of motor-trucks and, buses, and item 20 refers to automobile ancillaries. The court, while upholding the order of the Tribunal, observed that the assessee was engaged in the construction of bus bodies, motor-trucks and ..... 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