1986 (8) TMI 96 - AT - Income Tax

Summary

Issues:
- Disallowance of investment allowance by ITO
- Appeal by revenue against AAC's order
- Whether printing of cloth qualifies as manufacturing for investment allowance

Analysis:

1. The case involves an appeal by the revenue against the order of the AAC, who allowed the assessee's claim for investment allowance, which was disallowed by the ITO. The dispute revolves around whether the assessee, engaged in printing and sale of cloth, qualifies as a manufacturing unit for investment allowance under section 32A of the Income-tax Act, 1961.

2. The revenue contends that the investment allowance should only be granted to industrial or small scale industrial undertakings that manufacture articles or goods. The assessee's counsel argues that printing of cloth constitutes manufacturing and qualifies for the investment allowance, particularly as a small scale industrial undertaking.

3. The Tribunal notes that the ITO did not determine whether the assessee is an industrial or small scale industrial undertaking. The onus is on the assessee to establish its status and prove manufacturing or production of articles or goods. However, the Tribunal finds that the printing of cloth does not amount to manufacturing or producing an article or thing, based on precedents and legal definitions.

4. Referring to the case law of Niemla Textile Finishing Mills, the Tribunal concludes that processes like printing, dyeing, and finishing, while enhancing marketability, do not constitute manufacturing under the relevant laws. The Tribunal also cites the Kanakadhara Industries case to differentiate between manufacturing and processing activities, emphasizing the need for a distinct change resulting in a new article.

5. Relying on Supreme Court judgments, the Tribunal clarifies that mere processing or enhancing marketability does not meet the criteria for manufacturing. The distinction between manufacturing and processing is crucial, with manufacturing requiring a substantial transformation resulting in a new and distinct article.

6. Ultimately, the Tribunal rules in favor of the revenue, setting aside the AAC's order and reinstating the ITO's decision to disallow the investment allowance for the assessee. The conclusion is based on the finding that printing of cloth does not meet the legal definition of manufacturing or producing an article or thing under section 32A.

7. As a result, the appeal by the revenue is allowed, and the assessee's claim for investment allowance is rejected based on the determination that printing of cloth does not qualify as manufacturing for the purposes of the Income-tax Act.