1. The assessee is in appeal against the order dated 4-10-1982 of Shri S.S.N. Moorthy, the AAC, who dismissed the appeal against the order dated 31-7-1981 of Shri K. Rajaram, the ITO.2. The relevant facts in brief are that the assessee is a registered firm. The previous year relevant for the assessment year 1980-81 ended on 31-12-1979.
The business of the assessee is dealing in ginning activity for hire charges. The assessee filed the return of income for the assessment year under consideration and thereby made claims, inter alia, under Sections 80J and 32A of the Income-tax Act, 1961 ('the Act') claiming itself to be a new industrial undertaking under the provisions of the Act and reliance was placed on the basis of the claim contained in the letter dated 31-7-1981 and also on the decision in the case of Chowgule & Co. (P.) Ltd. v. Union of India AIR 1981 SC 1014.
3. The ITO did not accept the aforesaid claims of the assessee and thereby held that ginning of cotton (cotton ginning) did not amount to manufacture but was only the stage of processing and production of any article was also ruled out in the case of the assessee ; that since neither manufacture nor production of any article was found in the process of ginning, the application of Section 80J is absolutely ruled out and was not applicable for the claim in this case. Accordingly, the claim of the assessee was rejected by him on these facts and circumstances relying on the decision in the case of CSF v. Mori Bilas Rai & Sons 21 STC 1720 (SC) and Patel Cotton Co. (P.) Ltd. v. City of Punjab 15 STC 865 (Punj).
4. In appeal, the assessee failed as the AAC upheld the order of the ITO on the grounds that the activity of industrial undertaking should be one of processing or manufacturing and it should result in a product which was distinct from the earlier one and it should be trade-worthy and marketable product ; that the case of the assessee did not fall squarely under the above requirements and reliance was placed in the decision of the Supreme Court in the case of Chowgule & Co. (P.) Ltd. (supra) and that of Patel Cotton Co. (P.) Ltd. (supra).
5. The assessee, being aggrieved and dissatisfied for the dismissal of the appeal by the AAC, has preferred this appeal before the Tribunal.
6. Shri Jayakumar, the learned counsel for the assessee contends that the impugned order of the AAC on the issues referred to above is unjust and opposed to law ; that the assessee is a manufacturing concern and deduction under Section 80J and under Section 32A should be allowed ; that the AAC ought to have held that the observation in the case of Chowgule & Co. (P.) Ltd. (supra) squarely applies to the facts of the case. Reliance is placed on the decision in the above case.
7. On the other hand, Shri C.S. Padmanabhan, the learned departmental representative contends that no element of 'manufacture' is involved in ginning the cotton and, therefore, the assessee is not at all an industrial undertaking, which is entitled to relief under Section 80J.He further contends that on merits, the assessee is to fail as the assessee is ginning the cotton of its customers on payment of charges or wages by them. Relief under Section 80J is to be provided to the assessee-industrial undertaking which dealt in the articles manufactured or produced by such assessee in the previous year relevant for the assessment year. He further contends that at the most in the case of the assessee, processing is involved and no manufacturing process at all is there. He further contends that the cases in the matters of the Sales Tax Act cannot be followed or applied in the matters of the Act for understanding and talcing the meaning of the words 'manufacture 'or' production' which is therein Section 80J. He relies on the observations in the case of CIT v. Casino (P.) Ltd.  91 ITR 289, 293, 298 and 300 (Ker.) for the proposition that the interpretation or meaning taken by the Courts in other statute, namely the Sales Tax Act should not be taken or imposed for the terms or words for the same purpose under the Act. Further, the term or words 'manufacture, production of articles', will be or are to be understood in the popularly understood meaning of the term or words. When seeds are removed from raw cotton, it cannot be said that there is manufacture of lint cotton, it can only be said that there has been a processing of raw cotton into lint cotton. In the Act, the words 'manufacture 'and' processing' of goods or articles are used to indicate different types of activities which is evident from the provisions under Section 109 of the Act. Reliance is also placed on the various Finance Acts including the Finance (No. 2) Act, 1980. The learned departmental representative distinguished the case in State of Punjab v. Chandu Lal Kishori Lal AIR 1969 SC 1073, stating that vide this decision their Lordships held that ginning of cotton is merely a manufacturing process and, therefore, no article is said to be manufactured or produced. And relief under Section 80J can be allowed if there is manufacture or production of articles by the industrial undertaking and the assessee deals in such articles. He further contends that in deciding the issues involved in this appeal, the decisions relied upon by the assessee are of no help as these are not the cases falling under the Act and, therefore, the cases decided by the Hon'ble Supreme Court or High Court under the Act on the issue are to be followed in deciding the issue whether the assessee is an industrial undertaking entitled to relief under Section 80J and under Section 32A. He relies on the order of the ITO, the decisions in Casino (P.) Ltd.'s case (supra), at page 293 Chandu Lal Kishori Lal's case (supra) and Section 109(iii).
8. In rebuttal, Shri Jayakumar, the learned counsel for the assessee, contends that in ginning of cotton different marketable commodity is produced and, therefore, manufacture (and not production) of article or thing is there as required for the purpose of Section 80J relief.
However, he has no reply on merits to the contention raised by the learned departmental representative when he (departmental representative) says that the assessee has not manufactured any article or goods in the previous year relevant for the assessment year under consideration as it has merely ginned cotton on charges amounting to Rs. 55,457 since it collected or received this amount as ginning charges from its customers. Therefore, if at all ginning cotton is to be taken as manufacture, then it is to be so in the hands of the customers of the assessee. Except stating that if the assessee succeeds on legal proposition as argued by him then merits of the case become immaterial. However, he admitted that whatever the departmental representative states is correct in view of the fact that the balance sheet shows a sum of Rs. 55,457 as ginning charges which apparently means that the assessee took the sum as its wages for ginning cotton of its customers. He further contends that even in view of these facts, the assessee is an industrial undertaking on account of cases relied upon by him and entitled to relief under Section 80J.9. We have heard the rival contentions and have gone through the record before us. For deciding whether the assessee is an industrial undertaking for the purpose of relief under Section 80J, we have to see the provisions of Section 80J(4), which apply to an industrial undertaking for this purpose. The assessee is admittedly an industrial undertaking and, hence, we have to see whether it fulfils or satisfies all the conditions of Section 80J(4)(iv), which is reproduced hereinafter : in a case where the industrial undertaking manufactures or produces articles, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power : The case of the assessee, falls under Section 8OJ(4)(iv) being an admitted position, as stated above, in view of the fact that the assessee is an industrial undertaking and fulfils all the conditions of this section except that of Clause (iv) of it. Thus, we have to see that whether the assessee manufatures or produces articles as there is no dispute that the assessee has employed ten workers as required under this section in the previous year relevant for the assessment year under consideration.
10. In the previous year relevant for the assessment year under consideration, the assessee has shown in the balance sheet an amount of Rs. 55,457 as ginning charges received from its customers, who came to the assessee with the cotton for ginning. When this is so, then, there is no question of manufacturing or producing the articles as required by Section 80J(4)(iv). Because, for the purpose of this section, the assessee should be the owner of the machinery, plant and of raw material used in the manufacturing or producing the articles and should also deal in such articles. If either of these is missing, then there is no manufacture or production of articles as required by the provisions of Section 80J(4)(iv).
11. The learned counsel for the assessee has not disputed the factual position that in the previous year relevant for the assessment year under consideration, the assessee has merely ginned the cotton of its customers for which it has collected or received the amount of Rs. 55,457 from them. Accordingly, in view of these facts and circumstances, we hold that the assessee has no case for the relief under Section 80J(4)(iv).
What to say of it, even we are having our doubts being the assessee an industrial undertaking on the facts and circumstances of the case or on merits. The reasons are that on merits or totality of the facts and circumstances of the case, as stated above, the assessee is not engaged in the manufacture, production or processing of articles or goods, rather it is engaged in the business of processing the goods. The business of manufacture or production or processing the goods is not synonymous to being engaged in manufacture or production of articles or goods. Since the phrase or term engaged in the manufacture, production or processing of goods, postulates direct involvement in manufacture, production or processing of goods. Therefore, it will not include the case where the assessee gets the goods produced or manufactured or processed by an outside agency or prepared or processed for an outside agency. In other words, for an assessee to be an industrial undertaking, it, he or she should be the owner of the machinery and plant, raw material used for manufacture, production or processing of goods or articles ; moreover, such assessee should also deal in such articles and goods.
This is not there in the case of the assessee as it has processed the goods of its customer in ginning the cotton for wages. Hence, the assessee is not engaged in manufacture, producing or processing of the goods or articles though there is probability of its being engaged in the business of processing of the goods in ginning the cotton of its customers. As this is an appeal of the assessee and there is no cross-appeal of the revenue on the issue that whether the assessee is an industrial undertaking rather it is an admitted position that the assessee is an industrial undertaking and, therefore, we debar or stop ourselves over here and limit our decision to the issue that whether the assessee is entitled to relief under Section 80J(4) or not.
12. The general question to be answered by us is whether ginning cotton is manufacture or production of the articles. The terms 'manufacture and production of article' are not synonymous to each other. The manufacture of article or thing is to bring into being a thing or article and it is synonymous with 'to make'. Thus, a thing or article is manufactured from raw material by the mechanical and chemical process or processes and the resultant end of such process or processes is manufacture of an article or thing. But, production of a thing or article can come into being or in existence by natural, biological, chemical and mechanical processes, namely, plants, trees, crops, grains, fruits, etc., are produced by natural, horticultural, agricultural, chemical and mechanical process and processes. For the purpose of production of an article, seed, earth water and heat, light, etc., are essential and production can be there by natural process, for instance, forest, trees, wild plants are produced by nature itself under natural processes. Thus, production or manufacture of a thing or article are different terms and they are creation of different process or processes or mixed process or processes. Manufacture and production are the outcome of the process or processes. Therefore, such processes are means and not ends and the end or ends is manufacture or production of articles and things. In view of our above discussion, we hold that manufacture and production are not synonymous. Further, manufacture of production of an article or goods is not synonymous to process of manufacturing or process of producing of an article. The processing of articles and goods is different than manufacture or production of an article or good. In the processing of goods, goods are there merely for refining, polishing, repairing and maintaining.
13. In the case of the assessee, we have to decide whether ginning the cotton is manufacture or production of an article which we decide that in ginning of cotton there is no question of production of an article, in view of the facts stated above. Therefore, we hold that the representatives of the parties are right in conceding before us that in the case of the assessee, the Tribunal is to decide whether there is manufacture or not as there is no production of an article or thing in ginning the cotton.
14. We have already stated above that what is meant by manufacture of an article or thing. Therefore, we have to decide whether it is so in the case of the assessee as contended by the assessee's counsel or otherwise as is contended by the learned departmental representative in challenging the contentions of the assessee's counsel.
15. Shri Jayakumar, the learned counsel for the assessee contends, relying on the decisions in sales tax matters that ginning cotton is manufacture of the article as different commercial commodity is there in the shape of seed of cotton and ginned cotton while according to Shri Padmanabhan (departmental representative), ginning cotton is nothing else than separation of cotton into seed and ginned cotton. In other words, it is bifurcation by mechanical process of raw cotton into its parts, i.e., seed and ginned cotton. Thus, ginning cotton or cost on ginning is merely a process and, therefore, there is no manufacture of article or thing. The manufacturing process and manufacture of thing or article are not synonymous to each other, rather these differ with each other. Manufacturing process may lead to manufacturing a thing or article or may not. Therefore, manufacturing process and manufacture of a thing or article cannot be taken as synonymous and in particular for the purpose of relief under Section 80J. For it to be an industrial undertaking, it has to fulfil all the four conditions laid down therein. An assessee who deals in manufacturing process or processing of goods can be held to be an industrial undertaking, but it cannot also be held that such industrial undertaking is entitled to relief under Section 80J. For this purpose, such assessee which is an industrial undertaking has to satisfy all the conditions laid down in Section 80J(4) and one of these is that such industrial undertaking should produce or manufacture articles. Pumping oil, water or sewage, generating, transforming or transmitting power and retreading of tyres are manufacturing process of article, but not manufacture of an article. No doubt, in the cases decided under the Sales Tax Act, the process of manufacturing of an article is held as manufacture of an article which is there in reference to the context. Because, under the Sales Tax Act, a manufacture of an article is described as such while under the Act, manufacturing process or processing of goods is described or defined as industrial undertaking. Therefore, we hold that in deciding that there is manufacture of an article in ginning the cotton, we have to keep in mind only the decided cases under the Act in which the manufacture of an article is described or defined for the purpose of the Act. We are supported in our view by the decisions of the Hon'ble Supreme Court in the case of P.C. Cheriyan v. Mst. Barfi Devi AIR 1980 SC 86 where their Lordships held and cautioned that the definition of 'manufacture' given in other enactments should not be blindly applied while interpreting the expression 'manufacturing purposes' in Section 106 of the Transfer of Property Act, 1882. In some enactments, for instance, in the Excise Act, the term 'manufacture' has been given an extended meaning of including in it 'repairs', also. When this is so, then, we hold that the learned departmental representative is right when he says that in the Sales Tax Act, the term 'manufacture' of an article includes 'manufacturing process' of the article. While it is not so in the Act for the purpose of Section 80J relief and as such, in deciding the issue whether ginning cotton is manufacture of an article for purposes of Section 80J relief, the Tribunal is to do so relying on the decision under the Act and not under any other Act or Acts. The ratio decidendi in the case of Casino (P.) Ltd. (supra) on the issue is that in interpreting the meaning of a term or word used in a particular Act, the meaning taken in other Acts for the same term or word should not be followed. But their meaning are to be taken or interpreted as required and desired under that very Act. In nutshell, the meaning of such term and word in other Act or Acts or enactments should not be adopted or followed. Keeping this fact in mind, we have no hesitation in holding that the meaning taken of the term 'manufacture of an article' in the Sales Tax Act cannot be applied for the relief under Section 80J. As in the Sales Tax Act, the 'manufacturing process of an article' includes 'manufacture of an article' while this is not so for the relief under Section 80J. In the case of Casino (P.) Ltd. (supra), their Lordships of the Kerala High Court held that the hotel is merely a trading concern and it would not be appropriate in the ordinary sense to refer to the production of food material in a hotel as 'manufacture'. The activity carried on in preparing articles of food from raw material in a hotel would not constitute manufacture or processing of goods within the meaning of Section 2(6)(d) of the Finance Act, 1968. A company which carries on such activity will not fall within the definition of an industrial company under that provision.
16. Even in the case under the Sales Tax Act, Patel Cotton Co. (P.) Ltd. (supra) their Lordships of the Punjab High Court specifically held that ginning the cotton is not 'manufacture'. In the case of P.C.Cheriyan (supra) their Lordships held that the broad test for determining whether a process is a manufacturing process is to see whether it brings out a complete transformation for the old components so as to produce a commercially different article or commodity. The retreading of old tyres does not bring into being a commercially distinct or different entity. The old tyres retained its original character and identity as a tyre. Retreading does not completely transform it into another commercial article, although it improves its performance and serviceability as a tyre. Retreading of old tyres is just like resoling of old shoes. No new or distinct article emerges from retreading of old tyres. The old tyre retains its basic structure and identity.South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922 their Lordships held that 'manufacture' implies a change, but every change in the raw material is not manufacture. There must be such transformation that a new and different article must emerge having a distinctive name, character or use.
18. In the case of CST v. Dr. Sukh Deo AIR 1969 SC 499, their Lordships held that the word 'manufacture' in ordinary acceptation has a wide connotation, it means making of articles or materials commercially different from the basic components by physical labour or mechanical process. Even in the case of Chandu Lal Kishori Lal (supra) which is under the Sales Tax Act on the issue of ginning cotton, their Lordships held that ginning cotton is process of manufacturing. Thus, from the aforesaid decision, it is more than manifest that ginning cotton is processing of goods or articles or at the most 'manufacturing process', but it is not at all 'manufacture of an article'. Thus, ginning cotton is not manufacture.
19. In view of our above discussion and reasons thereto, we hold that in ginning of cotton, no manufacture of an article is involved as it is merely at the most processing of articles or goods and, therefore, we further hold that the assessee is not entitled to relief under Section 80J. Accordingly, we confirm the order of the Commissioner (Appeals) on the issue as he has assigned cogent and relevant reasons for arriving at his conclusion with which we also agree. Therefore, the assessee should also fail on legal issue.
20. Since the issue of relief under Section 32A is consequential to the decision on the said issue of ginning the cotton, which we have decided against the assessee and in favour of the revenue. Hence, we hold that the Commissioner (Appeals) is justified in also rejecting the claim of the assessee under Section 32A. Therefore, we also confirm his order on this is sue.