1992 (11) TMI 84 - HC - Income Tax

Summary

Issues involved:
The judgment concerns the interpretation of entry 23 of the First Schedule to the Industries (Development and Regulation) Act, 1951, specifically regarding whether dyeing, printing, singeing, or finishing of fabrics constitutes "manufacture or production" of textiles. The controversy also involves determining the entitlement of development rebate under section 33(1)(b)(B)(i) of the Income-tax Act, 1961, based on the processes involved in the business activities.

Issue 1 - Interpretation of Entry 23:
The case revolves around whether the business activities of bleaching, dyeing, and embroidery on grey cotton cloth amount to the manufacturing or producing of textiles, as outlined in item No. (32) of the Fifth Schedule to the Income-tax Act, 1961. The key question posed is whether these processes fall within the scope of textiles made mainly of cotton, including cotton yarn, hosiery, and rope.

Issue 2 - Entitlement to Development Rebate:
Another aspect of the case is whether the machinery installed by the assessee was utilized for the business of manufacturing or producing articles specified in item No. (32) of the Fifth Schedule, thereby enabling the claim of development rebate under section 33(1)(b)(B)(i) of the Income-tax Act, 1961.

The Revenue's argument is based on a previous judgment in Niemla Textile Finishing Mills P. Ltd. v. ITO [1985] 152 ITR 429, which concluded that processes like dyeing, finishing, scouring, and singeing of fabrics do not constitute "manufacture or production" of textiles. However, subsequent legal developments, including judgments in other cases and the interpretation of related acts, have indicated a broader understanding of manufacturing processes.

The Full Bench decision overturns the previous judgment, aligning with the view that processes such as bleaching, dyeing, and printing of grey cloth do amount to the manufacture or production of textiles. This conclusion is supported by the interpretation of relevant legal provisions and the settled state of the law as established by subsequent court decisions.

In conclusion, both questions raised in the case are answered in the negative against the Revenue and in favor of the assessee. The judgment clarifies the scope of manufacturing activities in the textile industry and resolves the dispute regarding the entitlement to development rebate under the Income-tax Act, 1961.