C.I.T.AMRITSAR vs. M/S SHREE LALIT FABRICS(P)LTD.

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ITR/96/1989HC Punjab & HaryanaPHHC01022634198901 February 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE RAJESH BINDAL4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the processes of bleaching, dyeing, and printing of gray cloth amount to manufacture or production of an article or thing. The Court referred to its own Full Bench judgment in Commissioner of Income-Tax Vs. Sovrin Knit Works (1993) 199 ITR 679, which overruled the earlier decision in Niemla Textile Finishing Mills P. Ltd. Vs. Income-Tax Officer (1985) 152 ITR 429. The Sovrin Knit Works judgment, following the Supreme Court's decision in Empire Industries Ltd.'s case [1986] 162 ITR 846, held that such processes fall within the meaning of "manufacture and production" under item No.(32) of the Fifth Schedule to the Act and entry 23 of the First Schedule of the Industries (Development and Regulation) Act, 1951. This position was further affirmed by the High Court in Commissioner of Income-Tax Vs. Varun Processors (P.) Ltd. (2002) 254 ITR 564. Therefore, the Tribunal was correct in holding that the finishing unit was engaged in manufacturing activity and that the deduction under Section 80J and investment allowance under Section 32A were admissible. The questions are answered against the Revenue and in favour of the assessee.

What were the facts?

The assessee, M/s Shree Lalit Fabrics (P) Ltd., Amritsar, is a private limited company whose accounting year ended on 30.4.1982, relevant to assessment year 1983-84. The company was engaged in bleaching, dyeing, finishing, and printing gray cloth to produce finished and printed cloth. For the assessment year 1980-81, it installed a finishing unit (Unit No.2). Previously, finishing was outsourced. The Income-tax Officer had allowed deduction under Section 80J for Unit No.2 in the first three years, but disallowed it for the current year, contending that the processes did not constitute manufacture or production. The Commissioner of Income-tax (Appeals) allowed the assessee's claim, which was upheld by the Income Tax Appellate Tribunal. The Revenue has referred questions of law to the High Court.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that finishing unit No.2 of the assessee company was engaged in a manufacturing activity and the deduction under Section 80J was admissible to the company? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee’s industrial undertaking was engaged in the manufacture or production of any article or thing and therefore, the investment allowance under Section 32A on the machinery of the value of Rs. 7,66,746/- was admissible to the company? Assessee's Contention: The assessee's claim for deduction under Section 80J and investment allowance under Section 32A was allowed by the Commissioner (Appeals) and upheld by the Tribunal. Revenue's Contention: The Revenue argued that the activity of bleaching, dyeing, finishing, and printing of cloth did not constitute manufacture or production of any article or thing, thus disallowing the deduction under Section 80J and investment allowance. The Revenue relied on judgments from the Patna High Court in Commissioner of Income-Tax Vs. Natraj Processing Industries (1993) 203 ITR 833 and the Bombay High Court in Commissioner of Income-Tax Vs. Fashion Prints Limited (1996) 217 ITR 456.

Which sections of the Income-tax Act were involved?

Section 80J,Section 32A,Section 256(1),Section 280ZB

AI-generated summary — verify with the full judgment below

I.T.R.

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.

Date of decision:1.2.2007 The Commissioner of Income-Tax, Amritsar ...Petitioner Versus M/S Shree Lalit Fabrics (P) Ltd., Amritsar ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.Sanjiv Bansal, Advocate for the Revenue. **** RAJESH BINDAL, J. The Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short, ‘the Tribunal) has referred under Section 256(1) of the Income Tax Act, 1961 (for short 'the Act') the following questions of law which emerge from its order dated 20.2.1987 in ITA No.459(ASR)/1986 for the assessment year 1983-84:- “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that finishing unit No.2 of the assessee company was engaged in a manufacturing activity and the deduction u/s 80J was admissible to the company?

2.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee’s industrial undertaking was engaged in the manufacture or production of any article or thing and therefore, the investment allowance on the machinery of the value of Rs. 7,66,746/- was admissible to the company?” Briefly the facts as noticed by the Tribunal in the statement of case are as under:-

I.T.R.

-2- *** “The assessee is a private limited company and its accounting year relevant to assessment year under consideration ended on 30.4.1982. It was engaged in the business of gray cloth which was bleached, dyed, finished and printed and the end product sold by it was finished and printed cloth. During the accounting period ended on 30.4.1979 relevant to the assessment year 1980-81, it installed a finishing unit which is described as Unit No.

2.

Prior to the installation of finished unit, the assessee got the finishing job done through outsiders before undertaking the printing work. In earlier years, deduction under section 80J in respect of Unit No.2 had been allowed by the Income-tax Officer in the first three assessment years and the year under consideration was the fourth year of assessee’s claim. According to the revenue, the activity of bleaching, dying, finishing and printing of cloth did not constitute manufacture or production of any article or thing. Therefore, deduction under section 80J was disallowed. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee which has been upheld by the Tribunal.” Though learned counsel for the Revenue referred to and relied upon the judgments of Patna and Bombay High Courts in Commissioner of Income-Tax Vs. Natraj Processing Industries (1993) 203 ITR 833 and Commissioner of Income-Tax Vs. Fashion Prints Limited (1996) 217 ITR 456 respectively to submit that process involved in the present case does not amount to manufacture but still he could not dispute that the judgment in Niemla Textile Finishing Mills P. Ltd. Vs. Income-Tax Officer and another (1985) 152 ITR 429, which was referred and relied upon by the Assessing Officer to deny the benefit of investment allowance to the assessee was overruled by five Judges Bench of this Court in Commissioner of Income-Tax Vs. Sovrin Knit Works (1993) 199 ITR

679.

The relevant observations are extracted below:- “We now find that, following the judgment of the Supreme

I.T.R.

-3- *** Court in Empire Industries Ltd.'s case [1986] 162 ITR 846, the Tribunal, in Deputy CIT V. Shree Lalit Fabrics Pvt. Ltd. [1992] 198 ITR (A.T.) 190 (Chandigarh), has also taken the same view, namely, that bleaching, dyeing and printing of grey cloth amount to manufacture or production of an article or thing within the meaning of Section 32 A of the Act. Such, thus, now being the settled state of the law, we are, with respect, constrained to hold that the view expressed in Niemla Textile Finishing Mills P. Ltd.'s case [1985] 152 ITR 429 (P & H) [FB], that a company engaged in dyeing, printing, singeing or otherwise finishing or processing of fabrics would not fall within entry 23 of the First Schedule nor would it be entitled to claim advantage of the provisions of section 280ZB of the Act, does not lay down the correct law and this judgment has consequently to be overruled. These processes must clearly be held to fall within the meaning of “manufacture and production” in terms of item No.(32) of the Fifth Schedule to the Act and hence also under entry 23 of the First Schedule of the Industries (Development and Regulation) Act, 1951” It has further been followed by this Court in Commissioner of Income-Tax Vs. Varun Processors (P.) Ltd. (2002) 254 ITR 564 while rejecting the appeal filed by the Revenue. The issue raised being already covered by judgment of this Court, we need not refer to the views taken by other High Courts. Accordingly, for the reasons stated in Sovrin Knit's case (Supra) the question referred is answered against the Revenue and in favour of the assessee. (Rajesh Bindal) Judge February 01 ,2007 (M.M.Kumar) Pka Judge

I.T.R.

-4- ***

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