D.K. Kapur, J.
1. The question referred to us for the assessment years 1971-72 and 1973-74 is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the activity of the assessed-company in tailoring clothes to the order of its customers did not constitute 'manufacturing or processing of goods' within the meaning of section 2(6) (d) of the Finance Act, 1968 ?'
2. As it happens, the facts of this case are quite simple. The assessed-company carries on business which can be divided into three classes. It makes ready-made garments, it trades in clothes and it does tailoring for customers. In the year 1971-72, the following figures indicate these business activities :
'Assessment year 1971-72 : Sales Gross profitsRs. Rs.(1) Ready-made garments 2,12,601 47,330(2) Cloth trading accounts 74,509 16,395(3) Tailoring charges received 2,35,699 52,072
3. In 1973-74, the following figures are given :
'Assessment year 1973-74 : Sales GrossprofitsRs. Rs.(1) Ready-made garments 2,52,603 53,300(2) Cloth trading accounts 92,248 15,603(3) Tailoring charges received 4,82,470 85,762.'
4. According to the Income-tax Officer, the sale of ready-made garments was manufacturing activity, but the sale of cloth and tailoring to the order of customers was not a manufacturing activity. On appeal, this view was reversed by the Appellate Assistant Commissioner who held that the tailoring activity was also a manufacturing activity.
5. The Tribunal on appeal by the Department restored the view of the income-tax Officer. According to the Tribunal, when a person purchases cloth and gives it to a tailor who cuts and stitches, the tailor only renders services. This, according to the Tribunal, is not manufacture.
6. The context in which the decisions of these authorities are rendered is that, according to the definition of 'industrial company' in section 2(6) (d) of the Finance Act, 1968, a company is an 'industrial company,' when it manufactures or processes goods. In order to be treated as an 'industrial company', it is also necessary that 50% of the profits at least should be from the activity of processing or manufacturing goods. The other part of the definition which refers to construction of ships, production of electricity or other power or mining, is irrelevant in the context of the present case.
7. In order to qualify to be treated as an industrial company which a lower rate of taxation, it is necessary that the assessed-company should be a manufacturer or processor of goods and 50% of its profits at least should be from this source. It is the admitted case before us, as indicated from the figures set out earlier, that in the case of this company, if the tailoring charges are treated as profits from manufacturing or processing of goods, then the assessed-company qualifies as an industrial company.
8. The learned counsel before us cited a very large number of judgments. We think it is unnecessary to cite all those judgments; just a few will be sufficient. In CIT v. Ajay Printery Private Ltd. : 58ITR811(Guj) , it was held that the business of printing balance-sheets, profit and loss accounts, dividend warrants, etc., was that of manufacturing of goods. On a parity reasoning, it is urged that the making of clothes from cloth supplied by the customers is a process of manufacture. In Addl. CIT v. Kalsi Tyre (P.) Ltd. : 131ITR636(Delhi) , this court held that the activity of rereading tyres amounted to processing of goods. In another case decided by this court Orient Longman Ltd. v. CIT : 130ITR477(Delhi) , the assessed was a publisher of books which it got printed by some one else, i.e., by printing and binding, etc. It was held that the assessed was an industrial company. In a similar case decided by the Calcutta High Court Addl. CIT v. A. Mukherjee. and Co. (P.) Ltd. : 113ITR718(Cal) , it was held that the publication of books by getting them printed and bound by another was a manufacturing and processing activity. On the other hand, in CIT v. Casino (Pvt.) Ltd. : 91ITR289(Ker) , the Kerala High Court held that the conversion of raw material to be used as food in a hotel would not be manufacturing or processing of goods within the meaning of the Finance Act, and the Bombay High Court held in CIT v. N. U. C. Private Ltd. : 126ITR377(Bom) , that the making of doors and windows in the process of construction of a building was not manufacture or processing of goods, but a part of construction process.
9. The question we have to ask is whether in this particular case, where, admittedly, the assessed makes ready-made garments and also makes garments out of customer's cloth, can it be said that there is a difference in the two processes It seems to us that when the assessed makes ready-made garments, it uses its own cloth to make clothes or garments, and in the case of its relations with customers who bring their own cloth, the assessed does the same thing by making garments for the customers but out of their own cloth. Can it be said that these too activities are different from each other After all, what does the assessed do Obviously, it converts cloth into garments. The result is the same. In one case, the cloth belongs to the assessed and the completed article is sold. In the other, the cloth belongs to the customers which is converted into garments for those customers. There is essentially no difference in the two activities.
10. We think this case is covered by the decision in the case of Kalsi Tyre (Pvt.) Ltd. : 131ITR636(Delhi) , mentioned earlier. In that case, the company merely retreaded tyres belonging to the customers. A process of manufacturing was involved because the worn out tyres were converted into renovated tyres. Similarly, a process of manufacturing or at least processing of goods is involved as the cloth of customers is used.
11. We think the two activities are not distinguishable and, thereforee, we answer the question referred to us in the negative to hold that the making of clothes to the order of customers was a manufacturing or processing of goods. The question is answered in favor of the assessed and against the Department, but the parties are left to bear their own costs.