1986 (3) TMI 34 - HC - Income Tax

High Court rules dyeing/printing grey cloth as manufacturing under Income-tax Act, granting relief.

The High Court ruled in favor of the assessee, holding that the process of dyeing and printing grey cloth constituted manufacturing, making the assessee ... Deduction, Manufacture, New Industrial Undertaking Issues Involved:1. Whether the process of dyeing and printing grey cloth amounts to manufacturing of goods for relief u/s 80J of the Income-tax Act, 1961.2. Whether the assessee's undertaking is an industrial undertaking.3. Whether there was reconstruction of a business already in existence.4. Whether the use of previously used building and machinery disqualifies the assessee from relief u/s 80J(4).5. Whether the first year for relief under section 80J is relevant for the assessment year 1975-76.Summary:1. Process of Dyeing and Printing as Manufacturing (Assessment Year 1972-73):The main question was whether dyeing and printing grey cloth amounts to manufacturing of goods for claiming relief u/s 80J of the Income-tax Act, 1961. The Tribunal held that dyeing and printing grey cloth constitutes manufacturing or production of articles. However, for the assessment year 1972-73, since the assessee only processed cloth belonging to its customers, the Tribunal concluded that the assessee was a mere contractor and not a manufacturer, thereby denying relief u/s 80J for that year.2. Industrial Undertaking:The Tribunal found that the assessee's business of dyeing and printing cloth qualifies as an industrial undertaking. The High Court agreed, citing the Supreme Court's broad definition of 'industry' in Bangalore Water Supply and Sewerage Board v. A Rajappa, which includes systematic activity organized by cooperation between employer and employee for the production and/or distribution of goods and services.3. Reconstruction of Business:The Commissioner argued that there was reconstruction of the business since the assessee shifted from job work to processing its own cloth. The Tribunal disagreed, stating there was no change in the nature of the activity and thus no reconstruction. The High Court upheld this view, noting that the business activity remained the same regardless of the ownership of the cloth.4. Use of Previously Used Building and Machinery:The Commissioner contended that using previously used building and machinery disqualified the assessee from relief u/s 80J(4). The Tribunal disagreed, and the High Court affirmed, stating that the conditions of clauses (i) and (ii) of section 80J(4) were satisfied as there was no transfer to a new business of previously used building and machinery.5. First Year for Relief (Assessment Year 1975-76):The Tribunal found that the first year for relief was 1971-72, making the assessee eligible for relief in the assessment year 1975-76. The High Court noted this finding but deemed it irrelevant for the main issues.Conclusion:The High Court answered the question at the instance of the assessee in the negative, against the Revenue, and both questions at the instance of the Revenue in the affirmative, against the Revenue. The process of dyeing and printing grey cloth was held to be manufacturing, qualifying the assessee for relief u/s 80J, except for the assessment year 1972-73 when the assessee acted as a contractor.