1999 (12) TMI 2 - SC - Income Tax

Manufacturing yarn = textiles for benefits! Supreme Court affirms higher depreciation.

The Supreme Court held that the manufacturing of yarn falls within the definition of textiles under Entry 21 of the Ninth Schedule. The Court emphasized ... Interpretation of 'textiles' in a tax schedule - Inclusive clause 'including cotton yarn, hosiery and rope' - Entitlement to higher rate of initial depreciationInterpretation of 'textiles' in a tax schedule - Inclusive clause 'including cotton yarn, hosiery and rope' - Entitlement to higher rate of initial depreciation - Whether manufacture of cotton yarn falls within the meaning of 'textiles' in Item No. 21 of the Ninth Schedule and thereby attracts the higher rate of initial depreciation. - HELD THAT: - The Court held that Item No. 21 must be read with its inclusive words which expressly extend the category of 'textiles' to cover 'cotton yarn, hosiery and rope', and that the legislature deliberately widened the scope of the word 'textiles' to include goods which in ordinary parlance might be earlier stages or components of textile manufacture. The judgment relied on the principle that the legislature may expand the ordinary meaning of a term by inclusive language to achieve the objective of the provision. Prior judicial decisions interpreting similar entries in the Fifth Schedule (including decisions concerning jute ropes and cotton yarn) were treated as supportive of construing the inclusive clause so as to bring yarn within the scope of 'textiles'. Applying that interpretation to the facts, the manufacture of cotton yarn by the assessee falls within Item No. 21 and therefore the machinery used in that manufacture is eligible for the higher rate of initial depreciation. [Paras 3, 7]Manufacture of cotton yarn is within the meaning of 'textiles' in Item No. 21 of the Ninth Schedule and the assessee is entitled to the higher rate of initial depreciation.Final Conclusion: Appeal dismissed; the High Court's answer that yarn falls within Item No. 21 and that the assessee is entitled to higher initial depreciation is upheld. Issues:Interpretation of whether the manufacture of yarn amounts to the manufacture of textile within the meaning of Entry 21 of the Ninth Schedule under the IT Act, 1961.Analysis:1. Issue: Interpretation of Entry 21 of the Ninth ScheduleThe case involves a dispute over whether the manufacture of yarn qualifies as the manufacture of textile under Entry 21 of the Ninth Schedule. The respondent-assessee, a firm engaged in yarn production, claimed a higher rate of initial depreciation based on the contention that yarn falls under Item No. 21. The assessing authority initially disagreed, stating that yarn is a material used in manufacturing textiles and not the textile itself. However, the CIT(A) reversed this decision, holding that yarn is covered under Item No. 21. The appellate authority referred to a Tribunal decision supporting this interpretation. The Tribunal, considering previous decisions and the inclusive nature of the term 'textiles' in the Ninth Schedule, upheld the grant of higher depreciation. The High Court also ruled in favor of the assessee, leading to the appeal before the Supreme Court.2. Issue: Legislative Intent and InterpretationThe Court delved into the legislative intent behind the inclusion of yarn under the definition of textiles in the Ninth Schedule. It noted that the term 'textiles' was broadly defined to encompass various items, including cotton yarn, hosiery, and rope. The Court emphasized that the legislature intentionally expanded the scope of textiles to provide benefits to a wider range of goods. By including yarn under textiles, even though it is a precursor to the final textile product, the legislature aimed to ensure equal treatment and benefits for all related items. The Court highlighted the inclusive nature of the term 'textiles' under both Item No. 21 and Item No. 22, which covers different goods made mainly of jute.3. Judicial Precedents and InterpretationThe Court referred to previous cases, such as CIT vs. Shalimar Rope Works (P) Ltd. and CIT vs. Vijaya Spinning Mills Ltd., which dealt with similar interpretations of textile-related entries in the Fifth Schedule. These cases supported a broad interpretation of textile-related items, emphasizing the inclusive nature of the definitions. The Court also cited CIT vs. North Arcot District Co-operative Spinning Mills Ltd., where the Tribunal's decision to include yarn within the definition of textiles was upheld by the High Court. These precedents reinforced the Court's conclusion that yarn manufacturing qualifies as textile production under the relevant schedule.4. ConclusionAfter comprehensive analysis and considering legislative intent along with relevant judicial precedents, the Supreme Court concluded that the manufacturing of yarn by the assessee falls within the definition of textiles as per Entry 21 of the Ninth Schedule. Therefore, the Court upheld the grant of higher initial depreciation on yarn production. The appeal was dismissed, affirming the decisions of the lower courts.