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TMI Blog1996 (3) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80B(5) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that relief under section 80J should be allowed before set off of unabsorbed development rebate ? " The assessee, S. S. M. Processing Mills, Komarapalayam, is a registered firm, carrying on business in processing of textiles. In respect of the machinery purchased during the previous year relevant for the assessment year 1975-76, the assessee claimed development rebate at the higher rate of 25 per cent. on the ground that the assessee should be considered to have been manufacturing textiles falling within entry 32 of the Fifth Schedule. In the same view, it also claimed initial depreciation as the item was falling under entry 21 of the Ninth Schedule. The Income-tax Officer denied the claim for development rebate as well as initial depreciation on the ground that the items processed by the assessee cannot be considered to be textiles to entitle it for higher development rebate and initial depreciation. He also held that the relief under section 80J should not be given set off, as there was no income after set off of the unabsorbed development rebate in this year. The Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impossible or commercially inexpedient, that process is one in relation to the manufacture. According to learned counsel, simply because the cloth which was used as a raw material remains as it is in the end, that would not mean that there is no manufacturing activity. Therefore, it was submitted that the assessee is entitled to higher development rebate and initial depreciation, as claimed. A similar question came up for consideration before this court in respect of the very same assessee in CIT v. S. S. M. Finishing Centre [1985] 155 ITR 791 for the assessment year 1970-71. The name of the assessee in the present case is " S. S. M. Processing Mills ". In the said decision, while considering the provisions of section 33(1)(b)(B)(i) of the Act, this court held as under : " That the basic quality of the commodity as cloth remained the same both at the time of the purchase by the assessee and even after the carrying on by the assessee of the various operations on the said cloth. The important requirement contemplated by the provisions for grant of higher development rebate is that the operation carried on must be directed towards manufacture or production of textiles which would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 ITR 846 ; [1985] Supp. 1 SCR 282, that " grey fabric " after it undergoes the various processes of bleaching, dyeing, sizing, printing, finishing, etc., emerges as a commercially different commodity with its own price structure, custom and other commercial incidents and that there was in that sense a manufacture within the meaning of section 2(f), even as unamended, is an eminently plausible view and does not suffer from any fallacy. Therefore, this decision of the Supreme Court was rendered while considering what is manufacture as contemplated under section 2(f) prior to amendment of the Central Excises and Salt Act, 1944. So also, the Patna High Court CIT v. Natraj Processing Industries [1993] 203 ITR 833 had an occasion to consider what is manufacture of article, while considering special deduction under section 80J of the Act. According to the facts arising in that case, the assessee purchased grey cloth and added to it various chemicals and thereafter put it in a damping machine. The cloth was thereafter folded according to the size and stamped according to its length and breadth and a specific brand name was printed on its top. The calendering process employed by the firm w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction for the purpose of getting benefit under those provisions. In order to have an uniform interpretation, the Allahabad High Court held that the " processed seeds " should be taken as an article which is obtained either by process of " manufacture or production for the purposes of section 80J of the Act. In other words, in order to come to the conclusion that the " processed seeds " should be taken as an article which is obtained either by process of manufacture or production for the purposes of section 80J of the Act, the Allahabad High Court was depending upon the meaning of the words, " processed seeds " contained in various other provisions, as pointed out earlier. Therefore, it was in that context, the Allahabad High Court held, in order to get an uniform interpretation, that the " processed seeds " was considered as an article, which is obtained either by the process of manufacture or production for the purposes of section 80J. Learned counsel for the assessee relied on a decision in CIT v. Lakhtar Cotton Press Co. (Pvt.) Ltd. [1983] 142 ITR 503 (Guj), according to which the assessee-company received cotton in bulk having lighter density which was sprinkled with water an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these facts on a reference, the Bombay High Court held that the activity must be regarded as a process within the meaning of the expression in section 2(6)(c) of the Finance (No. 2) Act, 1971. The Bombay High Court further held " that, therefore, the assessee was an " industrial company " entitled to the concessional rate of tax and that in the context of the statute which had used the expression " processing " in contradistinction to or differently from the expression " manufacture " the assessee-company was engaged in the act of processing the goods in terms of the Finance Act in force at the relevant time." Reliance was also placed upon a decision in CIT v. R. Narayanaswami Naicker and Sons [1984] 149 ITR 283 (Mad). According to the facts arising in that case, the assessee claimed investment allowance under section 32A of the Act since the assessee was ginning cotton. A Division Bench of this court in a decision in CIT v. R. Narayanaswami Naicker and Sons [1984] 149 ITR 283, referred to the decision of the Supreme Court in State of Punjab v. Chandu Lal Kishori Lal [1970] 25 STC 52. This court further held " that ginning of cotton results in manufacture and hence the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxation Officer v. East India Cotton Mfg. Co. Ltd. [1981] 48 STC 239, wherein the Supreme Court held " that sizing, bleaching and dyeing of grey cloth did amount to processing as it had the effect of converting grey cloth into a commercially different marketable commodity and it, therefore, amounted also to manufacture of a commercially new product and the user of the goods in sizing, bleaching and dyeing grey cloth was consequently within the terms of section 8(3)(b) read with the certificate of registration under the Central Sales Tax Act." The Full Bench of the Punjab and Haryana High Court also had an occasion to consider the judgment of the Supreme Court in Empire Industries Ltd.'s case [1986] 162 ITR 846, where, it was held that for the purpose of the Central Excises and Salt Act, 1944. the expression " manufacture " was taken to include processes like bleaching, shrink-proofing, grease resisting and the like. This view was subsequently endorsed and taken by the Supreme Court in Ujagar Prints v. Union of India [1989] 179 ITR 317. Thus, relying upon the above earlier decisions of the Supreme Court, the Punjab and Haryana High Court held " that dyeing, bleaching, printing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unabsorbed development rebate in this year. On appeal the Appellate Assistant Commissioner held that the set off of amount brought forward under section 80J(3) of the Act, would have to be allowed against the profits and gains, as included in the gross total income, i.e., before set off of carried forward loss. On further appeal, the Tribunal upheld the view taken by the Appellate Assistant Commissioner, viz., the relief under section 80J of the Act should have priority over some other items including the unabsorbed development rebate. Learned standing counsel appearing for the Department submitted that the relief under section 80J of the Act should be given priority, after the set off of unabsorbed development rebate was given. He relied upon a decision of the Supreme Court in Cambay Electric Supply Industrial Co. v. CIT [1978] 113 ITR 84, and submitted that the relief under section 80J of the Act should be given only after the unabsorbed development rebate was given a set off. Therefore, according to learned standing counsel for the Department, the Tribunal was not correct in holding that the relief under section 80J of the Act is possible even prior to the set off of the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this court in CIT v. North Arcot District Co-operative Spinning Mills Ltd. [1985] 151 ITR 238 and CIT v. Rane Brake Linings Ltd. [1979] 120 ITR 82, and yet another decision of the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, held that the definition of " gross total income " contained in section 80B(5) of the Act, as the total income computed in accordance with the provisions of the Act before giving deductions under Chapter VI-A clearly shows the intention of Parliament that section 72 has to be applied before the total income of an assessee is determined, that is, before the deductions under Chapter VI-A are allowed. Hence, the set off of development rebate under section 80J should be made after setting off business losses of earlier years which have been carried forward. Similarly, in the decision in Mettur Chemical and Industrial Corporation, Ltd. v. CIT [1996] 217 ITR 768, the Supreme Court, while considering the provision of section 84 of the Act and section 15C of the Indian Income-tax Act, 1922, following the decision of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, held that the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e difference between the definitions of the provisions contained in sections 80E and 84 of the Act and section 80J of the Act. According to learned counsel for the assessee in computing the gross total income as occurring in section 80J has not found a place in section 80E or section 84 of the Act. The Supreme Court in Mettur Chemical and Industrial Corporation Ltd. v. CIT [1996] 217 ITR 768, while considering the decision of Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84 (SC), held that the profits and gains of an industrial undertaking to which section 84 of the Act applies have got to be computed in accordance with the provisions of Chapter IV-D of the Act. Unless there are profits or gains, while computing the total income of the assessee, relief under section 80J cannot be granted. Therefore, in the decision in Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84, the Supreme Court was concerned with the profits and gains from an industrial undertaking. So also, while ascertaining the gross total income of the assessee under section 80J of the Act, we are concerned with the profits and gains from an industrial undertaking, enabling the assessee to get r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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