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TMI Blog1984 (12) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... had been allowed in the original assessment. According to the ITO the assessee's machinery had not been used for the purpose of manufacturing 'Textiles' listed in item 32 of the Fifth Schedule (which reads as under) and, hence, the above allowances in the original assessment had to be withdrawn : " Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope. " 3. The ITO in his reassessment order under section 147(b) of the Income-tax Act, 1961 ('the Act'), completed on 11-3-1981 in appeal has recorded the view that a mere spinning mill such as that run by the assessee could not be said to be manufacturing textiles. Only where fabric or woven material was produced, it could be said to be a manufacturer of textiles. As the assessee manufactured only yarn, the machinery in question could not come under item 32 supra ; development rebate had, therefore, to be restricted to 15 per cent. Hence, the ITO withdrew the excess that had been granted in the original assessment. 4. The ITO, then referred to item 21 of the Ninth Schedule which reads as under : " Textiles (including those dyed, printed or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner (Appeals) also went into the merits of the withdrawal of the development rebate as well as the initial depreciation. He observed as under : " The ground against the disallowance of initial depreciation and development rebate at higher rate on certain machineries on the ground that the appellant as a manufacturer of yarn, cannot be considered as a manufacturer of 'Textiles' and, consequently the product manufactured by the appellant would not come under item 32 of the Fifth Schedule to the Act or item 21 of the Ninth Schedule to the Act, has to be allowed in view of the decision of the Tribunal (Bench 'A'), dated 28-11-1981, in IT Appeal No. 250 (Mad.) of 1981 in the appellant's case itself for the assessment year 1976-77. " The revenue is, therefore, in appeal. 7. We have heard the parties. We find that as regards action under section 147(b), the Commissioner (Appeals)'s order cannot be faulted. He applied the settled law in this matter. The records do not show that any information within the meaning of section 147 reached the ITO after the completion of the original assessment. It appears, he merely took a second look at the facts already on record and then initiated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, Shri K. Ramagopal, the learned counsel referred to section 139(8) itself. He points out that under this provision, the assessee is liable to pay simple interest at the stipulated rate on the amount of tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source. In the instant case, the tax raised on regular assessment under section 143(3) of the Act amounted to Rs. 2,00,193. On the other hand, the assessee had already paid advance tax of Rs. 2,59,900. In fact, after adjusting all the taxes due from the assessee, a refund of Rs. 39,204 was granted to the assessee. Hence, section 139(8) was not attracted in such a case. 10. We have heard the parties. We are of the view that Explanation 2 cannot be read in isolation. In Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99, the Madras High Court held while interpreting the provisions of section 271(1) of the Act, that the three penalty clauses, viz., (i), (ii) and (iii) of section 271(1), indicate that the penalty contemplated by them is a measure of the tax payable by the assessee so that if no tax was payable by the assessee, no penalty c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, he reopened the assessment under section 147 on recording the reasons that he had information that the allowance claimed and allowed to the assessee by him, in respect of development rebate and initial depreciation at the rate of 25 per cent, has escaped assessment of income for the assessment year under consideration, as the development rebate and initial depreciation is allowable to the assessee, on the facts and in the circumstances of the case, at the rate of 15 per cent. 4. In consequence of it, he issued a notice on the assessee under section 147(b)/148 of the Act. In response to it, the assessee filed the return of income and thereby claimed that the assessee's spinning mills are spinning cotton and, therefore, manufacturing 'yarn' ; hence, the yarn is there as textile. Therefore, it was contended that the development rebate and initial depreciation originally allowed was justified. Furthermore, the reopening was not based upon any information rather on change of opinion. The ITO did not accept it and withdrew the development rebate and initial depreciation allowed by him at 25 per cent and sustained it at 15 per cent, holding therein that spinning cotton nowhere manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of cotton). For the purpose of making it yarn, such thread is to pass through further chemical process or processes. Because such thread is kachha thread and it will not make at all textile or it cannot be woven into textile cloth. It has no strength to bear the labours or the movement of the shuttle and loom, i.e., hammering of the instruments of weaving to make the threads into cloth (textile) by the weaver either through hand (loom) or machinery (textile mill). This is all the minimum needed for the spun thread to be the yarn to make it into cloth or textile. Thus, the spinned cotton or cotton thread of the assessee has to go for further processes of starching and refining, for the purpose of weaving it into cloth or manufacture of textile or fit for or to become the yarn (sic). 9. I am supported in taking the yarn, accordingly, by its meaning in the Chamber's Twentieth Century Dictionary, revised edn., page 1292, where yarn is "spun thread : one of the threads of a rope, or these collectively". In the Concise Oxford Dictionary on page 1514, the meaning of yarn is "any spun thread esp. of kinds prepared for weaving, knitting or rope making". 10. In this view of the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, I had a discussion with my learned brother, who has already recorded the opinion that there is a decision of the Tribunal in the assessee's own case. I have seen it and it is of the Special Bench, consisting of three Members. Therefore, the question is that whatever to be, we have to follow it ; whatsoever may be the circumstances (sic). Regarding it, I state that the Special Bench for the assessment year 1976-77 decided two issues. One of these is the issue which is before us ; while the another is regarding extra shift allowance. The Hon'ble Madras High Court has taken a different view on the issue of extra shift allowance in another case of South India Viscose Ltd. v. CIT [1982] 135 ITR 206, though there is no decision so far on the issue involved over here as stated above. The Special Bench, in deciding the issue, has relied on the decision of the Calcutta High Court in the case of CIT v. Shalimar Rope Works (P.) Ltd. [1980] 125 ITR 331, where the issue was that whether rope manufactured by the assessee is textile, but in the case before us it is not an admitted position that it is yarn. The admitted position is that thread is manufactured by spinning the cotton. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year under consideration. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 --- As we have differed in reason and conclusion in deciding this issue, therefore, I frame the question as under for reference to the President for referring it to the Third Member under section 255(4) of the Act : " Whether, on the admitted facts of the case, the spinning of cotton is kachha thread and, therefore, no manufacture of yarn is involved for taking it as textile for the purpose of higher development rebate and initial depreciation in the assessment year 1975-76 ?" THIRD MEMBER ORDER Per Shri M.R. Sikka, Vice President --- There being difference of opinion between the learned Members of the Tribunal, the following point has been referred to me for decision : " Whether, on the admitted facts of the case, the spinning of cotton is kachha thread and, therefore, no manufacture of yarn is involved for taking it as textile for the purpose of higher development rebate and initial depreciation in the assessment year 1975-76 ?" 2. The assessee-firm carries on the business of a spinning mill. For the assessment year 1975-76, it claimed initial depreciation at 25 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hread'. According to him, 'kachha thread' could be converted into 'pucca thread' only after starching and chemically processing the same. He further held that, since the assessee-firm manufactured merely 'kachha thread', it did not carry on the business of manufacture of 'yarn' and, hence, 'textiles' within the meaning of entries 21 and 32 of the Ninth and Fifth Schedules, respectively. He was of the view that this aspect of the matter was not taken into consideration by the ITO at the time of the original assessment and, hence, he could resort to the provisions of section 147(b). For these very reasons, he remarked that the decision of the Tribunal in the case of assessee for the assessment year 1976-77 was distinguishable. 9. It is in these circumstances that the aforesaid question has been referred to me for resolving the dispute. 10. I have gone through the record and heard the learned representatives of the parties. I am unable to agree with the view of the learned Judicial Member. My reasons are not far to seek. 11. It would appear from the facts stated above that the department proceeded on the assumption that the assessee manufactured 'yarn'. Neither the ITO nor the C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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