Ginning of Cotton as Manufacture: investment allowance restored where raw cotton became a distinct marketable commodity.

Ginning of cotton was treated as manufacture for investment allowance under section 32A because the process converted raw cotton into a distinct commercially marketable commodity, namely ginned cotton. The material distinction between the raw input and the finished product meant the activity was more than mere processing, so the statutory condition of manufacture was satisfied. On that basis, withdrawal of the allowance under section 263 was not justified and the investment allowance was restored.

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Issues: Whether ginning of cotton amounts to manufacture for the purpose of investment allowance under section 32A of the Income-tax Act, 1961, and whether the withdrawal of the allowance under section 263 was justified.

Analysis: The undertaking was a small scale unit and the decisive question was whether ginning transformed raw cotton into a distinct finished product. Manufacture was treated as transformation of raw material into a distinct commercial commodity. On the facts, ginned cotton was commercially different from raw cotton, and the process of ginning could not be treated as mere processing for denying the allowance. The reasoning accepted that the statutory word manufacture was satisfied where the process brought into existence a distinct marketable commodity.

Conclusion: Ginning of cotton amounted to manufacture for section 32A, and the withdrawal of investment allowance was unjustified. The assessee succeeded and the allowance was restored.

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