1983 (12) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to higher rate of development rebate u/s 33(1)(b)(B)(i) for machinery used by the assessee.
2. Whether the operations carried on by the assessee amount to the manufacture of textiles as specified in item 32 of the Fifth Schedule.

Summary:

Issue 1: Entitlement to Higher Rate of Development Rebate u/s 33(1)(b)(B)(i)
The Tribunal held that the assessee, engaged in warping, sizing, and bleaching of cotton yarn, was entitled to a higher rate of development rebate u/s 33(1)(b)(B)(i) of the Income-tax Act. The Tribunal's decision was based on the interpretation that these operations fall under item 32 of the Fifth Schedule, which includes "textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope." The Tribunal rejected the Revenue's contention that the term "textiles" should be limited to the manufacture of cloth from raw material and not intermediary processes.

Issue 2: Whether Operations Amount to Manufacture of Textiles
The High Court examined whether the activities carried on by the assessee, such as warping, sizing, and bleaching of cotton yarn, could be considered as manufacturing textiles. The court referred to several precedents, including the Supreme Court's decision in South Bihar Sugar Mills v. Union of India, which defined "manufacture" as a process that results in a new and different article with a distinctive name, character, or use. The court concluded that the assessee's operations did not transform the cotton yarn into a new commercial product; it remained cotton yarn even after the processes. Therefore, the activities did not amount to the manufacture of textiles.

Conclusion:
The High Court held that the Tribunal's view was incorrect. The processes of warping, sizing, and bleaching did not constitute manufacturing of textiles as specified in item 32 of the Fifth Schedule. Consequently, the assessee was not entitled to the higher rate of development rebate u/s 33(1)(b)(B)(i). Both questions were answered in the negative and against the assessee, with costs awarded to the Revenue.