TMI Blog1984 (11) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... base year for the period commencing from April 1, 1965, to March 31, 1966, the petitioner was assessed on March 25, 1970, on an income of Rs. 71,645 to a tax liability of Rs. 34,672, and thus for the years 1966-67, 1968-69 and 1969-70, the petitioner-company became entitled to tax credit certificates as was envisaged under s. 280ZB, read with the Tax Credit Certificate (Corporation Tax) Scheme, 1966. The petitioner-company is also registered under the Industries (Development and Regulation) Act, 1951, since it employed more than 50 workmen and is engaged in the industry mentioned in Item No. 23 of Schedule I. The petitioner-company filed an application for the year 1966-67, on April 16, 1971, and for the year 1968-69, on April 17, 1971, and for the year 1969-70, on April 21, 1971, to respondent No. 1 for taking advantage of s. 280ZB of the Act. These applications were disposed of by a single order by the respondent-ITO and were dismissed on the ground that the petitioner was not manufacturing any textile and it was merely carrying on the process of dyeing and printing on wage basis and it would not amount to the manufacture of textile goods. The petitioner filed an appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The dictionary meaning of the word " textile " is woven, capable of being woven, a woven fabric. The stand taken by the Revenue is that the meaning of the word " textile " has been enlarged in Entry 23 of Schedule I by including such textiles as are dyed, printed or otherwise processed. But the basic thing for qualifying any goods as textiles is that there should be manufacturing of textiles and the benefit under s. 280ZB is claimable only if the activity of the manufacturing of textiles is carried on. If it is not there, it cannot be said that the industry is covered by Entry 23 of Schedule I and that the process of dyeing and printing, etc., cannot be covered by the term " manufacturing of textile". Since the interpretation of the words, " the manufacturing and production of textiles " is involved which is of importance and may arise in many cases and the question is not free from difficulty, I am of the view that it would be better if it is decided by a larger Bench. Accordingly, it is directed that the papers may be laid before my Lord Hon'ble the Chief Justice for constituting a larger Bench. SANDHAWALIA C. J.-Would the mere dyeing, printing, singeing or otherwise finis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of textiles, as envisaged by the statute, and the petitioner company would consequently be entitled to the tax credit certificate under s. 280ZB of the I.T. Act. Reliance was placed on Kanpur Textile Finishing Mills V. Regional Provident Fund Commissioner AIR 1955 Punj 130; [1955] PLR 159; East India Cotton Manufacturing Company (Private) Limited v. The Assessing Authority-cum-Excise and Taxation Officer [1972] 30 STC 489 (P H) and Hiralal Jitmal v. Commissioner of Sales Tax, (1957] 8 STC 325 (MP). Perhaps at the very outset I should mention that it is not my intention to attempt the impossible task of laying down any inflexible or all-pervading definition of the phrase " manufacture or production of textiles ". It is well settled that for purposes of interpretation, a word or a phrase may take its cue from the setting in which it is placed. I would, therefore, devote myself to the somewhat modest exercise of attributing a true meaning to the aforesaid words in the context in which they are laid. Herein, what perhaps calls for notice at the threshold is the fact that it would be inapt and perhaps misleading to interpret either the words " manufacture or production " or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Regulation) Act, 1951, is, in respect of its profits and gains attributable to such manufacture or production,-...... and the tax for any such succeeding year exceeds (a) in the case referred to in clause (i), the tax payable for the base year; (b) in the case referred to in clause (ii), the tax payable for the succeeding base year, then the company shall be granted a tax credit certificate for an amount equal to twenty per cent of such excess : Provided that the amount of the credit certificate shall not for any assessment year exceed ten per cent. of such tax payable by the company for that year". Now, reading the provisions of the Act and Chapter XXII .B of the I.T. Act with particular reference to s. 280-XB thereof, it is plain that the object appears to be to promote and encourage the growth of manufacturing industries and to afford them incentives by the grant of certain exemptions from income-tax. Consequently, the true meaning to be given to the phrase " manufacture or production of textiles " must, other things being equal, in a way subserve this larger purpose. With the aforesaid presumption, one might well ask the questions; Whether it could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the petitioner, pinned upon the secondary meaning of " textile " namely, that a fibre, filament or yarn suitable or capable of being woven, was equally within the ambit of the word " textile ". This may perhaps be so but I am unable to see how it would, in any way, ultimately advance the case of the writ petitioner. At best, it would appear that even though a weaving or a knitting process is foundational to the manufacture or production of textiles yet, as a matter of enlarged or loose terminology, the fibre, filament or yarn to be used for such a weaving or knitting process may also be loosely labelled as a textile. To my mind, this secondary meaning does not appear to be attracted or applicable when viewed in the context of Entry 23 of the First Schedule and indeed clauses (1) to (5) thereof would pointedly tend to the exclusion of this enlarged meaning. This would indicate that a fibre or cloth or woven or knitted material is basic to the textile whether the same is dyed, printed or otherwise processed. Consequently, for this reason, the fabric may have been woven or knitted from cotton, jute, wool, silk or synthetic yarn or fibre. That the fabric may have any of the fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be labelled as a manufacture of cars but would only be a manufacture or production of wheels. Similarly, in more sophisticated production like aircraft which may have thousands of individual components, the manufacturer of each one of them would not be a manufacturer of aircraft but only a production of the individual items. That being so, even if fibre, filament or yarn capable of being woven or knitted into fabrics may, as a special meaning, be labelled as textile, this would, in no way, advance the case of the writ petitioner that dyeing, printing, singeing or otherwise finishing or processing of fabrics amounts to manufacture or production of textiles." Inevitably, one must now turn to the somewhat tangled case law on the point. Pride of place in this context must go to the observations of their Lordships of the Supreme Court in Commissioner of Sales Tax v. Harbilas Rai and. Sons [1968] 21 STC 17. Therein it was held that a dealer, who bought bristles plucked from pigs and later boiled them, washed them with soap and other chemicals, sorted them out according to their sizes and colours, and packed them in separate bundles of different sizes for marketing abroad, was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufactures or produces goods for sale under the Finance Act. It is significant to recall that this pertained to the manufacture or production of goods in their generic sense. It did not pertain to the produce or manufacture of a specified article. It was highlighted that the essence of manufacturing is that something is produced or brought into existence which is different from that out of which it is made in the sense that the thing produced is by itself a commercial commodity. Das J. pointedly noticed that he would decline to be drawn into an academic discussion as to the abstract meaning of the term "manufacture" and confined to the particular meaning attributable to it in the context of the Bengal Finance (Sales Tax) Act, 1941. The general observations in this authority, therefore, are of no great aid to the writ petitioner. In Kanpur Textile Finishing Mills v. Regional Provident Fund Commissioner, AIR 1955 Punj 130; [1955]PLR 159, the Division Bench was construing the words " manufacture or production " in the peculiar context of the Employees' Provident Funds Act. It was noticed that, being a beneficient piece of legislation in favour of the workmen, it had to be construed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 964] 15 STC 865. It would thus appear that on the peculiar language and context of the statutory provisions which fall for construction herein, on principle, and even on the weight of precedent, the answer to the question posed at the outset could well have been rendered in the negative to hold that a mere dyeing, printing, singeing or otherwise finishing or processing of fabrics would not amount to the " manufacture or production of textiles " within the meaning of Entry 23 of the First Schedule to the Industries (Development and Regulation) Act, 1951. However, it appears that the aforesaid view, which we are inclined to take is somewhat in discordance with that taken within this court by the Division Bench in East India Cotton Manufacturing Company Private Limited v. Assessing Authority-cum-Excise and Taxation Officer [1972] 30 STC 489. Therein, it was held in the context of the Central Sales Tax Act, 1956, that bleaching or dyeing of raw cloth turns it into a different marketable commodity and, as such amounts to " manufacture " of a commercially new product However, this conclusion was arrived at not upon any principle or rationale but apparently on the assumption that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fabrics. Under s. 280-ZB of the I.T. Act, 1961 (hereinafter referred to as " the Act "), an assessee is entitled to a tax credit certificate if the conditions specified therein stand satisfied. It was averred that in the base year of 1965, the petitioner company had been assessed on March 25,1970, on an income of Rs. 71,645 and to a tax liability of Rs. 34,672 and thus for the subsequent years of 1966 to 1970, the petitioner-company had become entitled to the tax credit certificate as envisaged under s. 280-ZB of the Act read with the Tax Credit Certificate (Corporation Tax) Scheme, 1966. The petitioner-company preferred applications for the assessment years 1966 to 1970 before the ITO, Amritsar, for taking advantage of s. 280ZB of the Act and seeking tax credit certificates thereunder. All the applications were, however, disposed of by a single order by the respondent ITO on the ground that the petitioner was not manufacturing any textiles and it was merely carrying on the process of dyeing on a wage basis which would not amount to the manufacture of textile goods. Aggrieved thereby, the petitioner preferred an appeal before the Commissioner of Income-tax, which was also dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country as a whole and the development of which was governed by economic factors of all India import. The future development on sound and balanced lines of these industries was sought to be secured by the licensing of all new undertakings by the Central Government. Section 2 of the Industries Act contains a declaration that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule. Section 3(i) defines a " scheduled industry " as meaning any of the industries specified in the First Schedule. We are not concerned with the other provisions except the First Schedule of the Industries Act, which gives a list of articles and any industry engaged in the manufacture or production of these articles is, to be a scheduled industry within the meaning of the Industries Act., The First Schedule consists of 38 headings, under which there are certain sub-headings and sometimes under these sub-headings there are some other items included. For example, the first heading is " Metallurgical Industries ". Under this, there are two sub-headings: " A. Ferrous, and B. Non-ferrous. " Now I come to relevant Entry No. 23, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable for the succeeding base year, then the company shall be granted a tax credit certificate for an amount equal to twenty per cent. of such excess: Provided that the amount of the tax credit certificate shall not for any assessment year exceed ten per cent. of such tax payable by the company for that year." The tax credit certificate scheme under s. 280ZB of the I.T. Act provides for the grant of a tax credit certificate to companies engaged in the manufacture or production of any of the articles specified in the First Schedule to the Industries Act for a period of five years for the assessment years 1966-67 to 1970-71. Thus, it is a pre-condition to the grant of tax credit certificates that the articles manufactured or produced by the company find a place in the First Schedule to the Industries Act. Now coming to the merits of the case, it may be observed that the words " manufacture ", " production " and " textiles " and equally the composite phrase "manufacture or production of textiles" have neither been defined in the Industries Act nor in the I.T. Act and it is for this reason that the learned counsel for the petitioner made reference to the dictionary meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustry which manufactures textiles which is made wholly or in part of jute would be covered under this entry and it would include an industry which manufactures jute twine and rope. So is the position under sub-headings (3), (4) and (5). But, in none of the sub-headings it is provided that a company engaged in dyeing, printing, singeing or otherwise finishing or processing of fabrics only would be an industry engaged in the manufacture or production of an article. In the entry, the emphasis is on of what the textile is made of and not on the process of its making, may it be dyeing, printing or processing in any other manner. The acts which are claimed to fall within the meaning of words " manufacture or production " only result in giving a good finish to a particular article manufactured or produced, and making it a better marketable article, but those acts by themselves do not at all fall within the ambit of the entry. The petitioner company as is evident from the finding of the ITO, is only carrying on the process of dyeing on a wage basis. Further, s. 280ZB provides that it is only that company which is engaged in the manufacture or production of any of the articles mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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