1. These are appeals by the revenue against the orders of the Commissioner (Appeals) for the assessment years 1977-78 and 1978-79.
The points raised by the revenue in these two appeals are the same, viz., whether the assessee is entitled to the deduction under Section 80FIH of the Income-tax Act, 1961 ('the Act') and also to the investment allowance under Section 32 of the Act. The basic question in connection with these two allowances as raised by the revenue are, whether a manufacture is involved in the activity of the assessee and whether the assessee could be considered to be manufacturing any commodity when it does not deal in this operation with goods belonging to it, but deals with goods belonging to others. The assessee has a centrifugal machinery, which is intended for the purpose of preparing preserved concentrated natural rubber latex. The natural rubber latex that is passed through the centrifugal machinery does not belong to the assessee but belongs to the planters. The preserved latex is prepared out of the natural latex that is brought to the assessee by the rubber planters and the assessee puts it through the centrifuge and obtains what has been described by the Indian Standard Institution, as ammonia preserved concentrated natural rubber latex. By this process, the water content of the natural rubber latex is reduced while the rubber content is increased from 15 per cent to 20 per cent in the natural latex to 60 per cent. This process is adopted for two reasons, namely, to preserve the rubber latex in its colloidal form and to reduce the bulk of the latex for convenient transport.
2. The contention of the revenue is that the assessee cannot be considered to be manufacturing anything because it does not subject any goods belonging to it to this process of centrifuging. It is further contended that, in any event, the process is only intended to preserve and concentrate the natural rubber latex. No new product is brought about and, therefore, there is no manufacturing activity involved in such process. The Commissioner (Appeals) who considered this point was of the view that the processing involved in the case of the assessee, namely, the chemical treatment of the raw latex and centrifuging it, converts the latex into a totally different substance. He, therefore, held that the assessee is engaged in manufacturing or producing stable latex which is different from the raw material, viz., natural latex.
3. It is submitted on behalf of the revenue that what has transpired is only removal of water from the natural latex to the extent that the rubber content increases from 15 per cent to 20 per cent to 60 per cent as required by the specifications of the Indian Standard Institution.
No manufacture is involved in this process. Particular reliance is placed on the decision of the Calcutta High Court in CIT v. Hindustan Metal Refining Works (P.) Ltd.  128 ITR 472. It is also submitted that the ratio of the decision of the Delhi High Court in Addl. CIT v.Kalsi Tyre (P.) Ltd.  131 ITR 636 relied upon by the assessee before the Commissioner (Appeals) does not, in fact, support the stand of the assessee. Reference has also been made to the decision in CIT v.Tata Locomotive & Engg. Co. Ltd.  68 ITR 325 (Bom.) to the observations at p. 334, in Kalsi Tyre (P.) Ltd.'s case (supra) and CIT v. Casino (P.) Ltd.  91 ITR 289 (Ker.) and to the decisions of the Supreme Court on the meaning of the term 'manufacture in the following cases--CST v. Harbilas Rai & Sons  21 STC 17 (SC), Chowgule & Co. (P.) Ltd. v. Union of India  7 Taxman 71 (SC).
It is pointed out that the Kerala High Court had considered the other method of conversion of latex into smoked rubber sheets in CIT v.Woodland Estates Ltd.  58 ITR 612. It is submitted that in view of this decision and in view of the fact that the preserved latex is only prepared for the purpose of sale, it cannot be said that there has been any manufacture involved. It is also submitted that even if it is held that there is manufacture, it cannot be said that the assessee is a manufacturer of the preserved latex because the assessee has not subjected the latex belonging to him to the action of the centrifugal machinery. It is not the assessee who has manufactured the preserved latex even though the centrifuge in which the latex is processed is the property of the assessee.
4. On behalf of the assessee, it is submitted that it is unnecessary for the assessee to process his own goods in the centrifuge in order to be entitled to the benefits of Sections 32A and 80HH. It is contended that irrespective of to whom the property in the raw material or the finished product vests, the assessee had subjected such raw material and produced the finished product and, therefore, the assessee must be considered to have been a manufacturer. It is also submitted that the term 'manufacture' essentially means the transformation of the product into a different commercial commodity, that the finished product should be an entity by itself and that it is not necessary that the raw material in that process should lose its identity. It is contended that the latex concentrate or the preserved latex is different from the natural latex because this preserved latex does not deteriorate as does natural latex. It also contains a substantially higher percentage of rubber as against natural latex. The finished product, namely the preserved latex, has an identity of its own which is different from the natural latex and, therefore, the assessee must be considered to have manufactured the preserved latex. In addition to the decision in Kalsi Tyre (P.) Ltd.'s case (supra), relied upon before the Commissioner (Appeals), the assessee also relies on several other decisions of which the following may be mentioned-- CIT v. West India Steel Co. Ltd.  108 ITR 601 (Ker.) (FB) and CIT v. Pressure Piling Co. India (P.) Ltd.  126 ITR 333 (Bom.) and Tarai Development Corporation v. CIT  120 ITR 342 (All.).
It is also pointed out that the Hyderabad Bench of the Tribunal has taken a view that even mere bottling of the finished product, namely, Horlicks, would amount to manufacture. This decision is given in Durandel Foods (P.) Ltd. v. ITO  6 ITD 207 (Hyd.).
5. We have carefully considered these submissions. As pointed out earlier, there are two questions here. The first is whether there was a manufacture involved in the conversion of the natural rubber latex into preserved latex concentrate. The second question is whether the assessee may be considered to be engaged in such manufacture if the process is a manufacture, even though the assessee had no ownership in the goods that were processed.
6. On the question of manufacture, both the departmental representative and the representative of the assessee have cited a number of decisions. In these decisions, various processes applied to different commodities have been considered to determine whether such process can rightly be called manufacture or production. But the basic principle has been laid down by the Bombay High Court in the case of Tata Locomotive & Engg. Co. Ltd. (supra). It has been held that manufacture would imply transforming of an article into a commercial commodity or a finished product which has an entity by itself. It has also been held that though the finished product will have an identity by itself, it is not necessary that in the process to which it is subjected, the raw material should lose its identity.
7. On the various instances considered in these decisions, cited by both sides, particular mention may be made of three cases. The first is that in Woodland Estates Ltd.'s case (supra). In that case also the raw material was natural latex. In that case, the latex was converted into smoked rubber sheets or crepe rubber sheets. It was held in that case that the operation of such conversion was only a step taken by the agriculturist to render the natural product fit to be taken to market and, therefore, the sale of the end product, namely, the smoked rubber sheets or the crepe rubber, would only result in agricultural income and not any income assessable to income-tax. That was a case, as pointed out by Shri John, the representative of the assessee, of the cultivator and it was in his hands that the matter was considered to be agricultural income. Nevertheless, the process itself was not considered to be a manufacturing process which would give rise to income assessable to income-tax.
8. In the case of the assessee here, no doubt, the centrifugal process is applied to the natural latex that is brought for being subjected to this process by the rubber planters. The object of this particular process is to preserve the latex without it getting coagulated. Another object is to reduce the bulk of the naturally occurring latex by removing the water content so that transport would be less costly. The naturally occurring rubber latex is a colloidal solution containing rubber. This solution does not remain colloidal for a long time and within 2 to 3 hours, it coagulates into a sticky mass which cannot be used for any of the purposes for which rubber is used. Hence, it becomes necessary to either preserve the rubber in colloidal state or to coagulate it in such a way that the resultant product assumes a useful form for the purpose of utilisation in various manners. It is the second process that was the subject-matter in the case of Woodland Estates Ltd. (supra). Almost the entire water content from the naturally obtained latex is removed and rubber is obtained in a solidified form and converted into sheets. In the former process, whereby preserved rubber latex is obtained, the water content is removed only to a lesser extent. The rubber content in the liquid increases from 15 percent to 20 per cent in the natural latex to 60 per cent in the preserved latex. The process of centrifuging, thus, removes water but not completely. The preserved latex is specifically required for certain forms of manufacture. Apart from subjecting it to the action of centrifuge, certain chemicals are also added for achieving this purpose. We are of the opinion that in spite of these changes that are effected by the process of centrifuging, the end product cannot be considered to be materially different from the raw material, the natural latex. The end product is still a colloidal solution of rubber, but only with a higher concentration of rubber and greater stability added to the colloidal state of the rubber particle. No other change is effected by this process. As mentioned earlier by us, the object of this process is not merely to preserve the colloidal state of rubber, but also to reduce the bulk in order that transport may be safer and cheaper. We do not think that a commercially different product has been produced by this process.
9. Shri John has argued that there need be no difference in the identity of the raw material and the finished product in order that the process may be called a manufacture. But still if the product remains more or less the same and if the process undertaken only with a view to preserve the raw material in the state in which the raw material is obtained, it cannot be said that a manufacture or production is involved.
10. This takes us to the second decision that we consider to be relevant. This is the decision of the Calcutta High Court in Hindusthan Metal Refining Works (P.) Ltd.'s case (supra). In this case, the process in consideration was galvanizing iron and steel. The Calcutta High Court had held that no manufacture or production was involved in such a process. We are of the opinion that the process undertaken in the centrifuge belonging to the assessee is only similar without even such material change as takes place when an iron sheet is galvanized.
The decision of the Supreme Court in Chowgule & Co. (P.) Ltd.'s case (supra) also supports the view we have taken here. In that case the process of blending different grades of iron ore was claimed to be manufacture. It was held that there was no manufacture.
11. The Commissioner (Appeals) has relied upon a decision of the Delhi High Court in the case of Kalsi Tyre (P.) Ltd. (supra) to consider the process employed in the centrifuge belonging to the assessee as manufacture. As pointed out by the departmental representative, the Delhi High Court has itself described this process as a process falling short of manufacture. We do not think that this decision would be an authority for holding that the process employed in the instant case by employing the centrifuge to obtain preserved latex is manufacture.
12. The departmental representative has submitted that the assessee has not itself added any chemicals to the solution and, therefore, it may not be said that any chemicals are, in fact, added in the process employed in the centrifuge belonging to the assessee. We do not think that this is a very relevant consideration because under the specifications laid down by the Indian Standard Institution, preservation of natural latex by the centrifugal process requires addition of chemicals and since, admittedly, the process, for which centrifuge of the assessee has been employed, is a preparation of the preserved latex, chemicals must have been added. It may be that the assessee does not provide the chemicals but the owners of the raw material may also provide the chemicals. It is not material as to who provides the chemicals, if the chemicals have to be added, according to specifications to obtain preserved latex.
13. We hold that no production or manufacture is involved in subjecting the natural rubber latex to the centrifugal operation for obtaining preserved latex and, therefore, the assessee would not be eligible for the investment allowance under Section 32A and the deduction under Section 80HH.14. Submissions have been made elaborately on the other question whether the assessee should be the owner of the raw material which is subjected to the process in the centrifugal machinery in order to be eligible for the two allowances. Since we have held that no production or manufacture is involved in this process, it is unnecessary to consider this other question for the disposal of these appeals.