1. The assessee is a private limited company which purchases cloth, stitches embroidery designs on it with the aid of machinery and dyes the cloth with the embroidered designs with a view to secure uniformity in colour. It commenced production on May 14, 1969. The accounting period of the assessee is the financial year preceding the relevant assessment year. In respect of the assessment year 1970-71, the assessee claimed development rebate at the special rate of 35% on the basis that the activities carried on by it constituted manufacture or production of textiles within the meaning of item 32 of V Schedule to the I.T. Act, 1961 (hereinafter referred to as 'the Act'). The ITO allowed development rebate at 20% as, according to him, the activities of the assessee essentially consisted of embroidering designs on cloth purchased from other mills and the assessee was, therefore, not manufacturing or producing textiles as envisaged by s. 33(1)(b)(B)(i) read with item 32 of V Schedule to the Act. On appeal by the assessee, the AAC was of the view that the operations carried on by the assessee in merely embroidering or stitching designs on to textiles purchased by it from others was neither manufacture nor production by the assessee of textiles. In that view, the AAC dismissed the appeal. On further appeal to the Tribunal, it looked at the operations of the assessee differently in that though the operations carried on by the assessee started with the cloth manufactured by others and purchased from others, yet the end-product was textiles otherwise processed. In doing so, the Tribunal relied upon the dictionary meaning of the word 'process'. In the result, the assessee was held entitled to a higher rate of development rebate at 35% as claimed.
2. Aggrieved by the order of the Tribunal, the Revenue has obtained a reference on the following two questions :
'1. Whether, on the facts and in the circumstances of the case, it has been rightly held by the Tribunal that the assessee was entitled to the higher rate of development rebate at 35% under section 33(1)(b)(B)(i) in respect of the machinery used by it in its business
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee company was engaged in the construction, manufacture or production of the textiles (otherwise processed) so as to be entitled for the higher rate of development rebate ?'
3. Under s. 33(1)(a) of the Act, provision for deduction by way development rebate has been made. Section 33(1)(b)(B)(i), in so far as it is relevant for this case, runs as under :
'Where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule.'
4. Item 32 of the Fifth Schedule to the Act is as follows :
'Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope.
5. In T.C. No. 669 of 1978 [CIT v. S.S.M. Sizing Centre : 155ITR782(Mad) ], we had occasion to consider the scope of s. 33(1)(b)(B)(i) and item 32 of Schedule V to the Act in relation to the operations carried on by the assessee in that case such as warping, sizing, bleaching, etc., on the cotton yarn purchased by the assessee. The carrying on of operations like warping, sizing and bleaching of yarn produced by and purchased from someone else and the application of the sizing materials or bleaching agents to the yarn so purchased were held not to amount to manufacture or production of cotton yarn, as the yarn which was originally purchased from others, was not transformed into any other commercial article and the basic structure or identity as yarn had remained the same before and after the performance of all the operations. In that view, the use of machinery for carrying out those operations was held to be not for purposes of manufacture of cotton yarn as such. It is in the light of the aforesaid interpretation that the claim of the assessee on the facts of this case has to be examined and considered.
6. In this case, the operations carried on by the assessee commenced with cloth manufactured by others and purchased by it from outsiders. Some embroidery work appears to have been done on the cloth so purchased. In some cases, in order to secure uniformity in colour, the cloth was also dyed. Still, the question remains whether these would constitute 'manufacture or production' of 'textiles'. The operations carried on by the assessee on the cloth purchased by it are not in the nature of either manufacturing or production operations, nor do such operations relate to the manufacture or production of textiles. The cloth, which would be covered by the expression 'textile', had already been manufactured or produced by someone else, but merely purchased by the assessee. That cloth, even after being embroidered and dyed, is not transformed into any other different or distinct commercial article or product, but essentially retains its basic character and structure and is identifiable as cloth manufactured or produced by another and purchased by the assessee. There is, therefore, no production or manufacture of textiles by the assessee, inasmuch as the assessee has not brought into being or existence textiles by employing the processes and dyeing. The learned counsel for the assessee emphasised that the product in this case has resulted from the application of some processes and dyeing by the assessee and contended it would fall within item 32 of Schedule v. the words in brackets, following the word 'textiles' in item 32 of Schedule V, are really descriptive of the processes by which the end-product of 'textiles' are manufactured or produced. The textiles produced or manufactured or brought into existence or being, may be printed, dyed or otherwise processed or they may be textiles simpliciter without having been subjected to any of the above-mentioned processes. By the use of the word 'including' and the words following, it has been clarified that those textiles manufactured or produced by employing the processes enumerated would also be textiles, in addition to textiles brought into being without resorting to any of the processes like dyeing, printing or others. In other words, what is contemplated is the manufacture or production or bringing into existence 'textiles' by employing also processes such as dyeing, printing or other processes. We are of the view that the mere purchase of textiles already manufactured by another and dyeing or printing or otherwise processing it, resulting in the retention of its identity as a cloth material, would not be comprehended within the expression 'manufacture or production' of 'textiles'. Inasmuch as the assessee in this case had not manufactured or produced any 'textiles' but had basically started with cloth and had added on to it some floral or other designs and colour, it would not amount to 'manufacture or production' of 'textiles' as such.
7. We may now refer to some of the decisions cited by the counsel for the assessee. CWT v. Radhey Mohan Narain : 135ITR372(All) was concerned with the decision on the question whether relief could be given under s. 5(1)(xxxii) of the W.T. Act, 1957, in respect of the interest of an assessee, who was a partner in a firm. The firm was engaged in trading in printed cloth, had no fixed assets of its own and was getting its trade requirements from others on job work basis. The firm's work did not involve manufacturing or processing. The WTO rejected the claim made by the assessee and, on appeal, the AAC allowed the claim. On further appeal to the Tribunal, the view of the AAC was maintained on the finding that the firm was an industrial undertaking. In considering that question, the several processes to which the cloth purchased by the assessee was subjected to were taken note of by the court and it was found that the cloth purchased by the assessee was bleached and dyed and thereafter cut into pieces, printed and washed and calendered and again cut into smaller pieces and then calendered again to give a good finish and then made into bed-spreads, scarves and handicraft goods. Some garments were also stitched. It was in that context the court pointed out that as a result of undergoing these different processes, the end-product was different from the feed-in-material and, therefore, the undertaking would be one engaged in the manufacture or processing of goods within the Explanation appended to clause (xxi) which would apply to clause (xxxii) also. Even assuming that the test is that the end-product should be different from the feed-in-material, that was satisfied in that case. The feed-in-material was only cloth, but as a result of the processes to which that cloth was subjected, bed-spreads, scarves, handicrafts and garments were brought into existence. In the manufacture of garments, for instance, though the feed-in-material is cloth, what comes out at the end of the line is finished garment, which are different and distinct commercial articles, though falling under 'textiles'. In this case, but for the addition of embroidered designs and dyeing to match the hue of the embroidered designs, there is no other change brought about nor is a distinct or different textile article brought into being. We are, therefore, of the view that the decision is of no assistance. In Chowgule & Co. Pvt. Ltd. v. Union of India : 1985ECR263(SC) , the emphasis has been laid on the change undergone as a result of the performance of an operation. It has been pointed out that though the nature and extent of processing may vary, yet, as a result of that, the commodity should undergo a change and such change should be related to the performance of operations and only in that event, it would amount to processing. Even on that basis, it is seen that in this case, even after the performance of the operations of embroidering designs and dyeing the cloth purchased by the assessee, it still retains its character as before and does not become a different and distinct product or article, as a result of the original commodity experiencing changes owing to the several processes employed. The operations done by the assessee on the cloth do not bring into existence, in our view, a commercially different and distinct commodity from the feed-in-material. The assessee cannot, therefore, be stated to have manufactured or produced 'textiles' within the meaning of item 32 of Schedule V to the Act. In Hiralal Jitmal v. CST  8 STC 325, the Madhya Pradesh High Court, construing the expression 'manufacture' pointed out that it would suffice to constitute manufacture if the material should have been changed or modified by man's art and industry so as to make it capable of being sold in an acceptable form to satisfy some want or desire or fancy or taste of men. In that case, the assessee printed and dyed the textiles and that was held to be production of something which was in itself capable of being sold as such. In this case, there is no material to establish that the feed-in-material had been changed or modified into an article in such a manner as to make it capable of being sold in satisfaction of a want or desire or even a whim or fancy. This decision cannot also be pressed into service. CST v. Hastimal Ratanlal  30 STC 484 dealt with the question whether an assessee, who purchased white cotton yarn, dyed it into different colours and then sold the coloured yarn, was exempt from payment of purchase tax, as no manufacturing process was involved. The Board of Revenue accepted the stand of the assessee; but the Madhya Pradesh High Court pointed out, considering the definition of the word 'manufacture' in s. 2(j) of the Madhya Pradesh General Sales Tax Act of 1958, that the word is very wide and includes any process and that the use of the end-product, dyed cotton yarn, was different from that of the uncoloured yarn and, therefore, it would involve a process of manufacture. That decision turned on the definition of 'manufacture' which included any process or manner of producing or making any goods and on that definition, it was held that dyed cotton yarn would be goods made by a manufacturing process. No similar definition of the word 'manufacture' or 'produce' in the Act has been brought to our notice and, therefore, those considerations would be inapplicable to this case.
8. We may now refer to CST v. Harbilas Rai and Sons  21 STC 17 (SC). In that case, the assessee purchased pig bristles and got them cleaned with soap and other chemicals and thereafter they were sorted out according to their sizes and colours and tied in separate bundles of different sizes and exported. The question arose whether the process undergone by the pig bristles would be one of 'manufacture'. The Supreme Court affirmed the decision of the High Court holding that the assessee was not engaged in the manufacture of pig bristles as mere cleaning, arranging the bristles into groups and sizes and colours would not convert the bristles into something essentially or commercially different and distinct. The Supreme Court pointed out that the word 'manufacture' has various shades of meaning and if the goods to which some labour is applied remains essentially the same commercial articles, it cannot be said that the final product is the result of the manufacture. Similar is the situation here, in that, the assessee had merely applied some labour to the cloth, which essentially had remained the same before and after the processing. In Dy. CST v. Sadasivan , the question arose as to whether dyed and coloured cotton yarn would fall under entry 4(ii) of the Second Schedule to the Kerala General Sales Tax Act, 1963. The Kerala High Court held that cotton yarn in spite of its having undergone the process of dyeing and colouring, would still remain yarn as such and that it does not undergo any processes of transformation so as to make sales tax exigible separately on that commodity. The Revenue took the stand that after dyeing and colouring, the cotton yarn had become commercially different products and, therefore, separate sales tax is exigible on the dyed and coloured cotton yarn but that was repelled by the court holding that even after dyeing and colouring, the cotton yarn continues to be the same as before. Again in Cheriyan v. Barfi Devi : 1979(4)ELT593(SC) , the question as to what would constitute 'manufacturing processes' in relation to s. 106 of the Transfer of Property Act, 1882, was considered. Retreading of old tyres was held to be not a manufacturing process. While holding so, the Supreme Court pointed out that the broad test for determining whether a process is a manufacturing process is whether it brings out a complete transformation of old components so as to result in a commercially different article or commodity, that the retreading of the old tyre does not bring into being a commercially distinct or different entity, that the old tyre retains its original character or identity as tyre, that retreading does not completely transform it into another commercial article although it improves its performance and serviceability as a tyre and that no new or distinct article emerges out of the retreading operations. The aforesaid decisions clearly establish that the claim of the assessee, on the facts and circumstances of this case, is unsustainable. Thus, on a careful consideration of the entire matter, we are of the opinion that on the facts and in the circumstances of this case, the assessee merely expended its labour on cloth which was purchased from somebody else by it and the result of that labour was that the commodity still continued to remain as cloth as before and had not become a distinct or different article or commodity so as to label the process by which it becomes so, a process of 'manufacture or production' or 'textiles' within the meaning of S. 33(1)(b(B)(i) read with item 32 of Schedule V to the Act. We hold that the assessee was not entitled to higher development rebate as the assessee was not engaged in the 'manufacture or production' of 'textiles'. We, therefore, answer questions Nos. 1 and 2 in the negative and in favour of the Revenue. There will, however, be no order as to costs.