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TMI Blog1992 (9) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, the Income-tax Appellate Tribunal is correct in holding that the ginning of cotton amounts to manufacture ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in granting deduction under section 80HHA to the assessee ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in granting deduction in respect A of investment allowance to the assessee for the assessment years 1980-81 and 1982-83 ?" The reference to section 80HHA in question No. 2 appears to be wrong. It should be section 80HH, This question, therefore, is modified accordingly. The assessee is a co-operative society. It runs a ginning factory. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns a ginning factory is entitled to the benefit of investment allowance under section 32A and deduction under section 80HH of the Act in respect of the machinery installed by it for the purpose of use in its factory. Section 32A of the Act deals with investment allowance. This section, as it stood at the relevant time, provides, inter alia, as follows : "32A. Investment allowance.-(1) In respect of . . . . machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which .... the machinery or plant was installed . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to manufacture or produce articles after the 31st day of December, 1970, in any backward area ; . . (4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles. . . ." (emphasis supplied). From a careful reading of the aforesaid two sections, it is clear that the benefit of allowance or deduction under this section is available only to industries which are engaged in the manufacture of any article or thing. Under section 32A, investment allowance is available in respect of machinery or plant "installed in an indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income in respect of the ten assessment years beginning with the assessment year relevant to "the previous year in which the industrial undertaking begins to manufacture or produce articles". Manufacture or production of articles by the industrial undertaking is thus a condition precedent for grant of deduction under section 80HH as well as the starting point for computing the period of ten assessment years for which the benefit of deduction shall be available. In view of the legal position set out above, there cannot be any doubt in regard to the proposition that the benefit of investment allowance under section 32A and deduction under section 80HH are available to such industrial undertakings only which are engaged in the business of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into bales of approximately 500 pounds (225 kilograms) each. The seeds are shipped to crushing mills where they are processed to obtain various by-products." From the aforesaid description of the process of ginning, it is evident that "ginning" is a manufacturing process. The products that emerge out of this process are "ginned cotton" and "cotton seeds". In State of Punjab v. Chandu Lal Kishori Lal [1970] 25 STC 52, the Supreme Court had occasion to consider whether ginning of cotton is manufacturing process. Referring to the process of ginning, the Supreme Court observed (at page 56) : "In our opinion, the appellants are right in their contention that the ginning process is a manufacturing process." The Supreme Court in this case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodities. In fact, even "ginned" and "unginned" cotton have been held to be a single commodity in view of the same being treated as such by the Legislature under section 14 of the Central Sales Tax Act. This decision, in this case, did not lay down as a general proposition of law that ginned and unginned cotton are for all purposes one and the same commodity. This decision was referred with approval by the Supreme Court in a later decision in the case of State of Punjab v. Seth Ganpat Ram Cotton Ginning and Pressing Factory [1989] 74 STC 1 and it was reiterated that cotton seeds emerge upon a manufacturing process applied to the unginned cotton whereby the cotton and the seeds are separated and that the seeds so separated could not be i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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