Commissioner of Income Tax vs R. Narayanaswami Naicker and Sons

G. Ramanujam, J.—The revenue seeks a direction from this Court to the Tribunal to state a case, referring the following two questions as arising out of the order of the Tribunal for the opinion of this Court, namely :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to the investment allowance of Rs. 25,607 on the plant and machinery used for the purpose of ginning cotton ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ginning of cotton results in the manufacture of any article or thing mentioned under-section 32A of the income tax Act ?

The assessee runs a ginning factory besides having other business. In the assessment proceedings for the assessment year 1977-78, the assessee claimed relief u/s 32A of the income tax Act, 1961 ("the Act"), in respect of investment in plant and machinery in the ginning factory. The assessee claimed investment allowance in respect of sums of Rs. 92,026 representing the cost of power generation and Rs. 9,500 being the cost of electric

motor. The assessing officer gave relief in a sum of Rs. 25,607 being 25 per cent of the cost of machinery that could be allowed as a deduction u/s 32A. The claim was based on the view that the ginning of cotton amounted to manufacture as contemplated by section 32A.

Subsequently, on the basis of an audit note pointing out that investment allowance could not be given in regard to the ginning factory, the Commissioner initiated revisional proceedings u/s 263 of the Act as the grant of investment allowance was considered to be prejudicial to the revenue. Before the Commissioner the assessee contended that ginning of cotton amounted to manufacture and, therefore, he is entitled to investment allowance u/s 32A. The Commissioner rejected that contention, holding that ginning of cotton did not involve production of any article and, therefore, the assessee is not entitled to claim any investment allowance.

Aggrieved by the order of the Commissioner, the assessee took the matter in appeal to the Tribunal. The Tribunal, however, held on the basis of the Supreme Court decision in State of Punjab v. Chandu Lal Kishori Lal [1970] 25 STC 52, that ginning of cotton results in manufacture and that, therefore, the assessee is entitled to claim investment allowance.

Aggrieved by the order of the Tribunal, the revenue has filed this reference application, seeking a reference on the above two questions. Thus, on the facts stated above, the only question that arises here is, whether the ginning of cotton amounts to manufacture as contemplated by section 32A. The Supreme Court has, in the case referred to above, specifically held that ginning process is a manufacturing process, that by a manufacturing process the cotton and cotton seeds are separated, that the seeds so separated cannot be treated as cotton itself or part of the cotton and the process has resulted in the manufacture of two different commercial goods, though before the manufacturing process the seeds might have been part of the cotton itself. Though that decision of the Supreme Court was rendered with reference to section 15 of the Central Sales Tax Act, 1956, the reasoning for holding ginning process to be a manufacturing process has general application. Since there is a categorical pronouncement of the Supreme Court that ginning of cotton is manufacture, we have to hold that the ginning process is a manufacture. As the assessee has ginned cotton (kappas) and the seeds had been separated from the cotton, it is to be taken to be a manufacture though not a production. We are, therefore, of the view that the decision of the Tribunal in this case is in accord with the view taken by the Supreme Court that ginning amounts to a manufacturing process. Therefore, the assessee is entitled to the relief u/s 32A. We do not think there is any warrant for referring the questions sought to be referred. The petition is, therefore, dismissed. No costs.