1984 (1) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to higher rate of development rebate u/s 33(1)(b)(B)(i) of the I.T. Act, 1961.
2. Determination of whether the assessee's activities constitute "manufacture or production" of textiles.

Summary:

Issue 1: Entitlement to Higher Rate of Development Rebate u/s 33(1)(b)(B)(i)
The assessee, a private limited company, claimed a development rebate at a special rate of 35% for the assessment year 1970-71, arguing that its activities constituted the manufacture or production of textiles within the meaning of item 32 of the V Schedule to the I.T. Act, 1961. The ITO allowed a development rebate at 20%, contending that the assessee's activities were limited to embroidering designs on cloth purchased from other mills and did not amount to manufacturing or producing textiles. The AAC upheld this view, dismissing the assessee's appeal. However, the Tribunal, relying on the dictionary meaning of "process," ruled in favor of the assessee, granting the higher rate of development rebate at 35%.

Issue 2: Determination of "Manufacture or Production" of Textiles
The court examined whether the assessee's operations, which involved embroidering and dyeing cloth purchased from others, constituted "manufacture or production" of textiles. Referring to the case CIT v. S. S. M. Sizing Centre [1985] 155 ITR 782 (Mad), the court noted that similar operations like warping, sizing, and bleaching of yarn did not amount to manufacturing or production, as the basic structure or identity of the yarn remained unchanged. Applying this interpretation, the court concluded that the assessee's activities did not transform the cloth into a different or distinct commercial product. The cloth retained its identity as cloth manufactured by another, even after embroidery and dyeing. Therefore, the assessee's operations did not qualify as "manufacture or production" of textiles.

Conclusion:
The court held that the assessee was not entitled to the higher development rebate as it was not engaged in the "manufacture or production" of textiles within the meaning of s. 33(1)(b)(B)(i) read with item 32 of Schedule V to the Act. Both questions were answered in the negative and in favor of the Revenue, with no order as to costs.