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TMI Blog1995 (2) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ney borrowed by the assessee from the said concern, the Assessing Officer found that the interest payable worked out to Rs. 6,55,725. Relying on the said circumstances, the Assessing Officer came to the conclusion that interest at a rate higher than 18% per annum had come to be paid by the assessee to the said concern because it was the sister concern of the assessee. According to the Assessing Officer, payment of interest at a rate higher than 18% per annum was not justified. Invoking the provisions of section 40A(2), therefore, the Assessing Officer disallowed a sum of Rs. 2,29,433. 3. In the assessment for the assessment year 1987-88 too, for the same reasons, invoking the provisions of the said section, the Assessing Officer disallowed a sum of Rs. 3,78,910 out of the interest paid by the assessee to its sister concern, namely (a) Orwo Films Eastern Unit and (b) Meena Cine Agencies. 4. The said issue was one of the subject-matters of the appeals filed by the assessee before the CIT(A). The assessee's case before the CIT(A) was that interest at the rate of 24% came to be paid not because the said two entities were the sister concerns of the assessee, but because the said ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imports photographic colour paper from Mitsubishi of Japan and sells them locally. During the previous year relevant to the assessment year 1986-87 the assessee had started a factory which the assessee has styled " Industrial Wing " to convert imported jumbo rolls into rolls of marketable sizes. The outlay on machinery was Rs. 24,23,380 and that on the factory Rs. 11,98,660. The assessee claimed investment allowance on the plant and machinery installed in the said new factory on the ground that the assessee was manufacturing or producing goods within the meaning of section 32A of the Act. In the assessment for the assessment year 1987-88 it claimed deduction under section 80-I of the Act in relation to the income of the said unit on the same ground. The Assessing Officer negatived both the aforesaid claims of the assessee for two reasons. First, " buying things in bulk and repacking them into marketable size is not an industrial activity involving construction, manufacture or production of any article ". According to the Assessing Officer, if the assessee's claim was allowed " then every trader who buys dhal or rice (in bulk) and repacks them into small packets would also claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into a different commercial commodity or a finished product which has an entity by itself, but this does not mean that the materials with which the commodity is manufactured must lose their identity. In any case, the expressions 'manufacture' and 'produce' apply to the bringing into existence of something which is different from its components. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations is manufacture. " In this regard he referred to and relied upon the following reported cases : (a) CIT v. Ajay Printery (P.) Ltd. [1965] 58 ITR 811 (Guj.) (b) M.R. Gopal's case (c) Y. Aswathanarayana v. Dy. CTO [1964] 15 STC 795(AP) (iii) " . . . The computerised slitting process and packing of photographic paper under controlled conditions, etc., is certainly a process whereby the appellant is producing a marketable material in a new form for sale. " (iv) In any event, the Eleventh Schedule to the Act is not applicable since the industrial undertaking of the assessee is a small scale industrial undertaking. In view of the foregoing, therefore, the CIT(A) allowed the aforesaid two claims o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the measurement of the cut sizes. We have already seen how the jumbo rolls are cut into smaller rolls or, as the case may be, cut sizes of the specifications mentioned supra. 15. The assessee's case is that it is entitled to investment allowance as also to deduction under section 80-I of the Act, because the operations involved in cutting jumbo rolls into smaller rolls/cut sizes are manufacturing activity. 16. The validity of this claim needs to be examined in the light of the provisions of section 32A/80-I of the Income-tax Act. 17. As respects investment allowance, sub-section (1) of section 32A provides, inter alia, that in respect of machinery and plant specified in sub-section (2) owned by the assessee and wholly used for the purpose of the business carried on by him, he shall be allowed a deduction in respect of the previous year in which the machinery or plant was installed of a sum equal to 25% of the actual cost of the machinery or plant by way of investment allowance. In so far as it is relevant to the purpose on hand, sub-section (2) reads as under : " (2) The .... machinery or plant referred to in sub-section (1) shall be the following, namely : (a) ** (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diate products and residual products which emerge in the course of manufacture of goods. " 18. Now the question is whether, on the facts and in the circumstances of the case before us, the assessee could be regarded as being engaged in a business of manufacture or production of an article or thing. There is no gainsaying the fact that the smaller marketable rolls and cut-sizes answer the description of articles or things, but nothing turns on that. It is necessary to see whether the assessee manufactures or produces the said articles or things. 19. Now, the photographic colour paper had already been manufactured by Mitsubishi of Japan. Obviously, therefore, the assessee cannot be regarded as having either manufactured or produced photographic colour paper as such. In fairness to the assessee, that is not its case. Its case is that the cutting or slitting of jumbo rolls into marketable smaller rolls/cut sizes is a manufacturing or production activity. We are unable to agree. We should not lose sight of the fact that the assessee is a trader -- obviously a wholesale trader at that. When it was exporting photographic colour paper in jumbo rolls, the Japanese manufacturer was obvio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that the assessee could be treated as a small scale industrial undertaking because the operation of cutting jumbo rolls into smaller marketable rolls/cut sizes is an activity amounting to processing of goods. This argument naturally draws support from the definition of an 'industrial company' contained in section 2(6)(d) of the Finance Act, 1968, which talks of processing of goods. Apart from the obvious fact that the definition given in a totally different context cannot avail the assessee, there is the further fact that neither section 32A nor section 80-I talks of 'processing of goods'. Again, the cutting and slitting operations cannot be regarded as processing of goods. 24. The words 'process' and 'processing' have not been defined in the Income-tax Act, 1961, but have been judicially interpreted. From the Supreme Court case of Delhi Cold Storage (P.) Ltd. v. CIT [1991] 191 ITR 656 the following legal position emerges : (i) The word 'process' has various meanings, some wider than others. (ii) Yet the word does not have the widest significance of " anything done to the goods or materials ". (iii) Processing involves bringing into existence a different substance from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute, it does not follow that the word will have the same meaning in another statute or that the situation will be followed by the same consequences under the other statute. Regard must be had to the context, the intention of the Legislature and the object sought to be achieved by the two statutes. 28. We, therefore, approach the matter keeping in mind the foregoing words of caution. 29. In the said case the question was whether slitting and cutting of jumbo rolls of video magnetic tapes into pancakes amounted to manufacture within the meaning of sub-heading 8523.13 of Central Excise Tariff Act, 1985. Relying, inter alia, on the Madras case of Computer Graphics (P.) Ltd. v. Union of India 1991 (52) ELT 491 the Judicial Member held that no manufacturing activity was involved. The Technical Member held that manufacturing activity was involved in that case. It is significant to note that he came to the said conclusion on the basis of the principle that if the Legislature has treated a process of an article to be a manufacture, it is not open to contend that the process is not manufacture. According to him, the relevant provisions of the Central Excise Tariff Act, 1985 has clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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