ORDER
T.V.K. Natarqjachandran, Vice-President
1. These appeals by the assessee are consolidated and disposed of by a common order for the sake of convenience as they involve common grounds.
2. These appeals pertain to assessment years 1989-90 and 1990-91 and arise out of the separate orders of the CIT (Appeals) wherein, inter alia, he held that the assessee was not entitled to investment allowance under Section 32Aof the Act. All the grounds taken for the assessment year 1989-90 and the grounds 1 to 4 undertaken for the assessment year 1990-91 relate to the claim of investment allowance. The assessee is a resident company and follows financial year as the previous year.
3. During the previous year relating to the assessment year 1989-90, the assessee installed plant & machinery of Rs. 7,09,650 together with electrical installations totalling to Rs. 10,73,546. The assessee claimed, inter alia, both the depreciation and investment allowance on both these items. As per certificate filed, the plant & machinery have been erected and commissioned on 27-3-1989 and, therefore, the commercial activity for the assessment year 1989-90 was very much limited. The claim for investment allowance was rejected by the Assessing Officer because twisting and re-winding of synthetic yarn for which twister and re-winder machines were installed by the assessee did not amount to manufacture and the twisted and re-wound yarn was not a new product so as to be eligible for investment allowance. Even if it is regarded as processing of yarn, it is not a process on which investment allowance could be granted in terms of Section 32A because the quality of the product, the name of the product, etc., did not change in this process at all. In the assessment year 1990-91, the assessee claimed that it carried on texturising and twisting activities. Under this activity, the flat yarn is physically twisted under mechanical process and by this activity the yarn gets bulkness and straight and converts into different yarn commercially called ‘twisted yarn’. It is said that this yarn is a different commercial commodity and as such the processing of flat yarn amounted to manufacturing goods and eligible for investment allowance. The Assessing Officer held that the processing did not amount to manufacture of any new article or thing and the yarn continued to be yarn both before pressing and even after pressing. Since nothing new came out of it, the assessee was not entitled to investment allowance.
4. On appeal, the CIT(A) confirmed the decision of the Assessing Officer regarding the claim of investment allowance. He relied on the Full Bench decision of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd, v. ITO [1985] 152 ITR 429 wherein it has been held that dyeing, bleaching and finishing of fabric did not amount to manufacture or production of textiles. He has also relied on the observations of the Supreme Court in the case of Union of India v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791. Further, he stated that the judgment cited on behalf of the assessee reported in Empire Industries Ltd. v. Union of India AIR 1986 SC 662, Ujagar Prints v. Union of India [1989] 179 ITR 3171 (SC) and Collector of C.E. v. Eastend Paper Industries Ltd. [1990] 186 ITR 105 (SC) related to interpretation of statutory position in Central Excise. Following the ratio of the Punjab & Haryana High Court in the case of Niemla Textile Finishing Mills (P.) Ltd. (supra), he did not interfere with the decision of the Assessing Officer. In this connection, it is not out of place to mention that the Assessing Officer followed his decision taken for the assessment year 1989-90, for the assessment year 1990-91 also. Similarly, the CIT(A) followed his decision in appeal for the assessment year 1989-90, for the assessment year 1990-91 also. He pointed out that except the Delhi Bench decision of the Tribunal in the case of 1AC v. Varistha Udyog Ltd. [1990] 34 ITD 10, all the decisions cited by the assessee were the same as cited in the earlier assessment year 1989-90.
5. At the time of hearing, the learned Counsel for the assessee has been duly heard at great length. He has filed paper compilation containing umpteen number of decisions of Courts and Tribunal. The learned Departmental Representative, on the other hand, vehemently supported the orders of the authorities on this point.
6. We have duly considered the rival submissions, the record and the paper compilation filed. At page 31 of the paper compilation, the assessee has explained the modus operandi involved in this case as under :
PROCESS
Texturised Yarn
The raw material (POY) is unsuited for manufacture of fabric due to its inherent structure and properties. Texturising is a thermo mechanical process to stabilize the dimensions of POY and make it suitable for warp and weft operations in weaving. The POY threads are first passed through a yarn reed device where it is stretched to the required denier. It then goes through a cooling panel and a friction disc unit where it is twisted and for final setting. The coning oil is absorbed at various stages which gives some additional weight to the finished texturised yarn. The finished product is wound in cylinderical packages in the take up device, the packages are wrapped in polythene bags and packed in cartons for delivery.
Twisting
In the twisting process the texturised filament yarn is first loaded on Rewinder machines where it is wound on Aluminium bobbins. These bobbins are loaded on twisting machines. The spindles of the twisting machines revolved at Ground 9000-10000 RPM. The difference between cam speed and spindle speed results in the twisting of the yarn. The twisted yarn is received on paper tubes which are wrapped in Polythene bags, packed in cartons and delivered. This process of twisting is required for specific use as warp yarn for weaving, where the yarn is repeatedly jerked and requires sufficient strength and tight binding.
It is seen from the above description that the raw material (POY), which is unsuitable for manufacture of fabric, undergoes texturising which is a thermo mechanical process of stretching, heating, cooling, twisting and untwisting and heating for final setting and with addition of oil it becomes texturised yarn which is a raw material for manufacture of fabric. It also undergoes twisting process by revolving on aluminium bobbins @ 9000-10000 RPM to produce warp yarn for the purpose of weaving. Thus, the processing of texturised yarn or warp yarn continues to be a raw material for the manufacture of fabric or weaving of fabric. Now, we shall look into the various decided case law relied upon by the learned Counsel for the assessee to see whether it amounts to manufacture or not. The case of CIT v. Bipinali Textiles (P.) Ltd. [1991] 189 ITR 61 (Bom.) turned on twisting and crimpling of yarn regarded as manufacturing activity as per Board’s circular on this point. Hence, the High Court dismissed the issue as academic. The Board’s circular dated 22-11-1985 related to processing of dyeing, mercerising, printing, water proofing, etc. conducted on cotton fabrics, woollen fabrics and manmade fabrics which were held to be manufacture but this is based on the opinion of the Ministry of Law and Addl. Solicitor General as communicated by the Board. The Tribunal (Ahmedabad Bench) in the case of Nishit Synthetics (P.) Ltd. v. ITO [1984] 7 ITD 486 allowed investment allowance and deduction under Section 80J for conversion of flat yarn into twisted yarn holding it to be manufacture of new article. In the case of Varistha Udyog Ltd. (supra), the twisting of yarn as job work was held to be manufacture. In the case of CIT v. J.B. Khanvar & Sons [1987] 163 ITR 394 30 Taxman 225 (Guj.), the work of dyeing and printing on grey cloth was held to be manufacture or production of article. In the case of Ujagar Prints (supra), the Supreme Court (Bench of 5 Judges) laid down the test of manufacture. The test is whether the change or the series of changes brought about by the process take the commodity to the point where commercially it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the process. In short, the process of bleaching, dyeing, printing, sizing, shrink proofing, water proofing, rubberising and or gandi processing carried on in respect of cotton or manmade grey fabric amounted to manufacture for the purpose of Section 2(f) of the Central Excises & Salt Act, 1944. In the course of the judgment, the Supreme Court itself has observed at page 321 of head-notes that “The principles are clear. But difficulties arise in their application in individual cases. There might be border-line cases where either conclusion with equal justification may be reached. Insistence on any sharp or intrinsic distinction between ‘processing’ and ‘manufacture’ results in an over-simplification of both and tends to blur their interdependence”. The decision of the Madras Bench of the Tribunal in the case of ITO v. J.K.K. Textile Processing Mills [IT Appeal No. 2552 (Mad.) of 1986 dated 23-7-1990] relates to bleaching, dyeing, etc., of grey cloth, which is not directly applicable to the case of the assessee. The decision of the Hyderabad Bench of the Tribunal in the case of ITO v. Maddi Satyanarayana & Co. (P.) Ltd. [IT Appeal Nos. 191 to 195 (Hyd.) of 1983 dated 30-12-1983] relates to flue cured tobacco into redried tobacco, which is not applicable to the case of the assessee. The decision of the Tribunal (Ahmedabad Bench ‘A’) in the case of Alchemic (P.) Ltd. v. ITO [1984] 9 ITD 396 related to recycling of spent caustic lye reprocessed by sedimentation, settling, evaporation, etc., to produce caustic lye. This is also not applicable to the case of the assessee. The decision of the Spl. Bench (Bombay) of the Tribunal in the case of Daks Copy Services (P.) Ltd. v. ITO [1989] 30 ITD 223 related to grant of investment allowance on xerox and photo copying machine. This decision also is not applicable to the case of the assessee. The decision of Madras High Court in the case of CIT v. Perfect Liners [1983] 142 ITR 654 related to purchase of rough castings, polishing and supplying them for use as component part of internal combustion engines and it was held to be manufacture. This decision also is not applicable to the case of the assessee. The decision of the Calcutta High Court in the case of CIT v. Union Carbide India Ltd. [1987] 165 ITR 550 was concerned with processing of shrimps which is saleable in foreign market and, therefore, it is also not applicable to the case of the assessee. The decision of the Tribunal in the case of Dy. CIT v. Shree Lalit Fabrics (P.) Ltd. [1992] 198 ITR 190 (did.) (SB) was concerned with investment allowance by performing various processes such as bleaching, dyeing and printing of grey cloth. Hence, this decision is also not applicable to the case of the assessee. The decision of the Tribunal (Delhi Bench ‘A’) in the case of Jeevan Thread Mfg. (P.) Ltd. v. ITO [1992] 198 ITR 63 (Trib.) Delhi was concerned with manufacture of sewing machine threads. The yarn purchased is bleached and dyed in various colours. Even this decision is not applicable to the case of the assessee. The decision of the Rajasthan High Court in the case of CITv. Best Chem & Limestone Industries (P.) Ltd. [1993] 69 Taxman 503 was concerned with grant of investment allowance on conversion of lime-stone into lime and limedust by stone crusher. This decision in also not applicable to the case of the assessee.
7. In the case of Delhi Cloth & General Mills Co. Ltd. (supra), the Supreme Court was considering the question of manufacturing of vanaspati from raw materials. In that connection, the Supreme Court considered the definition of “manufacture”. At page 791, the Supreme Court observed that the producers of vanaspati cannot be held to manufacture some kind of “non-essential vegetable oil” within item 12 by applying to the raw material purchased by them the process of neutralisation by alkali and bleaching by activated earth and/or carbon. To say that “manufacture” is complete as soon as by the application of one or more processes, the raw material undergoes some change is to equate processing to “manufacture” and for this there is warrant in law. The word “manufacture” used as a verb is generally understood to mean as “bringing into existence a new substance” and does not mean merely “to produce some change in a substance”, however minor in consequence the change may be. In other part of the judgment, the Supreme Court pointed out that ‘The ‘manufacture’ which is liable to excise duty under the Central Excises and Salt Act, 1944 must therefore be the “bringing into existence of a new substance known to the market”. In short, the Supreme Court held that the definition of “manufacture” in Section 2(j) does not equate mere “processing” to “manufacture”. At page 795 of the judgment, a passage from an American judgment was reproduced, which reads as under :
‘Manufacture’ implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinctive name, character or use.
Even from the above-quoted American judgment, it is patently clear that though ‘manufacture’ implied a change but every change was not manufacture though every change of an article is the result of treatment, labour and manipulation. There must be transformation into a new and different article having a distinctive name, character or use. In view of the judgment of the Supreme Court in the case of Ujagar Prints (supra) highlighting the emergence of a different commodity than the original commodity, any processing which brings about that change would be regarded as manufacture but the fact remains that the finished texturised yarn or warp yarn as such is not an end-product but still a raw material for the purpose of manufacture of fabric or weaving fabric. Therefore, the question whether the processing of goods amounts to manufacture of goods or not would depend upon the facts and circumstances of each case. Even while describing the processing involved in the case of the assessee, it is clear that despite the raw material (POY) undergoes some change, but yet it continues to be the suitable raw material for the manufacture or weaving of fabric. Viewed from this context, the processing does not amount to manufacture at all. The test of manufacture laid down by the Supreme Court in the case of Delhi Cloth & General Mills Co. Ltd. [supra) clearly shows that even a series of changes brought about by the processes should take the commodity to the point where it is commercially recognized as distinct and new article which has emerged as a result of the processes. Judged from this test of manufacture, the processed yarn continues to be the raw material for the purpose of manufacture of fabric or weaving of fabric, with which we are concerned. It is for this reason that the Supreme Court as indicated above has highlighted the fact that in border-line cases either conclusion could be drawn with equal justification and there could be no sharp or intrinsic distinction between processing and manufacture. In view of the rulings of the Supreme Court, the decisions of the Tribunal in Nishit Synthetics (P.) Ltd. ‘s case (supra) and Varistha Udyog Ltd. ‘s case (supra) would have to yield the, ground in favour of the judgment of the Supreme Court. In this view of the matter, therefore, we uphold the findings and conclusions and the decision of the authorities that the assessee is not eligible for investment allowance.
8. The other ground, which relates to assessment year 1990-91 alone, pertains to claim of stamp duty and filing fees paid to the Registrar of Companies for increasing the authorised capital. The Assessing Officer disallowed stamp duty of Rs. 40,000 and filing fees paid to Registrar of Companies of Rs. 5,250 as capital expenditure. On appeal, the CIT(A), relying on the judgment of the Bombay High Court in the case of Richardson Hindustan Ltd. v. CIT [1988] 169 ITR 5161 and several other decisions, confirmed the addition.
9. At the time of hearing, the learned Counsel for the assessee and the learned Departmental Representative have been duly heard. Respectfully following the judgment of the Bombay High Court, we uphold the order of the CIT(A) on this point.
10. In the result, the appeals are dismissed.