1983 (11) TMI 75 - AT - Income Tax

Summary

Issues:
The issues involved in the judgment are the eligibility of the assessee for deductions under sections 32A and 80J of the Income-tax Act, 1961.

Details of the Judgment:

Issue 1: Eligibility for Deductions under Sections 32A and 80J
The Commissioner initiated proceedings under section 263 based on the assessee's claim for investment allowance under section 32A and relief under section 80J. The Commissioner contended that the assessee, engaged in twisting yarn for local textile mills, was not manufacturing or producing articles, thus ineligible for the deductions. The Commissioner directed the ITO to withdraw the deductions, stating that twisting yarn did not constitute manufacturing as per the provisions of the Act.

Issue 2: Assessee's Defense and Appeal
The assessee argued that it was engaged in manufacturing twisted yarn from flat yarn supplied by textile mills, making it eligible for deductions under sections 32A and 80J. The assessee provided expert opinions and legal precedents to support its claim. Despite the Commissioner's order, the assessee maintained its manufacturing activity stance. The Tribunal was urged to set aside the Commissioner's decision.

Tribunal's Decision
The Tribunal analyzed the expert opinion on yarn twisting, emphasizing the role of twist in textile structures and the manufacturing process. It noted that the assessee's activity of twisting yarn resulted in a different commercial commodity, justifying its classification as manufacturing. The Tribunal highlighted that the Act did not require the assessee to manufacture final articles but allowed deductions for manufacturing raw materials used by industries. Additionally, the Tribunal referenced Schedule XI of the Act, which did not exclude textiles from the list of items eligible for deductions under sections 32A and 80J. Consequently, the Tribunal allowed the appeal, ruling in favor of the assessee's eligibility for deductions.

In conclusion, the Tribunal held that the assessee's twisting of yarn constituted a manufacturing activity, entitling it to deductions under sections 32A and 80J. The Tribunal set aside the Commissioner's order and allowed the appeal in favor of the assessee.