R.R. Rastogi, J.
1. Messrs. Singh Engineering Works, hereinafter referred to as ' the assessee ', manufactures iron bars and rods out of ingots manufactured from scrap in its own electric furnace and billets purchased from Hindustan Steel Ltd., Iron and Steel Company and Indian Iron and Steel Company. In its assessments to income-tax for the assessment years 1970-71, 1971-72 and 1972-73, the assessee claimed relief under Section 80-I of the I.T. Act, 1961, hereinafter referred to as ' the Act', on its total manufacture. The ITO, on the other hand, allowed relief on the proportionate turnover of iron bars and rods out of ingots manufactured by the assessee itself and not on the turnover of iron bars and rods out of billets purchased by the assessee.
2. Being aggrieved, the assessee filed revision application under Section 264 of the Act before the CIT, Kanpur-I. The learned CIT by a combined order dated July 3, 1976, upheld the view taken by the ITO. Essentially, he relied upon the assessee's own past history. For the assessment years 1965-66 and 1966-67, similar question had come up in revision application before the CIT (Central), Delhi. A reference was made by the revising authority to the CBDT and on receipt of reply thereto, allowed relief on profits attributable to the production of iron bars and rods from ingots and steel castings manufactured by the assessee and not out of billets pur-chased from outside parties. In the assessment years 1967-68 to 1969-70, the same view was taken and no appeal was preferred against the same. The CIT, Kanpur therefore, held that the ITO was justified in allowing relief under Section 80-I on the proportionate turnover of iron bars and rods out of ingots and steel castings manufactured by the assessee only. The aforesaid assessment orders and the order made in revision by the CIT have been challenged in this writ petition.
3. It was submitted on behalf of the assessee by Sri R. R. Agarwal, advocate, that there was no basis whatsoever for making the distinction asdone by the authorities below and, secondly, that the orders made for earlier years would not be a bar to agitate the same matter in subsequent years. It was claimed that the assessee manufactures iron bars and rods which come within the category of ' iron and steel ' and there was no justification whatsoever for disallowing the relief claimed in respect of profits on the production of bars and rods from billets purchased from outside parties. On the other hand, the learned standing counsel submitted that the basis for classification was that there are two different manufacturing processes involved. As for the production of iron bars and rods from ingots and steel castings manufactured by the assessee in its own furnace, certain manufacturing processes are involved while that manufacturing process is not involved when billets are purchased from outside. It was claimed that iron bars and rods manufactured from billets purchased from outside would not come within Entry 1 of Schedule VI of the Act. It was, however, not disputed that the assessee is a priority industry.
4. Section 80-I of the Act reads as under :
'80-I. (1) In the case of a company to which this section applies, where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction from such profits and gains of an amount equal to eight per cent, thereof, in computing the total income of the company....... '
' Priority industry' has been defined in Section 80B(7) of the Act as under;
' (7) ' Priority industry' means the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule or the business of any hotel where such business is carried on by an Indian company and the hotel is for the time being approved in this behalf by the Central Government.'
5. Entry I of Schedule VI to the Act is as under:
' 1. Iron and steel (metal), ferro-alloys and special steels.'
6. From the relevant provisions extracted above, it would appear that relief tinder Section 80-I is allowed on profits and gains attributable to a priority industry and such relief is to the extent of 8 per cent. A priority industry, inter alia, is one which is engaged in the manufacture or production of any one or more of the articles or things specified in the list in the j Sixth Schedule. Entry 1 of that Schedule provides for iron and steel, ferro-alloys and special steel. It is not disputed that the assessee is a priority industry and is engaged in the manufacture or production of iron and steel. It manufactures or produces iron rods and bars from ingots, I steel castings and billets. The manufacturing process involved is that theraw material consisting of ingots, steel castings or billets is cut into pieces of specified lengths on a cutting machine. The cut pieces are processed through a reheating furnace under controlled temperature for a controlled period. Thereafter, the cut pieces are processed through a rough milling plant. The final processing is made in the rods milling plant. It is correct that the ingots and steel castings are manufactured by the assessee in its own electric furnance by milling scrap iron while billets are purchased from outside. The question is whether in respect of the irbn rods and bars produced or manufactured from billets purchased from outside, the relief under Section 80-I can be denied. To our mind, the answer to the question is in the negative, the reason being that entry 1 of Schedule VI does not speak of the source of raw material. Relief is allowed on the production or manufacture of iron and steel. If iron bars and rods manufactured or produced by the assessee are covered by this entry, the source of raw material becomes entirely irrelevant and immaterial. In this view of the matter, there was no rational basis for denying to the assessee the benefit of Section 80-I(1) of the Act in respect of the turnover of iron rods and bars manufactured or produced from billets purchased from outside. The impugned orders of the ITO and the CIT are, therefore, liable to be quashed to this extent.
Satish Chandra, J.
7. I have had the advantage of reading the judgment prepared by Rastogi J. I wish to add a few words.
8. Section 80B(7) defines ' priority industry ' to include the business of construction, manufacture or production of articles or things specified in the Sixth Schedule.
9. The question is whether making iron rods and bars from billets purchased by the petitioner from the market comes within the purview of the phrase ' construction, manufacture or production ' of iron rods and bars.
10. Iron rods and bars are obtained by the petitioner from ingots and steel castings manufactured by itself as well as from billets purchased from the market.
11. The ingots and steel castings or billets are cut into pieces of specified length by a cutting machine. The cut pieces are taken through a reheating furnace under controlled temperature and for a specified period of time. The cut pieces are then processed through a rough milling plant. The final processing is made in the rods milling plant. This yields iron rods and bars of required size and shape.
12. The broad distinction between manufacture and processing is that manufacture involves bringing into existence of a new product, a product which is of a different chemical composition or whose integral structure is different from the raw materials. Processing, on the other hand, isdoing specific acts to the raw material in order to change its shape or size, etc.
13. The making of iron rods and bars from billets purchased from the market may not be ' manufacture ' in its true sense, but the question' further is whether the involved processing constitutes ' construction or production '.
14. Production as distinguished from manufacture is nothing except bringing into existence a product after processing the raw materials in a manner which may not change the inherent quality or chemical composition of the raw material.
15. The legislature has deliberately used not merely the word ' manufacture ' but also ' construction or production ' along with ' manufacture '. The relevant phrase is not ' manufacture and production ' but ' manufacture or production or construction '. The processing to which the billets are put in order to make iron rods and bars is, in my opinion, ' production '.
16. I am hence in complete agreement with the order proposed by my learned brother.
BY THE COURT
17. The writ petition is allowed with costs. The impugned orders of the ITO and the CIT are quashed to the extent noted in our judgment, and it is directed that the assessee would also be allowed the relief under Section 80-I of the Act in respect of the turnover of iron bars and rods manufactured or produced from billets purchased from outside.