Manufacture by processing semi-finished garments entitled the assessee to Section 10B deduction under the commercial identity test.

Processing of semi-finished garments through ironing, labelling, bar-coding, packing and affixing stickers was treated as manufacture because the activities transformed the goods into export-worthy, saleable products with a distinct commercial identity. The Calcutta HC applied the commercial test of manufacture, recognising that the concept is not limited to creation of an entirely new article but extends to processing that materially changes the commodity. On the factual record, the Tribunal's finding that the assessee carried on manufacturing activity was neither perverse nor unreasonable. The assessee was therefore entitled to deduction under Section 10B of the Income-tax Act, 1961.

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Issues: Whether the processes carried out on semi-finished garments, such as ironing, labelling, bar-coding, packing, affixing stickers and related steps, amounted to manufacture so as to entitle the assessee to deduction under Section 10B of the Income-tax Act, 1961.

Analysis: The deductions under Section 10B depended on whether the assessee's activities could be treated as manufacture in the commercial sense. The record showed that the assessee received semi-finished garments and subjected them to a series of processes that brought them into export-worthy saleable condition. The statutory and judicial approach adopted was that manufacture is not confined to creation of a wholly new item in every case, but extends to processing which changes the commodity to the extent that it acquires a distinct commercial identity. The Tribunal had also relied on the factual finding that the expenses for these processes were reflected in the books and verified by the Assessing Officer. On those facts, the finding that the assessee carried on manufacturing activity was neither perverse nor unreasonable.

Conclusion: The activities constituted manufacture for the purpose of Section 10B, and the assessee was entitled to the deduction.

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