COMMISSIONER OF INCOME TAX Vs. LAKHTAR COTTON PRESS COMPANY PRIVATE LIMITED

JUDGEMENT

(1.) These two references relate to the assessment years 1973-74 (Samvat year 2028) and 1974-75 (Samvat year 2029). The assessee is a private limited company carrying on business in ginning and pressing of cotton. Admittedly more than 80 per cent. of its income is from pressing charges recovered from customers and the balance relates to ginning charges. The ITO treated the assessee as an "industrial company" within the meaning of s. 2(7)(c) of the Finance Act, 1973 . That section in so far as we are concerned, reads as under :

(2.) It is not necessary to notice the Explanation to the said sub-section as it is an undisputed fact that more than 80 per cent. of its income derived by the assessee is from pressing charges recovered from its customers. The Commissioner acting in exercise of the powers under s. 263 of the I.T. Act, 1961, felt that the assessee could not be said to be an "industrial company" as more than 80 per cent. of its income was from pressing charges and ought to have been charged to tax at 65 per cent. In taking this view, he refused to place reliance on the decision of this court in CIT V/s. Ajay Printery Pvt. Ltd., 1965 58 ITR 811. After distinguishing the said decision on facts, he placed reliance on the decision of the Punjab High Court in Patel Cotton Co. Pvt. Ltd. V/s. State of Punjab, 1964 15 STC 865, to which a reference is found in the decision of the Kerala High Court in CIT V/s. Casino (Pvt.) Ltd.,1973 91 TIR 289 at p. 297. The Punjab High Court took the view that no manufacturing process was involved in ginning cotton as the process of ginning did not create any new or distinctive commodity. Relying on the observations reproduced from the decision in Raghbir Chand Som Chand V/s. Excise and Taxation Officer, 1960 11 STC 149, that every change is not manufacture, in spite of the fact that every change in an article may be the result of treatment, labour and manipulation, the Commissioner came to the conclusion that "raw cotton still remains raw cotton even if it is ginned or pressed" and, therefore, it cannot be said that ginning and pressing of cotton is a manufacturing process within the meaning of the definition of "industrial company" reproduced earlier. In this view, he held that the order passed by the ITO was erroneous, in so far as it was prejudicial to the interest of the Revenue, and called for the exercise of power under s. 263 of the I.T. Act, 1961; he, therefore, held that the assessee was not an "industrial company" within the meaning of s. 2(7)(c) of the Finance Act, 1973 . Accordingly, he directed the ITO to levy tax at the rate of 65 per cent. as against 55 per cent. already charged. The assessee feeling aggrieved by the said order carried the matter, in appeal to the Income-tax Appellate Tribunal, Ahmedabad (Bench B). The Tribunal, placing reliance on the decision of the Punjab High Court in Patel Cotton Co. Pvt. Ltd., 1964 15 STC 865, and the decision of the Kerala High Court in Casino (Pvt.) Ltd., 1973 91 ITR 289, came to the conclusion that ginning of cotton does not amount to manufacture. So also, it held that pressing of cotton also did not amount to manufacture. Then pointing out that the decisions on which the Revenue relied dealt with only the manufacturing aspect, it concluded that pressing of cotton would fall within the expression "processing of goods" within the meaning of s. 2(7)(c) of the Finance Act, 1973, and, therefore, the order of the Commissioner directing levy of tax at the rate of 65 per cent. instead of 55 per cent. could not be sustained. Accordingly, the appeals in respect of both the assessment years were allowed by the Tribunal. The Revenue feeling aggrieved by the said decision of the Tribunal in the two appeals sought the present two references. As the question involved in both the references is identical, namely :

(3.) We proceed to dispose of them by this common judgement. We may, however, state that in Reference No. 245 of 1978, the relevant section is s. 2(8)(c) of the Finance Act, 1974, and except for this difference, in substance, the question involved in that reference is the same because the definition of industrial company in s. 2(8)(c) of the Finance Act, 1974, is the same.