1992 (3) TMI 120 - AT - Income Tax

Summary

Issues Involved:
1. Constitution of the Special Bench.
2. Whether the activities of bleaching, dyeing, and printing of grey cloth amount to manufacture or production of any article or thing for the purpose of section 32A of the Income-tax Act, 1961.

Summary:

1. Constitution of the Special Bench:
The Revenue raised a preliminary objection challenging the constitution of the Special Bench, arguing that the decision of the jurisdictional High Court in Niemla Textile Finishing Mills (P.) Ltd. v. ITO [1985] 152 ITR 429 was binding and there was no necessity for a Special Bench. The Tribunal, however, rejected this objection, stating that conflicting views from different benches warranted the constitution of a Special Bench. The President of the Tribunal has the authority u/s 255(3) of the Income-tax Act, 1961 to constitute a larger Bench to resolve such conflicts.

2. Manufacture or Production of Any Article or Thing:
The core issue was whether the activities of bleaching, dyeing, and printing of grey cloth amount to manufacture or production of any article or thing u/s 32A of the Income-tax Act, 1961. The Revenue relied on the decision of the Punjab & Haryana High Court in Niemla Textile Finishing Mills (P.) Ltd., which held that such activities do not amount to manufacture or production of textiles. The Revenue also argued that the processes do not change the basic character of the cloth, and hence, do not qualify as manufacturing.

The assessees contended that these processes transform grey cloth into a commercially different marketable commodity, thus amounting to manufacture or production. They relied on the Supreme Court's decision in Empire Industries Ltd. v. Union of India [1986] 162 ITR 846, which held that processes like bleaching, dyeing, and printing are manufacturing processes.

The Tribunal considered various judicial precedents and dictionary meanings of 'manufacture' and 'production'. It noted that the processes result in a distinct article with a distinct use, transforming grey cloth into a new marketable commodity. The Tribunal also distinguished the Full Bench decision in Niemla Textile Finishing Mills (P.) Ltd., noting that it was specific to the context of the Industries (Development and Regulation) Act, 1951, and not directly applicable to section 32A of the Income-tax Act.

The Tribunal concluded that the activities of bleaching, dyeing, and printing of grey cloth amount to manufacture or production of any article or thing within the meaning of section 32A of the Income-tax Act, 1961. This conclusion was supported by the Supreme Court's decision in Empire Industries Ltd. and the Gujarat High Court's decision in CIT v. J.B. Kharwar & Sons [1987] 163 ITR 394.

Conclusion:
The Tribunal held that the activities of bleaching, dyeing, and printing of grey cloth amount to manufacture or production of any article or thing for the purposes of section 32A of the Income-tax Act, 1961. The appeals and cross-objections were to be posted for hearing before the Division Bench.