COMMISSIONER OF INCOME-TAX vs. KASHIRAM TEXTILES MILLS PVT LTD.

PDF · subscribers
ITR/34/1989HC GujaratGJHC24012817198916 January 2001Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE MOHIT S. SHAH3 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court, at the instance of the revenue, referred two questions of law for its opinion. For the first question regarding investment allowance under Section 32A, the Court held that the assessee is entitled to the allowance. This decision was based on the Court's prior judgment in CIT vs. Kashiram Textiles Mills Pvt. Ltd. (1999) 240 ITR 487, and also a Division Bench decision in ITR No. 66 of 1984 concerning the same assessee. The question was answered in favour of the assessee and against the revenue. For the second question concerning relief under Section 80J, the Court held that the assessee is entitled to the relief. This was squarely covered by the Court's decision in CIT vs. J.B. Kharwar & Sons, 163 ITR 394, which held that dyeing and printing of grey cloth results in a distinct article with a distinct use, constituting a transformation into a new commodity. This principle was also followed in the aforementioned ITR No. 66 of 1984. The second question was also answered in favour of the assessee and against the revenue. The reference was disposed of accordingly.

What were the facts?

The assessee, Kashiram Textiles Mills Pvt. Ltd., is a private limited company engaged in bleaching, dyeing, printing, and processing of grey cloth for resale. For Assessment Year 1978-79, the Income Tax Officer (ITO) made an addition of Rs. 2,07,800/- for alleged purchases. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee's activity constituted manufacturing, entitling it to investment allowance under Section 32A, but disallowed 40% of the claim due to unverified rates. The revenue appealed the deletion of the addition, while the assessee did not appeal the retained portion. The Income Tax Appellate Tribunal (ITAT) confirmed the CIT(A)'s action. The revenue has now referred two questions of law to the High Court.

What were the issues?

1. Whether in law and on facts, the assessee is entitled to investment allowance under Section 32A of the Income-tax Act, 1961, on the ground that the process carried out by the assessee amounts to manufacturing activity? 2. Whether in law and on facts, the assessee is entitled to relief under Section 80J of the Income Tax Act, 1961, in respect of Unit No. 1 as claimed? Assessee's contentions: The assessee argued that its activities of bleaching, dyeing, printing, and processing grey cloth constitute manufacturing, thereby qualifying for investment allowance and relief under Section 80J. The assessee relied on the decision in CIT vs. Kashiram Textiles Mills Pvt. Ltd. (1999) 240 ITR 487 and other High Court judgments. Revenue's contentions: The revenue challenged the CIT(A)'s deletion of the addition and the subsequent confirmation by the ITAT, implying that the assessee's activities might not be considered manufacturing for the purpose of the allowances claimed. The revenue's appeal was against the deletion of the addition made by the ITO.

Which sections of the Income-tax Act were involved?

Section 32A,Section 80J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 34 of 1989

For Approval and Signature:

Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus KASHIRAM TEXTILES MILLS PVT LTD. -------------------------------------------------------------- Appearance: MR AKIL KURESHI with MR MANISH R BHATT for Petitioner MR RK PATEL for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH

Date of decision: 16/01/2001

ORAL JUDGEMENT (Per : MR.JUSTICE J.M.PANCHAL)

At the instance of the revenue, the Income-tax

Appellate Tribunal, Ahmedabad Bench "C" has referred the following two questions of law for the opinion of this Court for Assessment Year 1978-79 :-

1.

Whether in law and on facts, the assessee is entitled to investment allowance under section 32A of the Income-tax Act, 1961 on the ground that the process carried out by the assessee amounts to manufacturing activity ?

2.

Whether in law and on facts, the assessee is entitled to relief under section 80J of the Income Tax Act, 1961 in respect of Unit No. 1 as claimed ?

2.

The assessee in this case is a private limited Company engaged in the business of bleaching, dyeing, printing and processing of grey cloth purchased from the market and its resale. During the period under consideration, the ITO made an additional in respect of the purchases alleged to have been made from two parties aggregating Rs.2,07,800/-. The CIT(A) held that the assessee was carrying on activity of manufacturing and, therefore, the assessee was entitled to benefit of investment allowance, but as the rates could not be verified, the CIT(A) disallowed 40% of the claim. The revenue came in appeal against the deletion of addition by the CIT(A) whereas the assessee chose not to do so for the amount retained. The Tribunal confirmed the action of the CIT(A).

3.

The learned counsel for the parties state at the Bar that the controversy raised in the present reference is answered by the decision of this Court in CIT vs. J.B. Kharwar & Sons, 163 ITR 394 and also in the case of Section 32A of the Income-tax Act, 1961. The said question is answered in favour of the assessee and against the revenue.

4.

As far as the second question is concerned, the question is squarely covered by the decision of this Court in CIT vs. J.B. Kharwar & Sons, 163 ITR 394 wherein this Court has held that when the assessee subjects grey cloth to the process of dyeing and printing, it produces a distinct article having distinct use as distinguished from the grey cloth, though grey cloth still subsists. What is emphasized therein is that as a result of the process to which grey cloth is subjected there is transformation of grey cloth into a new commodity commercially known as a distinct and separate commodity having its own character, use and name. As observed earlier, this judgment has been followed subsequently by another bench in ITR No. 66 of 1984. Thus, having regard to the principle laid down in the above referred to decisions, we are of the opinion that the assessee is entitled to relief under Section 80J of the Income-tax Act, 1961 in respect of Unit No. 1 as claimed. The said question is also answered in favour of the assessee and against the revenue.

The reference accordingly stands disposed of with no order as to costs.

(J.M. Panchal, J.)

(M.S. Shah, J.)

sundar/-

More judgments on Section 32A

All 120 judgments and leading authorities on Section 32A →

Recent GST High Court judgments

Search GST case law →