1986 PLP (Trib (PTD)

3. Before proceeding further we will reproduce the above‑referred S.R.O., in extenso: "S.R.O. 317(1)(78), dated 25‑3‑1978 ‑‑In exercise of the powers conferred by subsection (1) of section 60 of the Income‑tax Act, 1922 (XI of 1922) the Federal Government is pleased to exempt from the tax payable under the said Act so much of the profits and gains as are derived by an assesses from an industrial undertaking set up between the first day of April, 1978, and the thirtieth day of June, 1983, both days inclusive, for a period of five years beginning with the month in which the undertaking is set up or the commercial production is commenced whichever is the later.

2. The exemption under, this notification shall apply to an industrial undertaking which is‑‑ (a) set up in the divisions of Dera Ismail Khan and Malakand in the North‑West Frontier Province; (b) owned and managed by a company formed and registered under the Companies Act, 1913 (VII of 1913), having its registered office in Pakistan; (c) engaged in the manufacture of goods or materials or the subjection of goods or materials to such process; and (d) an undertaking the income, profits and gains of which are not liable to be computed to accordance with the rules contained in the Second and Third Schedules to the said Act: Provided that nothing contained in this notification shall be deemed to exempt from tax any dividend paid to a share‑holders out of any profits or gains exempted under this notification " We are principally concerned in this appeal with clause 2(c) of the S.R.O. The learned Departmental Representative adopted the same line of arguments as the Income‑tax Officer had followed for repelling the assessee's contentions. He drew our attention to the "Chairman's View" from the Annual. Report of the Company for the year 1982 wherein it is stated that the assessee assembles 100% components of Kawasaki imported in CKD condition. He further submitted that the learned Commissioner of Income‑tax (Appeals) was wrong in relying upon the decisions recorded in sales tax cases for determining the meaning of the word "manufacture" used in the S.R.O., inasmuch as, the Sales‑tax Act is a taxing statute; whereas the S.R.O. deals with exemptions from income‑tax allowed to certain industrial undertakings, and hence different conceptions prevail ' for defining the meaning of the word "Manufacture". He, then, himself drew our attention to the Law of Sales‑tax in Pakistan, by Raza Naqvi, 9th Edition, where at page 21 it Is stated as follows:‑‑ "The point for the first time arose in the case of `Pakistan Cycle Industrial Cooperative Society, Lahore, which used to sell its dealers different sets of spare parts of cycles separately." and contended that the abovenoted decision lends support to his contention that the process of assembling. is not manufacturing. In his submission, once an item is manufactured by various components, they lose their separate identity; whereas in the instant case, the component parts of the motor‑cycle assembled by the assessee, retained their individual identity and shape. Lastly, he urged that the time taken in assembling motor‑cycles from imported component parts is much shorter than what is expected to be spent in manufacturing of motor‑cycles‑ 5, Mr. I.N, Pasha, learned counsel for the assesses‑respondent on the other hand, submitted that in the assessment order the Income‑tax Officer has himself stated that the productions were carried out by untrained labour‑‑‑‑‑‑‑ and that it is evident from the record for production of 610 units for the period under consideration which clearly indicates that he had taken the assesses to be a manufacturer of motor‑cycles, which have been considered by the first appellate authority, and urged that the process of assembly produces a different entity having a new identity. He also urged that the Superior Courts of Pakistan have construed the word "manufacture" in several cases and they provide sufficient guideline for determining the issue in hand. Lastly, he urged that if assembly was not a manufacturing there was no necessity for the Central Government to specifically exempt the assembly of engines for trucks and buses as well as the assembly of chassis fitted with engine cowls, windshields and cafes (excluding bodies) for trucks and buses, vide item No. 112 of notification No. 9, dated 27th June, 1951. In short, counsel supported the impugned order of the learned Commissioner of Income‑tax (Appeals).

6. We do not find any substance in the contention of the learned Departmental Representative that the meaning of the word "manufacture" as construed by the superior Courts in sales‑tax cases, cannot be profitably referred to or adopted in the instant case. It is an undisputed fact that the word Manufacture" is not defined either in the Sales‑tax Act, 1951 or the S.R.O.; whereas it seems to us that the scope and extent thereof both for the levy of sales‑tax under the Sales‑tax Act and the exemption from tax under the notification in question are co‑extensive. The fallacy in the approach of the income‑tax Officer lies in it that he considered the assesses to have imported complete units of motor‑cycles in knocked down condition; whereas in fact the assesses had imported various parts or components of motor‑cycles in completely knocked down condition. The assesses thus, in our opinion, brought the motor‑cycles into being by putting the component parts thereof together. The components" To borrow the expression from judgment of the Allahabad High Court," by themselves considered individually or collectively do not constitute a motor‑cycle. It is when they are assembled that a motor‑cycle comes into being." Whatever may be the intention of the assessee in importing the various component parts of the motor‑cycle in CKD condition, the fact remains that it imported them for putting them together and selling the end‑product as a motor‑cycle. The assesses thus clearly falls under clause 2(c) of the S.R.O. The learned Departmental Representative could not produce before us the full text of the judgment passed in the case of 'Pakistan Industrial Co‑operative Society, Lahore' and hence, we do not stand in a position to derive full benefit from it or make any comments effectively thereon. A bare reading of the note from Rasa Naqvi's Commentry (referred to above) to which he has drawn our attention on the contrary, gives a clear impression that the department in that case sought to tax the assesses, who had sold to its dealers different sets of spare parts separately as a manufacturer but the Court did not approve of it. Moreover, it is evident from the various notifications and instructions issued by the Central Board of Revenue to its officers, from time to time, under the Sales‑tax Act that the assembling of certain parts into a machinery etc. is to be treated as a manufacturing process. (See for instance, item 112 (a) t (b) of Notification No. 9, dated 27‑6‑1951). The learned Commissioner of Income‑tax (Appeals) has, in our opinion, thoroughly considered the decisions referred to in his order and rightly reached the conclusion that the assesses is engaged in the manufacture reached goods or the subjection of goods to such process within the purview of clause 2(c) of the notification. The judgment of the Allahabad High Court in the case of 'Vijay& Cycle and Rickshaw Company' (supra) is a direct authority on the issue involved herein. In that case the Commissioner of Sales‑tax had issued a direction to the Sales‑tax Officer that sales‑tax should be assessed on the turnover of assembled cycles. The assesses objected to the proceedings on the ground that assembled cycles could not be treated' as manufactured cycles inasmuch as, the assembled cycles are prepared by putting together the different components in the possession of the assesses and what is sold were the component parts so put together: Or to put it otherwise, it was urged on behalf of the assessee that the process of manufacture did not take place at all. The Allahabad High Court, after referring to a large number of authorities, held as under:‑‑ "Reverting to the present case, it seems to us that a manufacturing process is involved when the component parts of a cycle are taken and put together. What emerges is an article known popularly as a cycle and commercially sold as such. It is new article, different from that out of which it is made. The components by themselves considered individually or collectively do not constitute a cycle. It is when they are assembled that a cycle comes into being. Unassembled components cannot be put to use to which a cycle can. The process of assembly produces, to use the felicitous language of Dixon, J., in Jack Zinader Pty. Ltd. (1949) 78 C L R 336, a different entity having a new identity. That is so, although the original parts are still identifiable and have not lost their basic for essential properties. The process of assembly is as much a part of the manufacturing process as the production of the components. It may be the end process, but nevertheless essential to the completion of the commercial commodities". The above decision furnishes a full and convincing answer to the various contentions raised on behalf of the Revenue. It is a case so close to the facts of the instant case that it would be simply wasting of time to deal with the issue in hand at any length afresh. We are in complete agreement with the reasonings adopted by their Lordships of the Allahabad High Court. Another case to which a passing reference may be made is the judgment of ‑the Bombay High Court in the case of "Tats Locomotive Engineering Co. Ltd." (1968) 68 1 T R 325 wherein, the assembling of automotive bus or truck chassis from imported parts in a "knocked down condition" was held to be manufacturer or production of an article.

7. In our opinion, the assembling of motor‑cycles by the respondent from the imported components in CKD condition tantamounts to manufacturing of motor‑cycles and hence, the learned Commissioner of Income‑tax (Appeals) has rightly allowed, the relief to the assesses by holding that the profits of the respondent‑company are exempt from, the tax payable under the Income‑tax Act, 1922. The only modification' which the impugned order requires is that a reference to clause (81) to the Second Schedule to the Income‑tax Ordinance, 1979 made therein should be taken as a reference to clause 2(c) of the S.R.0, 317(1)(78), dated 25‑3‑1978.

8. In the result, the appeal fails and is hereby dismissed. M. Y. H. Appeal dismissed.