SUPREME
COURT OF INDIA
Ranbir Chandra (S. D. Sharma) for S. K. Dwivedi, for the Appellant : None, for the
Respondent
JUDGMENT
A. P. MISRA, J. :
This appeal challenges the decision of the Madras High Court in reference under section 256 (1) of the IT Act, 1961, in
which the following question was referred by the Tribunal at the instance of Revenue which
was adjudicated against it.
"Whether, on the facts and in the circumstances of the case, the Tribunal is
justified in law in holding that the manufacture of yarn would amount to manufacture of
textile within the meaning of Entry 21 of the Ninth Schedule and therefore, the assessee
is entitled to higher rate of initial depreciation ?"
2. This appeal is for the asst. yr. 1976-77. The respondent-assessee is a firm engaged in
the business of manufacture of yarn. It claimed higher rate of initial depreciation on the
machinery employed in the manufacture of yarn on the ground that its manufacturing
product, viz., 'yarn' falls under Item No. 21 of Ninth Schedule to the IT Act, 1961. The
view of the assessing authority as supported by the IAC was that the manufacture of cotton
yarn did not amount to manufacture of "textile". Yarn was the material or
component with which the "textiles" are manufactured and since in Item No. 21,
word "textile" is used, manufacture of yarn is not covered under Item No. 21.
The CIT(A) upheld (sic-reversed) the order of assessing authority and held 'yarn' is
covered under Item No. 21 thus assessee is entitled for the grant of higher rate of
initial depreciation. The appellate authority relied upon a decision of the Tribunal in
the case of Gopichand Textiles Mills Ltd. vs. ITO in which it was held that manufacturing
of "yarn" answers fully to the description referred in Item No. 21. Aggrieved by
the same, the Revenue preferred an appeal before the Tribunal. The Tribunal with reference
to its earlier decision and also with reference to the decision of the Calcutta High Court
in the case of CIT vs. Shalimar Rope Works (P) Ltd. (1980) 125 ITR 331 (Cal) : TC 28R.431,
where Item Nos. 32 and 33 of the Fifth Schedule of the IT Act were considered, upheld the
order passed by the first appellate authority. Revenue, thereafter, sought for reference
of the aforesaid question to the High Court which was referred by the Tribunal under section 256 (1) but the same was also
answered by the High Court against the Revenue. The present appeal is directed against
this order passed by the High Court.
3. Learned counsel for the Revenue submits that manufacture of cotton yarn does not amount
to manufacture of "textiles" since yarn is a material or component with which
"textiles" are manufactured it would not fall under Item No. 21. For ready
reference Item No. 21 of the Ninth Schedule is reproduced which reads as under :
"Textiles (including those dyed, printed or otherwise processed) made wholly or
mainly of cotton, including cotton yarn, hosiery and rope."
The Ninth Schedule was inserted by the Direct Taxes (Amendment) Act, 1974 w.e.f. 1st
April, 1975, but has been omitted by the Taxation Laws Amendment & Miscellaneous
Provisions) Act, 1986, w.e.f. 1st April, 1988. It is not disputed by the Revenue that in
case the item manufactured by the assessee, namely, 'yarn', if falls under Item No. 21,
namely, "textiles", the assessee would be entitled to a higher rate of
depreciation. We find the word "textiles" in it is not used in isolation but is
stretched by bringing in more in its company through the following words "including
those dyed, printed or otherwise processed made wholly or mainly of cotton, including
cotton yarn, hosiery and rope." Thus we find "textiles" as is understood at
common parlance or as is understood in its natural sense which is limited, is not
indicated here. The legislature has deliberately widened its sphere for a purpose to give
larger benefit to other items included in it by extending it to include even cotton yarn,
hosiery and rope to be understood as "textiles". It is always open for a
legislature to stretch or shrink or to give an artificial projection or slicing to any
word including one used for 'goods', to make it more meaningful to sub serve
to the
objectives it intends to achieve. That is why this inclusive clause brings in more goods,
which may not strictly come within the field of such goods. This is in order to give them
similar benefit or to make them equally treated. Similarly, "hosiery" and
"rope" could not but for their inclusion under this item could have been
classified as "textiles". Similarly may be "cotton yarn". It is true
that manufacture of cotton yarn is a stage earlier than manufacture of
"textiles" as understood commonly. In fact, cotton is the first stage, next
comes 'cotton yarn' which finally produces "textiles". But here we find
legislature intended to give higher rate of initial depreciation even to the manufacture
of goods which commonly as understood could not have been included as
"textiles". So, this entry has to be interpreted to sub serve to the intended
objective of the legislature. It is significant that "textiles" is included
under two items. One under Item No. 21 to which we are concerned and also under Item No.
22. This later Item No. 22 includes entirely different goods than what is under Item No.
21. Item No. 22 reads as under :
"Textile (including those dyed, printed or otherwise processed) made wholly or mainly
of jute, including jute twine and jute rope."
This even includes jute twine and jute rope to be "textile".
4. In CIT vs. Shalimar Rope Works (P) Ltd. (supra), the High Court was called upon to
interpret Item No. 33 of the Fifth Schedule under the IT Act, 1961. The question was
whether the assessee would be entitled to higher rate of development rebate under section 33 (1)(b)(B)(i) on the plant
and machinery installed for the purpose of the business of manufacture and production of
jute ropes and twines. Item No. 33 of the Fifth Schedule reads as under :
"Textiles (including those dyed, printed and otherwise processed) made wholly or
mainly of jute, including jute twine and jute rope."
This item is similar to Item No. 22 in the Ninth Schedule. The Court held :
"It is the finding of the Tribunal that the assessee has installed the plant or
machinery for the purposes of business of manufacture and production of jute ropes and
jute twines. Jute ropes and jute twines are included in Item No. 33 of the Fifth Schedule
and, therefore, it must be held that the assessee was entitled to the development rebate
under cl. (B)(i)."
5. In CIT vs. Vijaya Spinning Mills Ltd. (1983) 32 CTR (AP) 281 : (1983) 143 ITR 64 (AP),
this case interpreted Item No. 32 of the Fifth Schedule which is similar to Item No. 21 of
the Ninth Schedule. The Court held :
'Now, the assessee is a manufacturer of cotton yarn only. The question is, whether he
comes within the purview of cl. 32. The clause having first mentioned "textile made
wholly or mainly of cotton" proceeds to include "cotton yarn, hosiery and
rope", therein. The Department's contention is that for falling under cl. 32, it must
necessarily be "textiles made wholly or mainly of cotton including cotton yarn".
But, this interpretation would make the words "including cotton yarn"
superfluous because before cotton can be converted into textile it must first be converted
into yarn. It is difficult to conceive of a textile made directly from cotton i.e.,
without first converting the cotton into yarn. Further, if this interpretation were to be
accepted, the same interpretation must also be extended to the words "hosiery and
rope" occurring in the said clause. But, then, there can be no textiles made out of
hosiery, which is commonly understood as referring to clothes like banians, drawers, etc.,
or out of rope.'
6. In CIT vs. North Arcot District Co-operative Spinning Mills Ltd. (1984) 148 ITR 406
(Mad) : TC 28R.413, Entry 32 of the Fifth Schedule was the subject-matter of the writ
petition and the question was, similar to the present case, whether cotton yarn,
manufactured by the assessee is entitled for development rebate as higher rate of 35 per
cent by virtue of section 33
(1)(b)(B)(i). In this case the assessing authority rejected the claim of the
assessee on the finding that it was not manufacturing "textiles" which is the
item in Entry 32 but was manufacturing "cotton yarn". The Tribunal set aside and
upheld the assessee's claim to include yarn within the Entry 32. The view of the Tribunal
was upheld by the High Court.
Entry 32 of Fifth Schedule reads as under :
"Textiles (including those dyed, printed or otherwise processed) made wholly or
mainly of cotton, including cotton yarn, hosiery and rope."
This is similar to Item No. 21 of Ninth Schedule to which the present case concerns.
7. Thus, we have no hesitation to hold that 'yarn' manufactured by the assessee in view of
language used in Item No. 21 of the Ninth Schedule, would fall within the meaning of
"textiles". Thus, we do not find any error in the impugned order upholding the
grant of higher rate of initial depreciation on the 'yarn' manufactured by the assessee.
Accordingly, the present appeal fails and is dismissed. Since none appeared for the
respondent, costs on the parties. |
