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Judgment
Ratnam, J.—In this case reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), at the instance of the
Revenue, the following questions of law have been referred to this court for its opinion :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was entitled to higher
rate of development rebate as provided in Section 33(1)(b)(i) of the Act in respect of the machinery used by it in its business ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the operations carried on by the assessee
would amount to manufacture of texiles as specified in item No. 32 of the Fifth Schedule ?
The assessee is a registered firm. In respect of the assessment year 1974-75, in the course of the assessment proceedings, it claimed
development rebate at the higher rate of 25% in accordance with the provisions of Section 33(1)(b)(B)(i) of the Act as, according to it, it installed
machinery and plant for the purpo se of manufacture and production of an article or thing falling under item No. 32 in the Fifth Schedule to the Act.
The Income Tax Officer took the view that the operations carried on by the assessee did not amount to manufacture of any texile item and he,
therefore, rejected the claim of the assessee for higher development rebate, but confined it to 15%. On appeal by the assessee before the
Appellate Assistant Commissioner, relying upon the decision of the Income Tax Appellate Tribunal in I.T.A. No. 1915/Mds./1973-74 dated
December 12, 1975 for the assessment year 1970-71 in respect of the same assessee, the claim of the assessee for higher rate of development
rebate u/s 33(1)(b)(B)(i) of the Act was accepted. On further appeal by the Revenue before the Tribunal, the Tribunal also took the view that the
claim of the assessee would be covered by the decision of the Tribunal referred to ea rlier and in that view dismissed the departmental appeal. That
is how the questions of law set out earlier have come up before us.
We may immediately point out that the decision of the Tribunal in I.T.A. No. 1915/Mds./1973-74 dated Decemver 12, 1975, formed the
subject-matter of a reference at the instance of the Revenue, in T.C. No. 407 of 1979, where the two identical questions as set out in the earlier
part of this judgment came to be referred for the opinion of this court and that reference was answered in favour of the Revenue, as per the
decision in Commissioner of Income Tax Vs. S.S.M. Finishing Centre, . Taking note of the operations carried on by the assessee on the grey cloth
manufactured or produced by others and purchased by the assessee, it was found that the assessee did not manufacture the cloth, but merely
expended its labour on the cloth manufactured by others by carrying out some operations and that the end-product was not, in any manner,
different from the feed-in-material. It was also further found that the operations carried on by the assessee were not directed towards the
manufacture or production"" of textiles in that such operations did not bring into existence any textile material, cloth or fabric contemplated u/s
33(1)(b)(B)(i) of the Act read with item No. 32 of the Fifth Schedule to the Act. In so answering the reference, the nature of the operations car
ried out by the assessee on the cloth purchased by it from othe rs and the resultant product after the operations carried out b y the assessee were
taken into account to hold that, even after the carrying out of the operations, no new or distinct or different commodity from the feed-in-material
was produced by the assessee, but it had remained the same as before and, therefore, the assessee cannot claim the benefit of higher deve lopment
rebate u/s 33(1)(b)(B)(i) of the Act read with item No. 32 of the Fifth Schedule to the Act. In this case, it is not the stand of the assessee that
different operations had been carried out or that, by the use of the plan t and machinery instaled by it, textiles had been manufactureed by it. In
other words, the nature of the operations carried out by the assessee even during the accounting period relevant to the assessment year 1974-75
had remained just what it was during the prior assessment year 1970-71 and there is no dispute regarding this. Ordianarily, therefore, the decision
in Commissioner of Income Tax Vs. S.S.M. Finishing Centre, would govern this reference as well. However, learned counsel for the assessee
strongly relied upon the decision of the decis ion of the Supreme Court in Ujagar Prints v. Union of India : [1989]179ITR317(SC) , and
contended that processed like those carried on by the assessee on the grey cloth purchased by it from others would also amount to ""manufacture"",
and, therefore, the decision in Commissioner of Income Tax Vs. S.S.M. Finishing Centre, would not have any application. On the other hand,
learned counsel for the Revenue submitted that Ujagar Prints v. Union of India : [1989]179ITR317(SC) concerned itself with the validity of the
extended or expanded definition of ""manufactuer"" occurring in Section 2(f) of the General Excises and Salt Act, 1944, as amended by the Central
Excisel and Salt and Additional Duties of Excise (Amendment) Act, 1980, and in the absence of any definition of ""manufacture"" in the Act, that
expression has to be interpreted and understood as a word of ordinary import connoting bringing into existence a new and different article, having
a distinct name and character and since that was not done by the assessee, it was not entitled to claim the benefit of higher development rebate.
We now proceed to examine the question whether the decision in Ujagar Prints v. Union of India : [1989]179ITR317(SC) , could be pressed
into service by the assessee to avail of the benefit of higher development rebate as a manufacturer or producer of textiles falling under item No. 32
of the Fifth Schdule to the Act. The decision in Ujagar Prints v. Union of India : [1989]179ITR317(SC) , came to be rendered by a larger Bench
of five judges owing to certain doubts reised about the correctness of the decision in Empire Industries Limited and Others Vs. Union of India and
Others, , by the referring order in Ujagar Prints Vs. Union of India (UOI), . The question that was debated before and decided by the Supreme
Court in Ujagar Prints v. Union of India : [1989]179ITR317(SC) , related to the validity of the levy of excise duty under tariff items Nos. 19 and
22 of the Schedule to the Central Excises and Salt Act, 1944, as amended by the Central Excises and Salt and Additional Duties of Excise
(Amendment) Act, 1980, treating certain processes like bleaching, mercerising, dyeing, printing, water-proofing, rubberising, etc., as
manufacture."" One of the questionns decided by the Supreme Court was, whether the processes of bleaching, dyeing, printing, sizing, etc., carried
on in respect of cotton or man-made grey fabric amounted to ""manufacture"" for purposes of and within the meaning of Section 2(f) of the Central
Excises and Salt Act, 1944, prior to the amendment of the said Section 2(f) by Section 2 of Act VI of 1980, and whether the decision in Empire
Industries Limited and Others Vs. Union of India and Others, holding that these operations amounted to ""manufacture"" was wrongly decided and
required reconsideration. In considering and deciding the question referred to above, the Supreme Court, after referring to the definition of the
expression ""manufacture"" occurring in Section 2(f) of the Central Excises and Salt Act, 1944, proceeded to advert to the test generally applied for
ascertaining whether there is ""manufacture"". In this context, the Supreme Court reiterated the principles applicable by observing that the test is to
find whether the change or the series of changes brought about by the application of processes take the commodity to a point where,
commercially, it can no longer be regarded as the original commodity but is, instead, recognised as distinct and new article that has emerged as a
result of the processes. After laying down this general test, the Supreme Court, while affirming that the principles are clear, but that difficulty arises
only in their application in individual cases, stated that the various processes, by the application of which a commercially different commodity
emerged, would fall within the expression ""manufacture"" u/s 2(f) of the Central Excises and Salt Act, 1944, even as unamended. It is thus seen that
the Supreme Court, while reiterating the general test applicable, had found, with reference to the definition of the expression ""manufacture
occurring in Section 2(f) of the Central Excises and Salt Act, 1944, that the operations carried out by the processors would fall within the definition
of ""manufacture"", as it stood even prior to the amendment as, by the very definition in Section 2(f) of the Central Excises and Salt Act, 1944,
manufacture"" included any incidental or ancillary process. Ultimately, the Supreme Court concluded that its earlier decision in Empire Industries
Limited and Others Vs. Union of India and Others, , was rightly decided. It is thus seen that the decision of the Supreme Court in Ujagar Prints v.
Union of India : [1989]179ITR317(SC) , turned upon the interpretation of the word ""manufacture"" as defined in Section 2(f) of the Central Excises
and Salt Act, 1944, as it stood before and after its expansion with reference to items Nos. 19 and 22 of the First Schedule by the Amending Act
VI of 1980, to include incidentl and ancillary processes of the kind enumerated, in relation to items Nos. 19 and 22 also as falling within the scope
of the expression ""manufacture"". It is common ground that, uunder the Act, there is no definition of the expression ""manufacture"" or ""produce"". It,
therefore, follows that those expressions have to be understood as words of ordinary import so as to mean to bring into being or existence a
product falling under item No. 32 of the Fifth Schedult to the Act. What is significant is that even in Ujagar Prints v. Union of India :
[1989]179ITR317(SC) , the Supreme Court has approved of the generally applied test of emergence of a distinct and a new article as a result of
the application of the processes. Applying that test to the facts of this case, it is seen that the assessee has not made out that a commercially
different and distinct product emerged as a result of the application of the processes by it to the cloth purchasesed by it from other manufacturers.
We may also point out that the decision in Ujagar Prints v. Union of India : [1989]179ITR317(SC) proceeded on a consideration of the definition
of the word ""manufacture"" as it occurred in the Central Excises and Salt Act, 1944, and its expansion later with reference to items Nos. 19 and 22
by the provisions of Section 2 of the Amending Act 6 of 1980. We are, therefore, unable to agree with the contention urged by learned counsel for
the assessee that in view of the decision in Ujagar Prints v. Union of India : [1989]179ITR317(SC) , the claim of the assessee for the assessment
year 1974-75 would stand on a footing different from that for the assessment year 1970-71. We may also point out that, in the record of the
proceedings, there is nothing whatever to indicate that, as a result of the processes employed by the assessee on the cloth purchased by iit but
manufactured by others, a new and commercially different article or commodity as a those circumstances, the assessee cannot claim to have
manufactured or produced textiles falling within item No. 32 of the Fifth Schedule to the Act. We may also incidentally obs erve that there are
some provisions in the Act which comtemplate certain processes and, in such cases, they have been clearly and explicitly indicated in unmistakable
terms, as for instance, in Section 109(i)(a) of the Act, but in the absence of any indication in the language employed under the relevant provisions
that processes like those carried out by the assessee would also fall within the expression ""manufacture"" or ""produce"", the assessee cannot claim a
higher development rebate. We are, therefore, of the view that the decision in Commissioner of Income Tax Vs. Gopi Chand Textile Mills Ltd., is
of no assistance in advancing the case of the assessee. We may also point out that in Commissioner of Income Tax Vs. Veena Textiles Pvt. Ltd., ,
with reference to the carrying on of certain operations like warping, sizing, bleaching, ect., on materials not manufactured by the assessee, it has
been held that the assessee cannot claim that there was any activity of manufacture or production carried on by it so as to justify the allowance of
higher development rebate. Following Commissioner of Income Tax Vs. S.S.M. Finishing Centre, , we answer the questions referred to us in the
negative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel''s fee Rs. 500.