1990 (7) TMI 99 - HC - Income Tax

Summary

Issues:
1. Entitlement to higher rate of development rebate under section 33(1)(b)(B)(i) of the Income-tax Act, 1961.
2. Determination of whether the operations carried out amount to the manufacture of textiles as specified in item No. 32 of the Fifth Schedule.

Entitlement to Higher Rate of Development Rebate:
The case involved a registered firm claiming a higher rate of development rebate for the assessment year 1974-75 under section 33(1)(b)(B)(i) of the Income-tax Act, 1961. The firm contended that it installed machinery for the production of textiles falling under item No. 32 of the Fifth Schedule. The Income-tax Officer rejected the claim, limiting the rebate to 15%. On appeal, the Appellate Assistant Commissioner accepted the claim based on a previous decision. The Tribunal also upheld the claim, leading to the reference before the High Court.

Manufacture of Textiles:
The High Court analyzed the operations of the firm, which involved processing grey cloth purchased from others. It was found that the firm did not manufacture a new textile product but merely carried out operations on existing cloth, resulting in no distinct or different commodity. The Court referred to previous decisions and emphasized that for a process to constitute "manufacture," it must bring into existence a new and distinct article. The Court highlighted the absence of any indication in the Act that the firm's processes qualified as manufacturing or production of textiles under item No. 32 of the Fifth Schedule.

Application of Ujagar Prints v. Union of India Case:
The firm relied on the Supreme Court decision in Ujagar Prints v. Union of India, arguing that processes like those carried out by them should be considered as manufacturing. However, the High Court distinguished the Ujagar Prints case, noting that it dealt with excise duty and an expanded definition of "manufacture." The Court emphasized that under the Income-tax Act, the term "manufacture" should be interpreted in its ordinary sense, requiring the emergence of a new and distinct product, a criterion not met by the firm's operations.

Conclusion:
The High Court, following precedent and considering the nature of the firm's operations, ruled against the firm's entitlement to a higher development rebate. It held that the processes carried out did not amount to manufacturing or production of textiles under the Act. The Court rejected the firm's reliance on the Ujagar Prints case, emphasizing the lack of evidence of a new commodity resulting from the operations. The questions referred were answered in the negative, favoring the Revenue, with costs awarded to the Revenue.