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TMI Blog1965 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... income, but later on, on receiving a notice from the Income-tax Officer, it declared a further dividend of 2 per cent., thereby making the total quantum of dividend declared at 45 per cent. The Income-tax Officer however was of the view that it was incumbent upon the respondent-company to declare dividend to the extent of 60 per cent. of its net income and since the respondentcompany had not done so, he passed an order under section 23A against the respondent-company. The Income-tax Officer declined to accept the contention of the respondent-company that it was a manufacturing or a processing concern and was therefore bound to declare dividend to the extent of 45 per cent. of its net income only and held that the respondent-company did not fall under clause (ii) of Explanation 2 to section 23A. The Appellate Assistant Commissioner also rejected the contention of the respondent-company that the business of printing balance-sheets, pamphlets, share certificates, etc., which was carried on by the company, amounted to either manufacturing or processing and confirmed the order passed by the Income- tax Officer. Before the Tribunal, the respondent-company repeated the same contention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the amount of any other tax levied under any law for the time being in force on the company by the Government and in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949, the Income-tax Officer shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of 50 per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of 37 per cent. in the case of any other company as the undistributed balance of the total income of the previous year, etc. Explanation 2 defines the statutory percentage mentioned in sub-section (1) of section 23A and, inter alia, provides that statutory percentage means in the case of an Indian company whose business consists wholly in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. One of the questions that arose there was whether the process of designing would be included in the expression in the manufacture of the finished goods produced by the company . The Supreme Court held in that case that the expression in the manufacture of goods in section 8(3)(b) of the said Act should normally encompass the entire process carried on by the dealer in converting raw materials into finished goods. Where any particular process was so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression in the manufacture of goods . The Supreme Court also held that the expression in the manufacture took in within its compass, all processes which were directly related to the actual production. Drawing and photographic materials falling within the description of goods intended for use as equipment in the process of designing, which was directly related to the actual production of goods and without which commercial production would be inexpedient, would be regarded as goods intended for use in the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process of dispensing was to produce those goods for sale, without which process sales of mixtures or compounds could not be effected by a chemist. Even if that process was not the manufacture of goods, as articles of furniture, mechanical appliances and paints were made from raw materials, nevertheless, since it was the production of goods for the purpose of selling to customers, the chemist who dispensed prescription thereby produced goods for sale. Das J., who delivered a separate judgment, stated that since there was no definition of the words manufacture and produce in the Act, the expressions would have to be construed by the ordinary natural meaning according to the accepted usages of English speech. After giving the dictionary meanings of the word manufacture he also came to the conclusion that when a dispensing chemist mixed different drugs according to the prescription of a physician, the drugs might or might not be transformed into a different matter. The mixture might become a chemical compound in which the drugs used might have been transferred into a totally different thing in their character and properties, or it might result in what was called a mechanical or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to manufacture goods for sale therefore meant to bring into being something in a form in which it was capable of being sold or supplied in the course of business. He held that to constitute manufacture for the purposes of that Act, it was not necessary that there must be a transformation in the materials and that the transformation must have progressed so far that the manufactured article became commercially known as another and different article from the raw materials. All that was necessary was that the material should have been changed or modified in an acceptable form to satisfy some want or desire or fancy or taste of man. On this reasoning, he held that the assessee was engaged in the work of printing and dyeing textiles purchased by him and in the business of selling or supplying printed or dyed materials and a manufacturer within the meaning of the Act. In an unreported judgment, with which we were concerned and to which our attention was drawn by the learned Advocate-General in Sales Tax Reference No. 9 of 1962, decided by us on November 20, 1963, the question was regarding the interpretation of section 12(b) of the Bombay Sales Tax Act of 1959, and the dealer there co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ascertain what was the meaning intended to be given by the legislature. There is, and can be, no doubt that the distinction made between different kinds of companies in Explanation 2 to section 23A was made in order to give encouragement to manufacturing concerns as against purely investment and non-manufacturing concerns. We must also take into consideration along with that object the fact that the Act has not given any artificial or technical meaning to the expression manufacture in Explanation 2 or elsewhere in the Act. That being so, we must adopt for the interpretation of clause (ii) of Explanation 2 the meaning given to the expression in ordinary parlance in commercial and business circles. The learned Advocate-General agreed that, in the absence of any definition of the word manufacture in the Act, we must construe the word manufacture and give it the same meaning as is attributed to it in ordinary parlance. But he contended that even in the light of such a meaning, it would not be possible to treat printing of balance-sheets, share certificates, profit and loss accounts, etc., as manufacturing a commodity or an article. He argued that, in such cases, the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in executing the printing work the paper came into existence and became the property of the client or customer only incidentally. He also observed that when a printer accepted orders from his customers for job works, such as receipt books, registers, forms, letter-heads, etc., and printed them in accordance with the requirements of his customers on paper supplied by the printer himself, the orders placed by the customers for such job works were contracts for sale of goods and not contracts for work and labour. In the present case, whether we adopt the limited or the larger meaning given by the courts to the word manufacture , that is to say, whether it is necessary or not that the raw materials must be converted into a new commodity or an article wherein the raw materials are merged and lose their identity, would not make any difference to the facts of the present case. To take the illustration given by Das J. in the Calcutta case of the dispensing chemist, when a goldsmith makes an ornament out of a lump of gold, he does in reality manufacture an article which has a separate entity and a separate use. When the chemist in that case dispensed a prescription and sold the mixtur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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