COMMISSIONER OF INCOME TAX Vs. FASHION PRINTS LIMITED

JUDGEMENT

(1.) BY this reference made under section 256(1) of the Income -tax Act, 1961, the following question has been referred to this court for opinion at the instance of the Revenue : 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the activities of the assessee in dyeing, printing and processing grey cloth produced by others amounted to manufacture or production of textiles as specified under item No. 21 of the List in the Ninth Schedule of the Income -tax Act, 1961, so as to entitle it to additional depreciation under section 32(1)(vi) of the Act?'

(2.) THE assessee is a limited company incorporated under the provisions of the Companies Act, 1956. The assessment years involved are 1976 -77 and 1977 -78. The assessee was engaged in the business of dyeing, printing and processing textile goods and for that purpose, the assessee used to purchase grey cloth and sell the same on its own account after dyeing, printing and processing. The assessee was also doing job work of dyeing, printing and processing on grey cloth belonging to others. The claim of the assessee before the Income -tax Officer was that since the assessee was engaged in the manufacture and production of dyed, printed and processed textiles within the meaning of item No. 21 of he Ninth Schedule to the Income -tax Act, 1961 (for short, 'the Act'), the assessee was entitled to higher depreciation under 32(1) (vi) of the Act. The Income -tax Officer held that the activities carried by the assessee did not fall within the scope and ambit of the said item No. 21 as the assessee itself did not produce the grey cloth but had merely dyed, printed or processed the same. According to the Income -tax Officer, in the facts of the case, the assessee could not be said to be a manufacturer to producer of cotton textiles. The Income -tax Officer rejected the claim of the assessee. The assessee appealed to the Commissioner of Income -tax (Appeals) who held that the assessee was engaged in manufacture and production of textiles since in the opinion of the Commissioner of Income -tax (Appeals), the grey cloth acquired by the assessee was different from the dyed, printed and finished cloth produced by the assessee. The Commissioner of Income -tax (Appeals) allowed the claim of the assessee. The Department appealed to the Tribunal. The Tribunal accepted the claim of the assessee and upheld the order of the Commissioner of Income -tax (Appeals). It is in these circumstances, the above question has been referred to this court for opinion at the instance of the Revenue.

(3.) MR . Arun Sathe, learned counsel appearing for the assessee, has submitted that in the concerned assessment year, the assessee carried on the business of manufacture of textiles specified in the said item No. 21 as the assessee used to purchase grey cloth and after dyeing, printing and processing, sell the same on its own account and was also doing job work of dyeing, printing and processing grey cloth belonging to others. Mr. Arun Sathe further submitted that as the grey cloth acquired by the assessee was different from the dyed, printed and finished cloth produced by the assessee, the assessee was entitled to deduction of depreciation as claimed. In the submission of learned counsel, when the assessee subjected grey cloth to dyeing, printing and/or any other processing, it produced a distinct article having distinct use as distinguished from the grey cloth and by this transformation, grey cloth became a different commodity which was sufficient to hold that there was manufacturing or production of article within the meaning of clause (vi) of sub -section (1) of section 32 of the Act. In support of his submissions, learned counsel has put reliance on the judgment in the following cases : (1) Empire Dyeing and . v. State of Maharashtra ; (2) CIT v. J. B. Kharwar and Sons : [1987]163ITR394(Guj) ; (3) Empire Industries Ltd. v. Union of India : [1986]162ITR846(SC) ; and (4) CIT v. Yavatmal Co -operative Ginning and Pressing Factory Ltd. : [1993]203ITR874(Bom) .