1983 PLP 49 (PTD)

NASIR ASLAM ZAHID, J.

This case related to assessment year 1965-66. The applicant used to make starch, cattle-feed and corn-oil from maize. The applicant's case before the Income-tax officer was that it was, entitled to rebate of 10% of super tax payable by it on its income under clause A-1 (v) Part II, Schedule IV of the Finance Act, 1965, read with income-tax Act, 1922. The said provision reads as follows:- ..(v) a rebate of 10 per cent shall be allowed in the case of a company to which clause (i) applies in respect of income profits and gains to which subsection (9) of section 10 of the income-tax Act, 1922 (XI of 1922) applies or which are derived by it from the processing, freezing, preserving and canning of food, vegetables, fruit, grain, fish and poultry;" The Income-tax Officer rejected the claim of the applicant on the ground that the assessee was a manufacturer of oil which did not mean processing of food and that the word "manufacturing" was clearly distinguishable from the word "processing". An appeal was filed by the assessee which was dismissed by the Appellate Assistant Commissioner by order dated 21-12-1970. A further appeal was filed before the Income-tax Appellate Tribunal which also came to he dismissed by the Tribunal's order dated 28-7-1971. The Tribunal also took the view, that obtaining of starch, cattle feed and corn-oil from maize by the appellant company amounted to "manufacture" and it was not merely "processing- and as such the applicant could not claim the rebate under the aforesaid provision of law. The reasoning of the Income-tax Appellate Tribunal was as follows:- "In our opinion the context in which the word processing has been used and the mention of other modes prescribed alongwith it clearly indicates, that the method or the operation should be such that the subject-matter of the operation continues intact. There should be no disintegration of the goods processed upon nor should it totally disappear. If this happens then the operations carried out, is our opinion, would not amount simply to processing but to manufacturing which according to the various judicial pronouncements encompasses in sitself an idea whereby some new things come into existence after a number of operations. The change that takes place after the opera tions is of a very material nature, the object being to change the identity of an article into that of another so as to make the newly formed substance Marketable. This clearly leads us to the conclusion that manufacturing is a further goal which is achieved by a number of processes, step by step. In the present case for example, the washing of maize may be a process and clearing would be another while pressurising through machinery may be a third process. The cumulative effect of these three processes would undoubtedly he manufacturing of totally distinguishable substance from the original maize grain. In our view, therefore, if the appellant had permitted any one of the above processes and had derived income during the course, there of the above concession may have been available to the appellant but after all the three processes are applies the multiple activity no more remains a processing activity. In fact it turns into a manufacturing activity and as such goes out of the ambit of the concession granted."

2. It appears from the Tribunal's order that the Tribunal came to the conclusion that the operations carried on by the applicant amounted to "manufacturing" and not "processing". In the present application under section 66(1) of the Income-tax Act, 1922, the applicant sought the opinion of this Court in respect of the following question:- Whether the Tribunal was justified in holding that the applicant was not entitled to a rebate of 10% on the super-tax payable by it by virtue of clause A-1(v), Part II, Schedule IV of the Finance Act, 1965?" However, through an application C. M. A. No. 289182, the aforesaid question of law referred to this Court was sought to be reformulated. This application was granted by consent of the two parties and the question of law new before this Court for its opinion is as follows:-_ "Whether the Tribunal was justified in holding that the applicant was not entitled to a rebate of 10% on the super-tax payable by it by virtue of clause A-I(v) Part 11, Schedule IV of the Finance Act, 1965, on the ground that the applicant was "manufacturing and not "processing"-- (a) starch; (b) cattle-feed; and (c) corn-oil."

3. Income-tax Appellate Tribunal was of the view that the operation carried on by the applicant company for the production of starch, cattle feed and corn-oil from maize were not "processing" but amounted to "manufacturing", and a distinction was dawn between these two orations, namely, processing and. manufacturing. According to the Tribunal, the context in which the word "processing" had been used in the aforesaid legal provision indicated that the method for the operations should such that the subject-matter of the operations continued intact there should be no disintegra tion of the good process-ed upon nor it should totally appear; "manufactur ing" is an operation whereby some new thing comes into existence after a number of operations

4. We have heard Mr. Khalid Anwar, learned counsel for the applicant and Mr. Nasrullah Awan, learned counsel for the Department. According to learned counsel for the applicant, an unnecessary distinction was sought to be made by the Tribunal between "processing and "manufacturing", there being no occasion or necessity for such distinction as the word "manu facturing" does not appear in the aforesaid legal provision. Both the learned counsel referrer: to the dictionary meaning of the word "process". Learned counsel for the applicant also relied upon the following case law:-.- (a) Pakistan v. Muhammad Aqil (P L D 1960 S C 4) in which it was held that processes of dyeing and glazing of tanned leather made from sheep-skins were calculated to pra6ucc goods which would fall within the description of the first of the two categories of the tanned leather specified in item 3 of First Schedule to the Central Excises and Salt Act of 1944, and as such the said goods were excisable and under section 3 of the 1944 Act the authorities could levy and collect duties upon such goods. (b) Colony Textile Mills Ltd. ,.,. Commissioner of Sales Tax (1980 P T D 201). In this judgment, the Supreme Court of Pakistan held that after going through the process of blowing, cotton waste becomes capable of being sold in an acceptable form to satisfy the want of manufacturing carpets, durries, etc. and hence cotton waste was a manufactured product. (c) State of Travancore-Cochin v. S. V. C. Factory (A I R 1956 S C 333). This judgment was cited by learned counsel for the applicant as in this case Supreme Court of India had described the operation by which raw cashew-nuts were converted into cashew-nut oil as a "process". Admittedly cashew-nut was consumed by the respondents while making the new article, namely, cashew-nut oil. (d) Commissioner of Income-tax v. Tata Locomotive & Engineering Company Limited (1968) 68 I T R.

325. In this judgment, the Bombay High Court while observing that the word "manufacture" has a wider and also a narrower connotation, had this to say:- "In the wider sense it simply means to make, or fabricate or bring into existence an article or a produce either by physical labour or by power. The word "manufacturer" in ordinary parlance would mean a person who makes, fabricates or brings into existence a product or an article by physical labour or power. The other shade of meaning which is the narrower meaning implies transforming raw materials into a 'commercial commodity or a finished product which has an entity by itself, but this does not necessarily mean that the materials with which the commodity is so manufactured must lose their identity. Thus both the words "manufacture" and "produce" apply as well to the bringing into existence of something which is different from its components. One manufactures or produces an article which is necessarily different from its components." From a perusal of the dictionary meanings, and the judgments cited by learned counsel for the applicant, it would appear that the same operation or operations can be termed both as "process" as well as "manufacture". Further it is not necessary that for an operation to be called "manufacture", the raw material must lose its identity. We are, therefore, of the view that the Income-tax Tribunal was not right in creating a distinction between the word "processing" and "manufacture" in the circumstances of the case. The operations carried on by the applicant company in the conversion of maize into starch, cattle feed and corn-oil could be termed as "process" and also as "manufacture". To this extent the reasoning of the Income-tax Appellate Tribunal was wrong and the applicant could not be disentitled to the rebate only on the ground that the applicant was "manufacturing" and not "processing" starch, cattle feed and corn-oil.

5. We are, however, of the view that the applicant has not entitled to the rebate in the circumstances of the instant case. The words that are used in the aforesaid legal provision are "processing", "freezing", "preserv ing and canning". It is apparent that by the use of these words, the intention of the Legislature was that rebate would only be allowed ir, case the item mentioned therein i. e., food, vegetable, grain, meat, fish and poultry retained their identity and were not consumed so as to create or produce a new item. Admittedly the operation of freezing, preserving of canning of these items would not change their identity and, therefore, the word "processing", as used in the aforesaid legal provision, is also to be interpreted or understood in the same manner, i. e., the identity of the raw material is not destroyed in the operation or operations.

6. The reformulated question is answered in the negative. However, for the view that we have taken in para. 5 of this judgment, we consider it necessary to answer also the question originally referred through this application under section 66 of the Income-tax Act, 1922. As we are of the view that the applicant was not entitled to the rebate for the reasons recorded by us in para. 5 of this judgment, the original question answered in the affirmative. There will be no order as to costs. Order accordingly.