J.M. Shelat, C.J.
1. This reference involves the interpretation of the words 'in the case of an Indian company whose business consists wholly in the manufacture or processing of goods' occurring in Explanation 2 to section 23A of the Indian Income-tax Act, 1922.
2. The respondent-company is a private limited company carrying on business of printing balance-sheets, profit and loss accounts, pamphlets, dividend warrants and share certificates patrticularly required by a group of textile mills under the control of Kasturbhai Lalbhai, and also pamphlets, circulars, etc., for other customers besides the said group of mills. The reference relates to the assessment year 1959-60. The respondent-company first dividend to the extent of 43 per cent. of its net income, but later on, on receiving a notice from the Income-tax Officer, it declared a further dividend of 2 per cent., thereby making there total quantum of dividend declared at 45 per cent. The Income-tax Officer however was of the view that it was incumbent upon the respondent-company to declare dividend to the extent of 60 per cent. of its net income and since the respondent-company had not done so, he passed an order under section 23A against the respondent-company. The Income-tax Officer declined to accept the contention of the respondent-company that it was a manufacturing or a processing concern and was therefore bound to declare dividend to the extent of 45 per cent. of its net income only an held that the respondent-company did not fall under clause (ii) of Explanation 2 to section 23A. The Appellate Assistant Commissioner also rejected the contention of the respondent-company that the business of printing balance-sheets, pamphlets, share certificates, etc. which was carried on by the company, amounted to either manufacturing or processing and confirmed the order passed by the Income-tax Officer. Before the Tribunal, the respondent -company repeated the same contention that its business activities amounted to manufacture and, in any contention that its business activities amounted to manufacture and, in any case, processing. On the other hand, the revenue relied upon a decision of the Calcutta High Court in Sati Prasanna Mukherjee v. Md. Fazal, and urged that mere printing of balance-sheets, pamphlets, profit and loss accounts, dividend warrants, share certificates, circulars, etc., did not constitute manufacture or processing and that printing of those things did not involve any manufacture and therefore the aforesaid order passed by the Income-tax Officer and upheld by the Appellate Assistant Commissioner was a correct order. The Tribunal upheld the contention raised by the respondent-company and cancelled the order passed by the Income-tax Officer. The Tribunal was of the view that the raw materials used by the respondent-company were papers and ink and in the business which the respondent-company carried on, the company did not sell those raw materials but that those raw materials were transformed and given a new shape or form by application of hand or machinery and labour and the new product so formed out of the raw products of paper and ink found use in the market in that specific form and were readily salable as such. In the opinion of the Tribunal, such transformation amounted to manufacture and, in any event, to processing, and therefore, the respondent-company was bound under section 23A to declare dividend only to the extent of 45 per cent. of its net income and no more. Aggrieved by the Tribunal's order, the Commissioner applied for a reference to this court, and the question that has been referred to us is as follow :
'Whether, on the facts and in the circumstances of the case, the business that was carried on by the assessee constituted 'manufacturing or processing of goods' as contemplated in section 23A (Explanation 2, clause (ii) of the Indian Income-tax Ac ?'
3. Section 23A provides that where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than sixty per cent. of the total income of the company of that previous year as reduced by the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under the section, by the amount of any other tax levied under any law for the time being in force on the company by the Government and in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949, the Income-tax Officer shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend or a large dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of 50 per cent. in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of 37 per cent. in the case of any other company as the undistributed balance of the total income of the previous year, etc. Explanation 2 defined the 'statutory percentage' mentioned in sub-section (1) of section 23A and, inter alia, provides that statutory percentage means in the case of an Indian company whose business consists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power... 45 per cent.'
4. The company admittedly is an Indian company and, since it is a private limited company, it is a company in which the public are not substantially interested. Section 23A would, therefore, apply to the respondent-company and therefore the only question which we have to determine in this reference is whether it is a company whose business consists wholly in the manufacture or processing of goods. If it is held that the respondent-company's business consists wholly in the manufacture or processing of goods, it would mean that it had distributed dividend during the relevant year to the extent of the statutory percentage, namely, 45 per cent. of its total net income. If it is not, it would mean that the statutory percentage in its case would be 60 per cent. in which event the order passed under section 23A by the Income-tax Officer would be right and would have to be upheld.
5. The expressions 'manufacture' and 'processing of goods' occurring in clause (ii) of Explanation 2 have not been defined in the Act or in section 23A which means that the legislature has not chosen to give to these expressions any technical or artificial meaning and has intended to give them the ordinary meaning as understood in ordinary parlance. However, the words 'manufacture' or 'processing of goods' have been the subject-matter of a number of decisions, though not in connection with section 23A of the Act but in connection with various Sales tax Acts prevalent in different States in India. Such decisions can be useful only in the sense that they would throw light on the ordinary meaning of these words as accepted by the courts. But such decision would not be of much assistance where the meaning of these expressions have been given in the light of the special definitions given in those statutes. The first of such decisions, to which our attention was draws by the learned Advocate-General, was the Supreme Court decision in J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, where the Supreme Court was concerned with the meaning of the expression 'in the manufacture of goods' used in section 8(3)(b) of the Central Sales Tax Act and rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957. One of the questions that arose there was whether the process of designing would be include in the expression 'in the manufacture of the finished goods produced by the company'. The Supreme Court held in that case that the expression 'in the manufacture of goods' in section 8(3)(b) of the said Act should normally encompass the entire process carried on by the dealer in converting raw materials into finished goods. Where any particular process was so integral connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression 'in the manufacture of goods'. The Supreme Court also held that the expression 'in the manufacture' took in within its compass, all processes which were directly related to the actual production. Drawing and photographic materials falling within the description of goods intended for use as 'equipment' in the process of designing, which was directed related to the actual production of goods and without which commercial production would be inexpedient, would be regarded as goods intended for use 'in the manufacturer of goods'. Though the Supreme Court thus interpreted the expression 'in the manufacture', i.e., in the process directly related to the manufacture, the word 'manufacture' appears to have been understood there as converting raw materials into finished goods. The learned Advocate-General also pointed out a decisions of the Calcutta High Court in North Bengal Store Ltd. v. Board of Revenue, Bengal, where the case concerned a dispensing chemist, and the question was whether such a dispensing chemist could be said to produce goods for sale within the meaning of section 4(5)(a) of the Bengal Finance (Sales Tax) Act, VI of 1941. By that section, every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded the taxable quantum specified in sub-section (5) of that section was made liable to pay tax on all sales effected after the notified date. The Commercial Tax Officer assessed the applicants on the ground that dispensing chemist were manufactures and since their turnover during the year before the commencement of the Act exceeded Rs. 10,000, they were liable to assessment pursuant to clause (a) of section 4(5). Amongst the questions referred to the High Court, question No. 2 was whether the applicants were manufacturers within the meaning of section 4(5)(a) of the Act. The learned judges there held that the applicants were liable as they were manufacturers, and fell within the ambit of section 4(5)(a). Gentle observed that when customers gave prescriptions to a dispensing chemist to be made up they thereby placed orders for the resultant compounds or mixtures to be supplied, and customers such compounds and mixtures. Dispensing was necessary for the purpose of obtaining the mixtures. Until prescriptions were dispensed and the compounds obtained, the chemist had not got the goods, which his customers had ordered and which he had agreed to sell. The process of dispensing was carried out for the purpose of producing the contract goods. When dispensing had taken place but not before the chemist had the goods with which to supply his customers and which he had agreed to sell to them. The resultant mixtures, after dispensing prescriptions were, therefore, the goods sold by a dispensing chemist to his customers and the process of dispensing was to produce those goods for sale, without which process sale of mixtures or compounds could not be effected by a chemist. Even if that process was not the manufacture of goods, as articles of furniture, mechanical appliances and paints were made from raw material, nevertheless, since it was the production of goods for the purpose of selling to customers, the chemist who dispensed prescription thereby produced goods for sale. Das J., who delivered a separate judgment, stated that since there was no definition of the words 'manufacture' and 'produce' in the Act, the expression would have to be construed by the ordinary natural meaning according to the accepted usages of English speech. After giving the dictionary meanings of the word 'manufacture' he also came to the conclusion that when a dispensing chemist mixed different drugs according to the prescription of a physician, the drugs might or might not be transformed into a different matter. The mixture might become a chemical compound in which the drugs used might have been transferred into a totally different thing in their character and properties, or it might result in what was called a mechanical or physical mixture, in which case the drugs retained their original properties. But in either case the resulting mixture was a distinct product brought into being in a particular form suitable for the particular use for which it was intended and capable of being sold or supplied for a price. When a man went into a chemist's shop with a prescription he did not ask for this, that or the other drug mentioned in the prescription, but he really wanted the finished product in a form in which as a medicine it would be suitable for the use of the patient and when the chemist compounded the drugs according to the prescription be produced that medicine and sold, not so many different drugs of different quantities or measures, but the finished product. The selling of the finished product was his business and he brought it into being for sale in his business. That finished product was different from the ingredients with which it was made just in the same sense as an ornament was different from a lump of gold or a pair of boots different from leather or a suit of clothes was different from the cloth or box was different from the wood but it was the articles which he brought into being for sale in the course of his business. According to this decision, 'manufacture' thus means transforming raw materials in a commercial commodity or a finished product which has entity by itself. But it would not necessarily mean what the materials with which the commodity is so manufactured must lose their identity. In Hiralal Jitmal v. Commissioner of Sales tax, the High Court of Madhya Pradesh was concerned with the meaning of 'manufacture' as defined in section 2(k) of the Madhya Bharat Sales Tax Act, 1950. Reading section 8(1)(b) of that Act and the definitions of 'manufacturer', 'dealer' and 'goods' in that Act, the High Court held that a person engaged in the work of printing and dyeing textiles purchased by him and in the business of selling or supplying the printed and dyed material was a manufacturer with the meaning of that Act. Section 2(k) of that Act defined 'manufacturer' as a dealer who from materials produced goods by manual or animal labour or by machinery. Dixit J., as he then was, at page 328 of the report, observed that in common parlance, apart from the special definition contained in the Act, 'manufacture' means bringing goods into being and 'to manufacture goods for sale' therefore meant to bring into being something in a form in which it was capable of being sold or supplied in the course of business. He held that to constitute 'manufacture' for the purposes of that Act, it was not necessary that there must be a transformation in the materials and that the transformation must have progressed so far that the manufactured article became commercially known as another and different article from the raw material. All that was necessary was that the material should have been changed or modified in an acceptable that form to satisfy some want or desire or fancy or taste of man. On this reasoning, he held that the assessee was engaged in the work of printing and dyeing textiles purchased by him and in the business of selling or supplying printed or dyed material and a manufacturer within the meaning of the Act. In an unreported judgment, with which we were concerned and to which our attention was drawn by the learned Advocate-General in sales Tax Reference No. 9 of 1962, decided by us on November 20, 1963, the question was regarding the interpretation of section 12(b) of the Bombay a sales Tax Act of 1959, and the dealer there concerned was the same assessee-company here and the business concerned there was the same as here, namely, of printing and binding books and supplying them in bound forms to its customers. Though in that decision we were more concerned with the construction of section 12(b), we observed that 'manufacture of goods' meant the process of converting raw materials into finished goods. Similarly, in Jamnadas Chhotalal Desai v. C. L. Nangia, while dealing with the Central Excise and Salt Act, 1944, and the definition of 'manufacturer' in section 2(f) thereof, we observed that the neutral meaning of 'manufacture' was to make or fabricate or bring into existence as article or a product either by physical labour or by power and 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. In McNicol v. Pinch, Darling J. observed that the essence of making or of manufacturing was that what was made should be a different thing from that out of which it was made. The dictionary meanings to which our attention was drawn also point out that the meaning to be attributed to the word 'manufacture' would be to work up materials into forms for use, making of articles or material by physical labour or mechanical power and making of goods by hand or by machinery often on large scale by division of labour. In Black's Law dictionary, the meaning given to the word 'manufacture' is the process or operation of making wares or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery or by art. It also states that the production or articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combination, whether by hand labour or machine, would be 'manufacture'. It is possible to multiply decisions where courts have interpreted the word 'manufacture' in the light of the provisions of law they had to deal with. Where the laws provide special definitions or where the word 'manufacture' or 'manufacturer' have been used in the context of some special object of the Act, decisions which have given a particular meaning to those words would hardly be of any use. Therefore, it is safer to take the particular provisions with which the court is concerned and asserting what was the meaning intended to be given by the legislature.
6. There is, and can be, no doubt that the distinction made between different kinds of companies in Explanation 2 to section 23A was made in order to give encouragement to manufacturing concerns as against purely investment and non-manufacturing concerns. We must also take into consideration along with that object the fact that the Act has not given any artificial or technical meaning to the expression 'manufacture' in Explanation 2 or elsewhere in the Act. That being so, we must adopt for the interpretation of clause (ii) of Explanation 2 the meaning given to the expression in ordinary parlance in commercial and business circles. The learned Advocate-General agreed that, in the absence of any definition of the word 'manufacture' in the Act, we must construe the word 'manufacture' and give it he same meaning as is attributed to it in ordinary parlance. But he contended that even in the light of such a meaning, it would not be possible to treat printing of balance-sheets, share certificates, profit and loss accounts, etc., as manufacturing a commodity or an article. He argued that, in such cases, the contents of a balance-sheet or a profit and loss account would be expected to prepare a balance-sheet. Such work would be more in the nature of a works contract or a job work rather than manufacturing a commodity or an article in its commercial sense. He contended therefore that the Income-tax Officer was correct in his view that the present case would not fall in clause (ii) of Explanation 2 to section 23A and that the respondent-company was bound to declare dividend to the extent of 60 per cent. and not 45 per cent. of its total net income. As against these contentions, Mr. Kaji contended that when a customer approached the respondent-company for preparing for him a balance-sheet or a profit and loss account or a pamphlet or share certificates, the respondent-company would be transforming or converting from the raw materials, namely, paper and ink, a new commodity or anew article and such a process which would be undertaken by him would fall within the observations of the learned judges of the Calcutta High Court in North Bengal Stores Ltd. Mr. Kaji argued that just as a goldsmith, while preparing an ornament, would be transforming a lump of gold into a new commodity, a printer, while bringing out a balance-sheet or a share certificate or a profit and loss account, would be using paper and ink as his raw materials and the finished product that he would bring about would be a totally new article in respect of which he has accepted a contract of manufacturing or producing such finished product. In support of his contention, he referred to the decision of the High Court of Madhya Pradesh in Sardar Printing Works v. Sales tax Commissioner Dixit J. (as he then was) there held that stationeries sold by a printer to his customers were goods within the meaning of the Madhya Bharat Sales Tax act, 1950, and when a printer brought into existence printed stationery to the order of individual customer, he produced a commercial commodity which was capable of being sold or supplied. The printer in such as case was a manufacturer and when the printed material was sold to the customers, there was a sale of the finished goods to the customers. The learned judge observed that it was not correct to say that the essential character of the work was the printing and not the supply of stationery and that in executing the printing work the paper came into existence and became the property of the client or customer only incidentally. He also observed that when a printer accepted orders from his customers for job works, such as receipt books, registers, forms, letter-heads, etc., and printed them in accordance with the requirements of his customers on paper supplied by the printer himself, the orders placed by the customers for such job works were contracts for sale of goods and not contracts for work and labour.
7. In the present case, whether we adopt the limited or the larger meaning given by the courts to the word 'manufacture', that is to say, whether it is necessary or not that the raw materials must be converted into a new commodity or an article wherein the raw materials are merged and lose their identity, would not make any difference to the facts of the present case. To take the illustration given by Das J. in Calcutta case of the dispensing chemist, when a goldsmith makes an ornament out of a lump of gold, he does in reality manufacture an article which has a separate entity and a separate use. When the chemist in that case dispensed a prescription and sold the mixture to his customers, he produced a separate article though that article was composed of several drugs and it did not matter whether those several drugs in that mixture lost their separate identity or not. Though the drugs remained the same, a mixture of them produced an article which was different and had and was meant to have a different use. Therefore, whether the original materials retained their identity or not, the goldsmith and the chemist produced articles in respect of which they had obtained orders from their respective customers. We also fail to see any substantial difference between a manufacturer of textile goods and a person who carries on business of printing and preparing books pamphlets, balance-sheets, etc. When a piece of cloth is manufactured, its maker produces a distinct article having a distinct use as distinguished from the cotton or the yarn though cotton and yarn are still subsisting. Similarly, when a printer prints a book or a journal or a pamphlet or a balance-sheet, his basic or raw materials are paper and ink with which he, either by hand or by the aid of a machinery, produces a distinct article. No one would say when he sells a book or supplies to his customers pamphlets or balance-sheets that the order which the customer had placed with him was an order for ink and paper, or that the printer, when he accepted that order, accepted the order for supplying paper and ink. The order was for the supply and sale of the pamphlet or the balance-sheet or share certificates, a commodity or an article quite different from the raw materials from which it is made and the use of which would be different from the use of the raw materials used in producing it. Even if the limited construction of the word 'manufacture' were to be adopted, i.e., transformation and conversion of the materials into a different commodity the raw materials losing their identity, the article produced would still be a totally different article from the materials, namely, paper and ink, which are consumed in making it. The paper and ink which are used in the process of making pamphlets, balance-sheets or the book, by themselves would be of no value and cannot have apart from the contents a realisable value if sold as such materials. When they are used the only commodity which would have any commercial value would be the finished product, namely, the balance-sheet or the profit and loss account, the share certificate, the pamphlet, etc.
8. Considering the consistent view that has been adopted by the various High Courts while deducing the meaning of the word 'manufacture' or 'manufacturer' and the object with which Explanation 2 has been inserted in section 23A of the Act, we are of the view that the business carried on by the respondent-company of printing balance-sheets, profit and loss accounts, dividend warrants, pamphlets, share certificates, etc., required by the textile mills referred to in the statement of the case and other textile mills would be a business which consists wholly of manufacture and, therefore, clause (ii) of Explanation 2 to section 23A would apply in the present case. The Calcutta case in Sati Prasanna v. Md. Fazal had a different problem and cannot apply. In our view the construction placed upon clause (ii) of Explanation 2 by the Tribunal was correct.
9. Our answer to the question, therefore, would be in the affirmative. The Commissioner will pay to the respondent-company the costs of this reference.
10. Question answered in the affirmative.