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1967 (2) TMI 22 - HC - Income TaxUndertaking for manufacture of motor bus and truck chassis was engaged in assembling motor vehicles from complete knocked down packs imported from Germany - assembling can not be treated as a separate activity before manufacture is begun
Issues Involved:
1. Whether the activities of the assessee in assembling chassis from C.K.D. packs amounted to "manufacture" or "production" within the meaning of Section 15C(2)(ii) of the Income-tax Act. 2. Whether the initial assembly stage should be considered part of the industrial undertaking for the purpose of tax exemption under Section 15C. 3. Whether the exemption under Section 15C applies to the profits derived from the industrial undertaking during the assessment year 1955-56. Issue-wise Detailed Analysis: 1. Whether the activities of the assessee in assembling chassis from C.K.D. packs amounted to "manufacture" or "production" within the meaning of Section 15C(2)(ii) of the Income-tax Act: The court examined the meaning of "manufacture" and "produce" in the context of Section 15C. The terms were analyzed using dictionary definitions and previous case law. The court noted that "manufacture" implies making articles or materials on a large scale by applying physical labor or mechanical power, while "produce" means bringing into existence from raw materials or elements. The court concluded that assembling automotive bus/truck chassis from imported parts in a knocked-down condition would give rise to an article different from the parts. The process of putting together parts to create a fully functional vehicle was deemed to be "manufacture" or "production" of the automobile. 2. Whether the initial assembly stage should be considered part of the industrial undertaking for the purpose of tax exemption under Section 15C: The court considered the overall intention and program of the assessee's industrial undertaking. The initial assembly stage was part of a comprehensive scheme approved by the Government of India, which included progressive stages of manufacturing. The court found that the assembly stage was not an independent business but an integral part of the entire industrial undertaking. The assembly stage was intended to facilitate subsequent stages of manufacturing, and thus, it was part of the industrial undertaking. 3. Whether the exemption under Section 15C applies to the profits derived from the industrial undertaking during the assessment year 1955-56: The court analyzed the provisions of Section 15C, which grants tax exemption to new industrial undertakings on profits derived from manufacturing or producing articles. The exemption period starts from the financial year following the year in which the assessee begins to manufacture or produce articles. The court found that the assessee had begun to manufacture or produce articles during the assessment year 1955-56 by assembling 443 vehicles from C.K.D. packs. Therefore, the exemption period commenced from that year. The court rejected the argument that the assembly stage was merely a trial or exploratory phase, holding that it was part of the manufacturing process. Conclusion: The court answered the question in the affirmative, holding that the activities of the assessee in assembling chassis from C.K.D. packs amounted to "manufacture" or "production" within the meaning of Section 15C(2)(ii) of the Income-tax Act. The initial assembly stage was considered part of the industrial undertaking, and the exemption under Section 15C applied to the profits derived from the industrial undertaking during the assessment year 1955-56. The assessee was ordered to pay the costs of the Commissioner.
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