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TMI Blog1992 (1) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... nt." 2. By status, assessee in this case is a private limited company, engaged in the business of dyeing sewing machine thread indifferent colours. Accounting period was the year ending31-3-1981. The return was filed on31-10-1983, reflecting income of Rs. 72,057. 3. Almost entire sale was seen to have been made through M/s Navin Bharat Co. (India) Pvt. Ltd. The said private limited company is a sister concern of the assessee. There were three directors in that company and 5 in the assessee company. Two directors were said to be common in both the companies and, in fact, both the companies were stated to be owned and operated by two families of the same group. The sales were shown at Rs. 33,03,445, out of which of Rs. 30,40,925, were made to M/s Navin Bharat Co. (India) Pvt. Ltd. That company is situated inDelhi. The assessee paid 5 per cent trade discount and 2 per cent rebate on its sales to the said company. It was noted by the ld. ITO that to others, assessee paid only 2 per cent. It was also noted that last year, assessee did not pay any rebate or discount to anybody. The ld. ITO also noted that M/s Navin Bharat Co. (India) Pvt. Ltd. in the books of the assessee had always ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of expenditure incurred by M/s Navin Bharat Co. (India) Pvt. Ltd. on freight, packing etc. is also marginal. Charging amount as charity by the assessee at 0.25 per cent is also very small. The expenditure stated to have been incurred by M/s Navin Bharat Co. (India) Pvt. Ltd., which was alleged to be the basis for demanding more amount works to 1 per cent. Against this the assessee had been paying 7 per cent. There is no justification for such a heavy payment and the extent of services rendered being not incommensurate with such payments. Besides, M/s Navin Bharat Co. (India) Pvt. Ltd. had been holding the assessee's money without any obligation to pay interest. I, therefore, disallow Rs. 75,000 out of the total payment of Rs. 2,13,480 under section 40A(2). The observation of Delhi High Court in Siddho Mal Sons v. ITO [1980] 122 ITR 839 are relevant in 'his respect. The courts and authorities are not to wear blinkers to overlook or condone the passing of public revenue to one's own kith and kin by subterfuge or clandestine or clever devices clothes in legalistic jargon. Instead their duty is to lift the veil of apparent legality and get the truth or substance of transaction to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at rebate of 1 per cent only may be considered to be adequate. The disallowance is restricted to Rs. 30,460 as against Rs. 75,000 made by the ITO." 6. Therefore, the present grounds by the assessee before us, against the confirmation of the disallowance to the above extent. On behalf of the assessee, the ld. A.R., Shri B. Rohtagi, repeated the submissions, seen to have earlier been made before the lower authorities. He also contended that for the asst. year 1982-83, no such disallowance was made and that there was no justification for any disallowance for the year under consideration. According to the ld. A.R., section 40-A(2) was inapplicable. It was the assessee's case before us that the ld. CIT(Appeals) instead of allowing part relief should have deleted the entire addition. 7. On behalf of the revenue, the ld. D.R., Shri Amitab Kumar, placed reliance on the orders of the revenue's authorities and contended further that no interference was called for. 8. Submissions have been heard and considered and record carefully perused. There was no agreement between the assessee and the company with regard to the sales, rebates or discount. Two Directors are common in both the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that assessee could not be said to be engaged in the manufacturing or production of goods for the purposes of section 32-A of the Act as according to him, the assessee's activity was only dyeing of yarn. Thus, the assessee's claim for investment allowance was denied. 11. This finding was contested by the assessee and reliance before the ld. CIT(Appeals) was placed on the decision of the Delhi High Court, dated 10-5-1985, in the case of Nulook Pvt. Ltd. Company, wherein, it was said to have been held that stitching of ready-made garments amounted to process of goods within the meaning of section 2 sub-section (6)(b) of the Finance Act, 1968. The ld. CIT(Appeals) confirmed the asst. order on the point with the following observation: "Similarly, in CIT v. S.S.M. Sizing Centre [1985] 155 ITR 782 (Mad.), it was held that mere processing of goods without resulting in a new end-product does not tantamount to production of manufacture, bleaching, dyeing and centering of cloth does not tantamount to manufacture or production. In CIT v. Veena Textiles (P.) Ltd. [1985] 155 ITR 794 (Mad.) also it was held that dyeing, printing or even embroidery designs on cloth did not tantamount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n my opinion, this is not correct. According to me, facts of assessee's business as given on page 7 are required to be considered. The relevant portion reads as under: "The observation of the learned ITO that the assessee's business is to be of dyeing yarns in different colours is wrong in totality, In fact, that the assessee company is engaged in manufacturing of sewing machine threads. The company being wholly engaged in manufacturing of sewing machine threads is carrying activities of various processing to manufacture the sewing machine threads. The activities which the company had to undertake are summarised below: a. Purchasing of yarn thread in bundles of different weights of about 4 to 5 Kg., unbleached bleached. b. The unbleached and as well as bleached yarn/thread is to be dyed in various colours and different shades. c. The bundles after bleaching and dyeing takes the shape of entangled Lachhi and then it is to be put on Adda for disentangle the yarn/thread. d. By help of machine these entangled lachhies are to be rolled in wooden and in latoos, i.e., bobbins. The bobbins are put on machine to clear the dust (Boosa) from yarn to make it to pass through needle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be carrying on some activity of processing by dyeing the yarn purchased by it to make it commercially viable and therefore those processing activities could neither be regarded as manufacture or production, so as to entitle the assessee to the claim of investment allowance. The manufacture is to bring thing or article from raw material by mechanical process and it is synonymous with the expression to make and production meant an article or thing that comes into being by industrial, biological, chemical or mechanical process. Thus there was a wide difference between 'manufacture' and 'production'. But in the case of processing what was involved was only a sort of refining, polishing, repairing or maintaining. Thus distinguishing the assessee's case, the Income-tax Officer denied the investment allowance. He also placed reliance upon a decision of the Income-tax Appellate Tribunal, Madras Bench in the case of Kanakadhara Industries v. Third ITO [1984] 7 ITD 142 and distinguished the other decisions relied upon by the assessee, namely, G.A. Renderian Ltd.'s case , K. Lakshmi's case and Lakhtar Cotton Press Co. (P.) Ltd.'s case . 3. On appeal, the Commissioner (Appeals) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following manner: "Whether on the facts and in the circumstances of the case, the assessee is entitled to investment allowance, as claimed?" 5. I have heard the learned representative for the assessee and also the learned Departmental Representative at great length. The learned representative for the assessee referring to the Supreme Court decisions in Empire Industries Ltd.'s case , and Name Tulaman Mfrs. (P.) Ltd. v. Collector of Central Excise [1990] 183 ITR 577 submitted that since the meaning of the expression 'manufacture' was explained by the Supreme Court following its earlier decision of a 5 Judges Bench in the case of Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC), the case of the assessee fell squarely within the meaning of the expression 'manufacture' as the end-product was so different from the original product purchased and therefore the investment allowance should not have been denied and that the view taken by the learned Accountant Member was the correct view and should have been accepted. But the learned Departmental Representative submitted relying upon the opinion of the learned Judicial Member that there was no manufacture involved in this case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s High Court that these operations did not amount to manufacture but only processing. At page 600 of the report, the High Court has pointed out that: "In this case, it is not the stand of the assessee that different operations had been carried out or that, by the use of the plant and machinery installed by it, textiles had been manufactured by it. In other words, the nature of the operations carried out by the assessee even during the accounting period relevant to the assessment year 1974-75 had remained just what it was during the prior assessment year 1970-71 ......." The very same case had come up for consideration on identical facts before the Madras High Court a second time in different asst. year and the Madras High Court decided against the assessee and that case was in CIT v. S.S.M. Finishing Centre [1985] 155 ITR 791 (Mad.). The Madras High Court pointed out that in the later year also the operations remained the same and therefore no departure was necessary. For the assessee reliance was placed upon the decision of the Supreme Court in the case of Empire Industries Ltd. as well as in the case of Ujagar Prints . Both these decisions were rendered by the Supreme Court u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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