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Issues Involved:
1. Definition of "manufacture or processing" under section 2(6)(c) of the Finance (No. 2) Act of 1971. 2. Whether the activities of sorting, washing, drying, and blending wool constitute "manufacture or processing" of goods. 3. Entitlement of the assessee to be considered an "industrial company" for tax benefits. Detailed Analysis: Issue 1: Definition of "manufacture or processing" under section 2(6)(c) of the Finance (No. 2) Act of 1971 The core issue revolves around the interpretation of "manufacture or processing" within the meaning of clause (c) of sub-section (6) of section 2 of the Finance (No. 2) Act of 1971. The term "industrial company" is defined as a company engaged in activities such as the generation or distribution of electricity, construction of ships, manufacture or processing of goods, or mining. Issue 2: Whether the activities of sorting, washing, drying, and blending wool constitute "manufacture or processing" of goods The assessee, a company engaged in exporting wool, undertook activities such as sorting, washing, drying, and blending raw wool. The Income-tax Officer concluded that these activities did not amount to processing as the wool retained its original form and was merely made marketable. The Tribunal upheld this view, stating that for an activity to be considered as manufacturing or processing, it must result in the creation of a new commodity. Miss Patel, the counsel for the assessee, argued that the term "processing" has a broader connotation than "manufacture" and does not necessarily require the production of a new commercial commodity. She cited various judgments to support her argument, including: - CIT v. Radha Nagar Cold Storage (P.) Ltd.: The Calcutta High Court held that cold storage activities amounted to processing as they preserved goods and prevented their natural decay. - CIT v. Datacons (P.) Ltd.: The Karnataka High Court ruled that activities converting vouchers into balance sheets and other documents constituted processing. - Chowgule & Co. Pvt. Ltd. v. Union of India: The Supreme Court held that any operation resulting in a change in a commodity amounts to processing, irrespective of whether a new commodity is produced. - G. A. Renderian Ltd. v. CIT: The Calcutta High Court recognized blending different qualities of tea as processing. - CIT v. Lakhtar Cotton Press Co. (Pvt.) Ltd.: The Gujarat High Court noted that processing involves continuous actions leading to a change in the commodity. The court agreed with Miss Patel, emphasizing that the activities carried out by the assessee changed the quality and character of the raw wool, thus constituting processing within the meaning of section 2(6)(c) of the Finance Act. Issue 3: Entitlement of the assessee to be considered an "industrial company" for tax benefits Given that the activities performed by the assessee were deemed to constitute processing, the court held that the assessee was entitled to be considered an "industrial company" under section 2(6)(c) of the Finance Act. This classification entitled the assessee to the benefit of a lower rate of income tax. The court dismissed the Revenue's reliance on the decision in Commissioner of Sales Tax v. Dunken Coffee Manufacturing Co., which focused on the term "manufacture" under the Bombay Sales Tax Act, 1959, and required the production of a new commercial commodity. The court highlighted that the interpretation of terms in one statute should not be transposed to another statute without considering the context and purpose. Conclusion: The court answered the question in the affirmative, ruling in favor of the assessee. The activities of sorting, washing, drying, and blending wool were considered processing, thereby qualifying the assessee as an industrial company eligible for the lower tax rate. The Commissioner was ordered to pay the costs of the reference.
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