MULCHAND COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference raises an interesting question as to what constitutes 'manufacture or processing' within the meaning of the said expression in clause(c) of sub -section(6) of section 2 of the Finance No. 2 (Act) of 1971. The reference is made on a case stated under section 256(1) of the Income -tax Act, 1961. The question posed to us is as follows :

(2.) THE assessee is a limited company engaged in the export of goods to foreign countries. The assessment year with which we are concerned is the assessment year 1971 -72. During the relevant previous year, the assessee purchased raw wool in heaps from shepherds and petty traders at upcountry centers. What the assessee purchased was mixed clipped glazed raw wool in heaps. That wool consisted of various colours, fibres and different staple lengths. The assessee sorted out this wool in different qualities, to eliminate dirt, grease and other vegetable colours and staple lengths. The assesee then had the wool hand -washed to eliminate dirt, grease and other vegetable matter. Thereafter, the wool was dried in the sun on open ground and then it was opened by opener so that lots were blended uniformly to get average export type quality. These activities or processes were carried out by the assessee. The assessee then exported the wool after cleaning and packing it. Before the Income -tax Officer concerned, it was claimed by the assessee that the assessee was an 'industrial company' within the meaning of the said expression in section 2(6)(c) of the Finance (No. 2) Act of 1971 (referred to hereinafter as 'the said Finance Act'). The Income -tax Officer, after noting the activities carried out by the assessee in respect of raw wool purchased by it came to the conclusion that these activities did not constitute a processing activity. The Income -tax Officer took the view that the material purchased by the assessee continued to retain its original form while it was sold by the assessee, and all that the assessee did was to make it marketable. On the basis of these conclusions, the Income -tax Officer rejected the contention of the assessee that it was entitled to be treated as an industrial company within the meaning of the said term in the said Finance Act and entitled to the benefit of the lower rate of income -tax as such. On an appeal preferred by the assessee to the Appellate AssistantjCommissioner, he took the view that the assessee was entitled to be considered as an industrial company within the meaning of the said term in the said Finance Act and entitled to the benefit of the lower rate of income -tax as such. The Revenue preferred an appeal against this decision to the Income -tax Appellate Tribunal. The Tribunal came to the conclusion that the process employed by the assessee was not one which converted raw wool into a different commodity. It still remained wool in spite of the so -called processing carried out by the assessee. The Tribunal took the view that in order that an activity should be considered as manufacture or processing, it was necessary that as a result of the same, a new commodity must come into existence. On the basis of these conclusions, the Tribunal reversed the decision of the Appellate Assistant Commissioner and rejected the claim of the assessee. The reference arises form the aforesaid decision of the Tribunal.

(3.) THERE is a an explanation to this clause which is not material for our purpose. In connection with the facts of this case, the question which arises is whether the activities carried out by the assessee in respect of raw wool purchased by it and exported as aforesaid could be considered to be 'manufacture or processing' within the meaning of the said clause.