1985 (5) TMI 28 - HC - Income Tax

Summary

Issues Involved:
The issue involved in this case is whether the tailoring activity of the assessee-company constitutes "manufacturing or processing of goods" under section 2(6)(d) of the Finance Act, 1968.

Judgment Details:

The Income-tax Officer initially considered the sale of ready-made garments as a manufacturing activity, while the sale of cloth and tailoring for customers was not. However, the Appellate Assistant Commissioner reversed this view, stating that tailoring activity also qualifies as manufacturing. Subsequently, the Tribunal, on appeal by the Department, upheld the Income-tax Officer's view, asserting that tailoring services do not amount to manufacturing.

The definition of an "industrial company" under section 2(6)(d) of the Finance Act, 1968, requires a company to be engaged in manufacturing or processing goods to qualify for lower taxation rates. It is crucial that at least 50% of the profits are derived from manufacturing or processing activities to be classified as an industrial company.

In this case, if the tailoring charges are considered profits from manufacturing or processing of goods, the assessee-company would qualify as an industrial company. The court referred to various precedents to support the argument that activities such as making clothes from customer-supplied cloth can be deemed as manufacturing or processing of goods.

The court emphasized that the process of converting cloth into garments, whether using the company's cloth or customer-supplied cloth, results in the same outcome. Drawing parallels to previous judgments, the court concluded that the tailoring activity should be considered as manufacturing or processing of goods, as it involves converting customer-supplied cloth into garments.

In line with the reasoning presented, the court answered the question in the negative, ruling that making clothes to the order of customers constitutes manufacturing or processing of goods. The decision favored the assessee, and each party was directed to bear their own costs.