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TMI Blog1992 (3) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not have any grievance as they already have been granted relief by the first appellate authority in these cases. It was contended that in view of the Full Bench decision of the jurisdictional High Court of Punjab & Haryana in the case of Niemla Textile Finishing Mills (P.) Ltd. v. ITO [1985] 152 ITR 429, which squarely covered the issue, there was no necessity to constitute a Special Bench. In this connection it was also contended that decision of the jurisdictional High Court is binding on the Tribunal as has been held in the case of CIT v. Mohan Lal Kansal [1978] 114 ITR 5 83 (Punj. & Har.). Since the decision of the jurisdictional High Court would be binding on the authorities within its jurisdiction, it would be an exercise in futility to constitute a Special Bench for consideration of the issue. It was next contended that since the Amritsar Bench of the Tribunal has taken a consistent view on the matter, the constitution of the Special Bench for consideration of the same question was unwarranted. In this connection our attention was invited to the decision of the Amritsar Bench of the Tribunal in the case of Priya Textiles (P.) Ltd. [IT Appeal No. 311 (Asr.) of 87] wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Special Bench must necessarily be a Judicial Member and one Accountant Member. In the case of one of the assessees, namely, M/s Shree Lalit Fabrics (Pvt.) Ltd., the Income-tax Officer had disallowed the claim for investment allowance for the assessment year 1983-84 following the decision of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. On appeal, the CIT (Appeals) upheld the assessee's claim for investment allowance. In second appeal, filed by the Revenue, the Tribunal in ITA No. 459/ASR/ 1986 vide its order dated 20th February, 1987 expressed the view that in view of the authority of the Supreme Court in the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846, the assessee was engaged in the manufacture or production of an article or thing and, therefore, investment allowance on the machinery was admissible. However, subsequently, the Amritsar Bench in the case of Priya Textiles (P.) Ltd. took a view favourable to the Revenue by following the decision of the jurisdictional High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. vide its order dated 12th September, 1990. However, a couple of days later, a Single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, the question which arises in that appeal in fact is whether investment allowance and depreciation are to be allowed on the cost of machinery as reduced by the amount of subsidy received by the assessee. As a specific question has been referred for decision to the Special Bench, we would refrain from going into the facts of each case. 6. Shri Jitinder Singh, learned Senior Departmental Representative, relied heavily on the decision of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P. )Ltd. in support of the contention that activities of carrying on the business of bleaching, dyeing and printing of grey cloth do not amount to "manufacture or production of any article or thing within the meaning of section 32A of the Act. According to Shri Singh, the said authority of the jurisdictional High Court is directly on the point, since it was concerned with the benefit available under section 280-ZB of the Act. It was pointed out that that section also used the expression " manufacture or production of any article". In this connection it was further pointed out that in that case reference to the High Court was made under the provisions of the Act. Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a proposition against the Revenue, but if carefully and minutely read, it is in fact in favour of the Revenue --- "As has been noted, processes of the type which have been incorporated by the impugned Act were not so alien or foreign to the concept of 'manufacture' that these could not come within that concept." Thus, according to Shri Singh, the Supreme Court was of the view that the processes of bleaching, dyeing and printing etc. were in fact foreign to the concept of "manufacture", though these were not so alien to that concept so that these processes could not come within that concept. According to the submissions made before us on behalf of the Revenue the decision of the Supreme Court in the case of Empire Industries (P.) Ltd. which has been subsequently affirmed by a larger Bench of the Supreme Court in the case of Ujagar Prints v. Union of India [1989] 179 ITR 317, was given in context of a different Act and that the interpretation given therein cannot be applied to a case falling under section 32A of the Act. 8. Shri Jitinder Singh then, referring to the decision of the Special Bench of the Tribunal in ITO v. J.K.K. Textile Processing Mills [1990) 35 ITD 396 (Mad.) s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was concerned with a claim made under section 280-ZB which depended on the question whether the activities carried on by the assessee in that case amounted to manufacture or production of textiles within the meaning of Entry 23 of the First Schedule to the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as the 'Industries Act'). In support of this contention Shri Bansal took us through various passages in the decision of the Full Bench in the case of Niemla Textile Finishing Mills (P.) Ltd. According to Shri Bansal in the case of Empire Industries Ltd. the Supreme Court interpreted the meaning of the word 'manufacture' on general principles. The word 'manufacture' as interpreted by the Supreme Court in the said case included processes of bleaching, dyeing and printing, though that interpretation was given in the context of the provisions contained in the Excise Act. Yet, according to Shri Bansal, the decision of the Supreme Court in the said case is fully applicable in the instant case. It was further submitted that the said decision was reaffirmed by a larger Bench of the Supreme Court in the case of Ujagar Prints. It was further contended that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bar. Section 32A of the Act was inserted by the Finance Act, 1976 w.e.f. 1-4-1976. The Finance (No. 2) Act, 1977 substituted sub-clauses (ii) and (iii) to clause (b) of section 32A(2) by two new sub-clauses. Under the new provisions, investment allowance is to be allowed in respect of new machinery or plant installed for the purpose of business of construction, manufacture or production of any article or thing except certain articles or things of low priority specified in the list in the Eleventh Schedule to the Act. Disqualification arising from the installation of machinery or plant for the purposes of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule does not, however, apply in respect of machinery or plant installed in a small scale industrial undertaking and such machinery or plant will be eligible for investment allowance even if it is in use of business of manufacture or production of any article or thing specified in the said list. Indisputably, the process of bleaching, dyeing and printing do not result in manufacture of any article or thing specified in the list in the Eleventh Schedule and, therefore, in case it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct use as distinguished from the grey cloth. As a result of these processes the grey cloth gets transformed into a new marketable commodity which is commercially known as a distinct and separate commodity having its own character, use and name. Thus, the processes of bleaching, dyeing and printing convert the raw material into a distinct and different commercial commodity and, therefore, these processes, in our opinion, tantamount to 'manufacture' or 'production' of any article or thing within the meaning of section 32A(2)(b)(iii). 16. Since the Revenue has relied heavily on the decision of the jurisdictional High Court in the case of Niemla Textile Finishing Mills (P.) Ltd., it will be necessary to discuss this case in detail. A Division Bench of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. expressed some doubt about the correctness of the decision of a Division Bench of the same High Court in East India Cotton Mfg. Co. (P.) Ltd. v. Assessing Authority-cum-Excise & Taxation Officer [1972] 30 STC 489. The Division Bench, therefore, referred the matter to the Full Bench. The question of law which was considered for decision by the Ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouring and the alike would fall within the ambit of "manufacture or production" of textiles within the meaning of Entry 23 of the First Schedule to the Industries Act. Entry 23 is as follows :--- "23. Textiles (including those dyed, printed or otherwise processed): (1) Made wholly or in part of cotton, including cotton yam, hosiery and rope; (2) Made wholly or in part of jute, twine and rope; (3) Made wholly or in part of wool, including wool tops, woollen yarn, hosiery, carpets and druggets; (4) Made wholly or in part of silk, including silk yam and hosiery; (5) Made wholly or in part of synthetic, artificial (man-made) fibres, including yarn and hosiery of such fibres." 18. The Full Bench has observed at page 443 of the report that a bare perusal of the aforesaid item shows that its heading is "Textiles (including those dyed, printed or otherwise processed)" and under this there are five sub-headings. At page 444 of the report it was observed that the tax credit certificate scheme under section 280-ZB provides for the grant of a tax credit certificate to companies engaged in the manufacture or production of any of the articles specified in the First Schedule to the Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of Entry 23 of the First Schedule to the Industries Act. This authority, in our opinion, cannot, therefore, be pressed into service for the proposition that the aforesaid processes do not amount to manufacture or production of any article or thing within the meaning of section 32A(2)(b)(iii) of the Act. 19. At this stage it would be worth-while to point out that in the case of CIT v. Sovrin Knit Works Amritsar [IT Reference Nos. 6 and 7 of 1981] a Full Bench of the Punjab & Haryana High Court was concerned with a matter relating to the quantum of development rebate that the assessee was entitled to in respect of new machinery installed by it, namely, whether it should be 25 per cent or 15 per cent. This in term depended upon the interpretation of section 33(1)(b)(B)(i) of the Act read with Item 32 of the Fifth Schedule thereof. The Full Bench vide its order dated 5-4-1989 a copy whereof has been placed before us, has noted that reliance on behalf of the Revenue was placed upon the judgment of the Full Bench in the case of Niemla Textile Finishing Mills (P.) Ltd. Their Lordships observed that this case arose with reference to the Industries Act and Entry 23 of Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as cloth had remained the same both at the time of its purchase by the assessee and even after the carrying on by the assessee the operations referred to above. It was further observed that the assessee started with cloth purchased from outside and ended up with cloth even after performance of the operations. In other words, the end-product in this case is not any different from the feed-in-material. It was held that it is the manufacture or production or bringing into existence of textile material or cloth or fabric that is contemplated under section 33(1)(b)(B)(i) read with item 32 of Fifth Schedule. It was further held that important requirement therefore, is that the operations carried on must be directed towards the "manufacture or production" of textiles. Thus, it was in context of the provisions of section 33(1)(b)(B)(i) read with item 32 of Fifth Schedule that the High Court gave its finding that the aforesaid operations did not amount to manufacture or production of textiles. This authority was followed by the same High Court in the case of the same assessee in S.S.M. Finishing Centre's case. These cases cannot, therefore, be regarded as an authority for the proposition c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court, in the said case, held that to constitute 'manufacture' it is not necessary that one should absolutely make out a new thing because it is well settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand. It is the transformation of the matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such. In other words, if by application of labour and skill an article is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place for the purpose of central excise. Their Lordships in the aforesaid case have observed that (see page 865 of the report) it appears in the light of the several decisions and on the construction of the expression that the process of bleaching, dyeing and printing etymologically also means manufacturing process. On page 869 it is observed that etymologically the word 'manufacture' properly construed would doubtless cover the transformation. On page 870 their Lordships have observed thus : "A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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