TaxTMI 
TaxTMI 
2008 (2) TMI 313
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....nnot be changed in subsequent years and thereby importing the maxim of res judicata in income-tax proceedings?" 2. A few facts may be noted. The relevant assessment year is assessment year 1996-97. The Assessing Officer passed an order of assessment disallowing claim under Section 80HH and 80-I and 80-IA on the ground that the activity of processing is not an industrial activity. An Appeal was preferred by the assessee before the Commissioner of Income Tax (Appeal), who by order dated 16^th February, 2000 was pleased to dismiss the Appeal. The assessee aggrieved preferred an Appeal before the ITAT which was numbered as ITA No.1324/MUU/2000. By order dated 11^th July, 2000 the learned Tribunal held that texturing and twisting of yarn amounts to manufacture and consequently allowed the Appeal. The questions now framed arise from this order. 3. What we are called upon to answer firstly, is whether twisting and texturising of POY amounts to manufacture or production of a distinct article. We may at once note that a learned Bench of this Court in Commissioner of Income Tax vs. Bipinali Textiles Pvt. Ltd., [1991] 189 ITR 61 placing reliance on the Circular dated N....
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....followed by texturing. The term textured yarn is explained as term used broadly to describe filament yarn that has been treated to change its hand, increase bulk and/or increase stretch Synonym; Crimped yarn. It is also a generic term for filament or spun yarns that have been given notably greater apparent volume than conventional yarns of similar fibre or filament count and linear density (ASTM). ASTM categorizes textured yarn as one type of bulk yarn, the others being bulky yarn and crimped yarn. ASTM further subdivides textured yarns into High-Bulk Yarn, loopy Yarn and Stretch Yarn. The specific processes used to texture yarns include Air Jet Texturing, False Twisting, Gear Crimping, Knit Deknit and the Stuffer Box Method. 6. It is submitted that it is quite evident that POY is a form of manufactured yarn and even after twisting and texturising, it continues to be yarn and even its name does not change and it continue to be called yarn. The assessee gets POY from other manufacturing units for the purpose of twisting and texturising. It is not producing or manufacturing POY on its own. Sections 80HH, 80-I and 80-IA refer to manufacture or production of new article or thing. Th....
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....tention urged by the Revenue that the assessee was doing a manufacturing process in that case was rejected by holding that "the process is a manufacturing process when it bring out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity." 9. "Manufacturing" activity was also explained in Deputy Commissioner of Sales Tax (Law) Board of Revenue(Taxes) vs. M/s. Pio Food Packers, [1980] Supp. S.C.C. 174; [1980] 46 STC 63, 65 (SC). The Court noted as under:- "The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly manufacture is the end result of one more processes through which the original commodity is made to pass......... But it is only when the change, or a series of changes take the commodity to the p....
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.... the Appellant had, however, strenuously argued that considering the judgment in Commissioner of Income-tax vs. Tara Agencies, (2007) 292 ITR 444, the issue of manufacture or production has been reconsidered and in that context the earlier view taken will have to give way to the view as explained in Tara Agencies (2007) 292 ITR 444, The issue before the Supreme Court was whether blending of tea results in bringing into existence a new commodity and, therefore, amounts to manufacture or production. The Court noted that the word "manufacture" has not been defined under the Income Tax Act, but had been defined in Section 2(f) of the Central Excise Act, 1944. The Court also referred to the dictionary meanings of the word "manufacture" in Black's Law Dictionary and Halsbury's Laws of England as also the dictionary meaning of the words "Production" and "Process". On behalf of the Revenue it was argued that the activity of the respondent namely blending of tea, packaging and selling the same does not amount to manufacture or production of commercially new and different product and the activity at the highest may amount to a processing of tea which is an intermediate stage in the final pro....
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....d distinct commodity held. That test has not been satisfied. In Commissioner of Income Tax vs. Premier General Traders (P) Ltd., [2002] 242 ITR 654 this Court on the facts there held that the process undertaken by the Assessee cannot be regarded as processing of manufacture of articles or things. In Indian Hotels Co. Ltd. & Ors. vs. C.I.T. [2000] 245 ITR 538 (S.C.) the assessee sought the benefit of investment allowance under Section 32A of the I.T. Act contending that the assessee was an industrial company engaged in manufacturing activity as it was running a flight kitchen engaged in the production of food packages. The Court held that the activity does not amount to manufacture or production as the raw material is at the most processed so as to make it edible. 17. Whether processing of twisting or texturising of yarn amounts to manufacture may now be considered from the material placed on record. We have the expert opinion of Dr. Teli, Head of Division, Division of Technology and Fabrics and Textile Processing, UDCT., who has given the various physical properties of POY on the one hand and textile twisted yarn on the other hand This was considered by ITAT . Reference has been....
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....necessary for the achievement of statutory resistance to abrasion, fatigue, or other types of damage associated with stresses other than a simple tensile stress, and typified by the breakage of individual filaments, leading ultimately to total breakdown of the structure. High twist produces a 'hard' yarn, which is highly resistant to damage of this kind. The role of twist in continuous filament yarn is, thus, to produce a coherent structure that cannot readily be disintegrated by lateral stresses. From the engineering standpoint, the interesting thing about this structural function of twist is that, in contract to most structure-building techniques, it produces its effect without significantly increasing the flexural rigidity or residence to bending of the system." 20. The Central Board of Direct Taxes by communication dated 22^nd November, 1985 addressed to Shri C.D. Patel, M.P., after seeking the opinion of the Ministry of Law and the Additional Solicitor General opined as under:- "the process of dyeing mercerising, dyeing, printing, water-proofing, etc., conducted in cotton fabrics, woollen fabrics and manmade fabric would amount to manufacturing". 21. It is al....