Judgment:
1. Appellant-assessee, by the present appeal, challenges order dated January 7, 1986 of the learned Commissioner of Income-tax (Appeals), New Delhi, for the assessment year 1981-82 on various grounds. First two grounds are in the following manner : " 1. That the learned Commissioner of Income-tax (Appeals)-XI, New Delhi, has erred in confirming the addition of Rs. 30,460 being one per cent, of the rebate out of the rebate allowed on sales to Messrs. Navin Bharat Co. (India) Pvt. Ltd. at the rate of two per cent, considering it to be adequate without any justification.
2. That the learned Commissioner of Income-tax (Appeals)-XI, New Delhi, has erred in observing that Messrs. Navin Bharat Co. (India) Pvt. Ltd. was allowed only five per cent, discount by the firm in earlier years, ignoring the facts and the material on record that Messrs. Navin Bharat Co. (India) Pvt. Ltd. has been paid bill discount at five per cent, and in addition to bill discount, a rebate on sales has been allowed either at two per cent, or even more than two per cent." 2. By status, the assessee in this case is a private limited company engaged in the business of dyeing sewing machine thread in different colours. Accounting period was the year ending March 31, 1981. The return was filed on October 31, 1983, reflecting income of Rs. 72,057.
3. Almost the entire sale was seen to have been made through Messrs.
Navin Bharat Co. (India) Pvt. Ltd. The said private limited company is a sister concern of the assessee. There were three directors in that company and five in the assessee-company. Two directors were said to be common in both the companies and, in fact, both the companies were stated to be owned and operated by two families of the same group. The sales were shown at Rs. 33,03,445, out of which Rs. 30,40,925 were made through Messrs. Navin Bharat Co. (India) Pvt. Ltd. That company is situated in Delhi. The assessee paid five per cent, trade discount and two per cent, rebate on its sales to the said company. It was noted by the learned Income-tax Officer that to others, the assessee paid only two per cent. It was also noted that last year, the assessee did not pay any rebate or discount to anybody. The learned Income-tax Officer also noted that Messrs. Navin Bharat Co. (India) Pvt. Ltd., in the books of the assessee, had always a debit balance and, at the end of the year, the debit balance stood at Rs. 2,64,070. It was felt by the learned Income-tax Officer that the said company had been doing business with the assessee's money with no obligation to pay interest.
It was also noted that the said company was also getting seven per cent, commission, whereas no such commission was paid to anybody else.
An amount of Rs. 60,920 was stated to be rebate paid, to the said company and credited to their account on the closing of the accounting year. That amount never formed part of the trading transaction, nor was there any evidence on record to suggest that such a payment was agreed to be made during the course of the running of the business. The total payment made to Messrs. Navin Bharat Co. (India) Pvt. Ltd. worked out to Rs. 1,52,550 representing five per cent, of Rs. 30,40,925, and another amount of Rs. 60,920 representing rebate, the total being of Rs. 2,13,480.
4. The assessee was required to give reasonableness of such heavy payment to the company. It was also required to show whether any service was rendered by the said company to the assessee. Assessee, vide letter dated August 8, 1983, stated that no favour was done to Messrs. Navin Bharat Co. (India) Pvt. Ltd. when the commission or rebate was paid. Assessee filed another letter dated September 10, 1983, stating that the said company had not earned even the quantum of invoice discount and that it had to bear expenses like packing, freight charges, etc. Another letter was also filed stating that the payment was made due to business expediency. The learned Income-tax officer, taking note of the situation and keeping in view the provisions of Section 40A(2) of the Act, made a disallowance of Rs. 75,000, with the following observations ; "There appears discrimination between the sales made to Messrs.
Navin Bharat Co. (India) Pvt Ltd. and Ors. inasmuch as to the former not only the rebate of two per cent, has been given but as the assessee stated that Messrs. Navin Bharat Co. (India) Pvt. Ltd. had been demanding more amount than what was given to it by way of rebate and commission because, according to it, it had incurred expenditure on freight, etc., and that the assessee had been charging 0.25 per cent, as charity. From the copies of the bills given during the course of assessment proceedings it appears that the assessee had been spending an amount on packing the gooo's but had not been charging from its customers. The element of expenditure incurred by Messrs. Navin Bharat Co. (India) Pvt. Ltd. on freight, packing, etc., is also marginal. The amount charged as charity by the assessee at 0.25 per cent, is also very small. The expenditure stated to have been incurred by Messrs. Navin Bharat Co. (India) Pvt. Ltd., which was alleged to be the basis for demanding more amount works out to one per cent. Against this the assessee had been paying seven per cent. There is no justification for such a heavy payment and the extent of services rendered being incommensurate with such payments. Besides, M/s. Navin Bharat Co. (India) Pvt. Ltd. had been holding the assessee's money without any obligation to pay interest. I, therefore, disallow Rs. 75,000 out of the total payment of Rs. 2,13,480 under Section 40A(2). The observation of the Delhi High Court in Siddho Mal and Sons v. /TO [1980] 122 ITR 839, 852 are relevant in this respect. The courts and authorities are not to wear blinkers to overlook or condone the passing of public revenue to one's own kith and kin by subterfuge or clandestine or clever devices clothed in legalistic jargon. Instead their duty is to lift the veil of apparent legality and get at the truth or the substance of the transaction and to deal with it in accordance with law. It is only appropriate, indeed normal, that dealings involving transfer of funds to near and dear ones need to be looked into with care and caution and necessary inferences drawn if there are abnormalities attaching to such transactions." 5. The disallowance was subsequently contested by the assessee and it was argued before the learned Commissioner of Income-tax (Appeals) that the ratio of the decision in the case of Siddho Mal and Sons [1980] 122 ITR 839 (Delhi) was inapplicable on account of its distinguishing facts. It was explained that out of total sales of Rs. 33,03,445, sales to the tune of Rs. 30,40,925 were made to Messrs. Bharat Navin (India) Pvt. Ltd. That was stated to be the reason for making payment by way of discount of five per cent, to the party as against rebate of two per cent, allowed to the other customers. It was also pointed out that there was no system of charging interest on trade debts. It was also pointed out that almost the entire sales of the assessee were made to Messrs. Navin Bharat Co. (India) Pvt. Ltd. The learned Commissioner of Income-tax (Appeals), after noting the submissions and perusing the record, confirmed the addition, but reduced the same to Rs. 30,460 with the following observation : " On a perusal of the assessment order of Messrs. Navin Bharat Co.
(India) Pvt. Ltd., I find that the income for the relevant year is nominal. Its net profit was Rs. 33,134. The Income-tax Officer added Rs. 17,291 but it got relief of Rs. 16,980. If the company had not received discount from the assessee, it would have incurred loss. In the circumstances, it cannot be said that by paying discount and rebate to the company, the shareholders of the two companies taken as a whole would have paid higher amount of tax. I find that the Income-tax Officer's observation that there was no earlier stipulation to pay rebate of two per cent, is correct. The company may be justified in paying discount at the rate of five per cent, as in the earlier years. This discount of five per cent, was not given to other customers of the assessee who were paid only two per cent, rebate. In the circumstances, it cannot be said that the assessee should have paid two per cent, rebate also to Messrs. Navin Bharat Co. (India) Pvt. Ltd. which was entitled to only five per cent, discount by the firm in earlier years. Representation made by the company to the assessee cannot justify the payment of rebate at the rate of two per cent, for the entire year. In the circumstances, it appears to me that rebate of one per cent, only may be considered to be adequate. The disallowance is restricted to Rs. 30,460 as against Rs. 75,000 made by the Income-tax Officer. " 6. Therefore, the present grounds by the assessee before us, against the confirmation of the disallowance to the above extent. On behalf of the assessee, the learned Authorised Representative, Shri B. Rohtagi, repeated the submissions, seen to have earlier been made before the lower authorities. He also contended that, for the assessment year 1982-83, no such disallowance was made and that there was no justification for any disallowance for the year under consideration.
According to the learned Authorised Representative, Section 40A(2) was inapplicable. It was the assessee's case before us that the learned Commissioner of Income-tax (Appeals) instead of allowing part relief should have deleted the entire addition.
7. On behalf of the Revenue, the learned Departmental Representative, Shri Amitab Kumar, placed reliance on the orders of the Revenue authorities and contended further that no interference was called for.
8. Submissions have been heard and considered and the record carefully perused. There was no agreement between the assessee and the company with regard to the sales, rebates or discount. Two directors are common in both the concerns and in fact, the two are owned by two families of the same group. The learned Income-tax Officer made the addition keeping in view the provisions of Section 40A(2) of the Act and, also noting the absence of agreement of the inter se relation between the assessee and the company. Keeping in view the volume of business and also, the reasonableness of rebate and discount, a disallowance of Rs. 75,000 was made by the learned Income tax Officer. The learned Commissioner of Income-tax (Appeals) has restricted the disallowance to Rs. 30,460. This is under challenge now. The learned Commissioner of Income-tax (Appeals) no doubt, has noted the facts and relation, but did not comment upon the operation of Section 40A(2) of the Act. This 'Section was specifically applied by the Income-tax Officer and thus absence of this aspect by the learned Commissioner of Income-tax (Appeals) is not justified. The discussion of this aspect by the learned Commissioner of Income-tax (Appeals) should be there. Thus, keeping in view the facts of the case and the provisions of the Section, we are satisfied that some addition was definitely called for as there was no agreement, the parties were inter-related and Section 40A(2) had been applied. The confirmation of the disallowance is confirmed. We are satisfied that the disallowance is not excessive either. These grounds are decided accordingly in the following manner : " That the learned Commissioner of Income-tax (Appeals)-XI, New Delhi, has erred in not allowing the investment allowance amounting to Rs. 5,116 under Section 32A being a company engaged in manufacturing and production of sewing machine thread as an end product which is certainly a new and different article having a distinctive name and character and use and commercially marketable product than the raw material yarn and the fact that the company is also registered as a small scale unit." 9. It was submitted before the learned Income-tax Officer that, since the assessee's business was dyeing of thread, it could be said to be engaged in the manufacturing or production of goods for the purpose of Section 32A of the Act and should thus be allowed investment allowance in respect of machinery purchased and installed during the year under consideration. Reliance was placed on the ratio in the case of G.A.Renderian Ltd, [1984] 145 ITR 387 (Cal) and other cases reported in CIT v. Lakshmi (K.) [1983] 142 ITR 656 (Mad) and CIT v. Lakhtar Cotton Press Co. Pvt. ltd. [1983] 142 ITR 503 (Guj). The learned Income-tax Officer, after detailed discussion, came to the conclusion that the assessee could not be said to be engaged in the manufacturing or production of goods for the purposes of Section 32A of the Act as, according to him, the assessee's activity was only dyeing of yarn.
Thus, the assessee's claim for investment allowance was denied.
10. This finding was contested by the assessee and before the learned Commissioner of Income-tax (Appeals), reliance was placed on the decision of the Delhi High Court, dated May 10, 1985, in the case of Nu-look Pvt. Ltd. [1986] 157 ITR 253, wherein it was said to have been held that stitching of readymade garments amounted to processing of goods within the meaning of Section 2, Sub-section (6)(d), of the Finance Act, 1968. The learned Commissioner of Income-tax (Appeals) confirmed the assessment order on the point with the following observation : " Similarly, in CIT v. S. S. M. Finishing Centre [1985] 155 ITR 791 (Mad), it was held that mere processing of goods without resulting in a new end-product does not tantamount to production or manufacture, bleaching, dyeing and sentering of cloth does not tantamount to manufacture or production. In CIT v. Veena Textiles Pvt. Ltd. [1985] 155 ITR 794 (Mad) also it was held that dyeing, printing or even embroidering designs on cloth did not tantamount to manufacture or production. The facts of those cases are quite akin.
Accordingly, I hold that the Income-tax Officer was quite justified in disclaiming to accord investment allowance to the assessee under Section 32A. However, processing of yarn undertaken by the appellant brings it within the orbit of an ' Industrial undertaking' and it is eligible for concessional rate of taxation." 11. The assessee's present ground before us is against that finding. On behalf of the assessee, all submissions earlier made were reiterated and our attention was invited to page 7 of the assessee's paper book, detailing its activities. On behalf of the Revenue, the order under challenge was supported and attention was also invited to the ratio recorded in Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 (SC).
12. Submissions have been heard and considered. The assessee purchases yarn from the weavers and its activity is merely to dye the said yarn in different colours. This is the activity recorded in the assessment order. The assessee does not produce yarn and also does not indulge in any activity connected therewith. The yarn is produced by others and coloured by the assessee. In our view, this activity is neither processing of goods nor for that matter producing a new article.
According to the ratio in Empire Industries Ltd. v. Union of India [1986] 162 ITR 846, the assessee should have produced an altogether new article to qualify for investment allowance under Section 32A of the Act. In the present case, none of such things is shown to have been done. Reliance on the decision of the Hon'ble Delhi High Court is misplaced as the facts in this case were altogether different from the facts we are concerned with in the present appeal. In the light of the above discussion and agreeing with the reasons of the lower authorities, we see no justification to interfere.
13. No other ground was either raised or pressed before us. The pages of the paper book made mention of by the learned authorised representative have been looked into.
15. I have gone through the order of my learned Brother. On the point regarding investment allowance, I differ on facts and on law. The facts regarding assessee's business are appearing on page 7 of the paper book, where the statement of facts submitted before the Commissioner of Income-tax (Appeals) appears. My learned Brother is of the view that the facts stated by the Income-tax Officer only are required to be considered as contended by the Departmental Representative. In my opinion, this is not correct. According to me; facts of assessee's business as given on page 7 are required to be considered. The relevant portion reads as under : 16. The observation of the learned Income-tax Officer that the assessee's business is of dyeing yarns in different colours is wrong totally. In fact, the assessee company is engaged in manufacturing of sewing machine threads. The company being wholly engaged in manufacturing of sewing machine threads is carrying on activities of various processing to manufacture the sewing machine threads. The activities which the company had to undertake are summarised below : (a) Purchasing of yarn thread in bundles of different weights of about 4 to 5 kgs., unbleached and bleached.
(b) The unbleached as well as bleached yarn/thread is to be dyed in various colours and different shades (c) The bundles after bleaching and dyeing take the shape of entangled lachi and then it is to be put on adda for disentangling the yarn/thread.
(d) By the help of machine these entangled lachis are to be rolled in wooden and in latoos, i.e., bobbins. The bobbins are put on machines to clear the dust (Boosa) from yarn to make it to pass through needle machines.
(e) These latoos are to be put again on machines for reeling purposes on cardboard tubes and reels to be in different specific weights and length.
(f) After reeling these tubes the same is to be given finishing touch by hand.
(g) The trade mark labels are to be printed and affixed on the reels by own employees and whenever the work is more we have to employ outside labour also on labour contract basis for the said purposes.
(h) The company thereafter sells the sewing machine thread reels and tubes as a commercial end-product under its own trade mark.
17. In all the above activities, the applicant company has to play an active role by co-ordinating its activities in a businesslike manner.
All these activities are dovetailed into one another and the stage from the purchase of raw material, that is, bleached and unbleached yarn/thread bundles right upto the reeling and fixing of trade mark labels is one integrated activity. ..." 18. Considering the above facts together with judicial decisions, I am of the opinion that the assessee is eligible for investment allowance as it manufactures or produces an article. Since other conditions are fulfilled, the assessee is entitled for deduction on account of investment allowance of Rs. 5,116.
20. Since there is difference on certain points, between the two Members, the following question is referred for the opinion of the third Member : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to investment allowance as claimed " 21. This matter has come before me as a third Member under Section 255(4) of the Income-tax Act, 1961, on account of a difference of opinion between the learned Members of the Tribunal who heard this appeal in the first instance.
22. In the assessment year under appeal, the assessee carried on the business of what is claimed as manufacturing of sewing machine threads.
It claimed, inter alia, investment allowance on the machinery it had installed on the ground that the business of the assessee was manufacture of sewing machine threads. The Income-tax Officer was of the opinion that the assessee was not carrying on any manufacturing activity and that at best it could be said to be carrying on some activity of processing by dyeing the yarn purchased by it to make it commercially viable and, therefore, those processing activities could neither be regarded as manufacture nor production so as to entitle the assessee to the claim for investment allowance. To manufacture is to bring a thing or article from raw material by a mechanical process and it is synonymous with the expression to make and production meant an article or thing that comes into being by industrial, biological, chemical or mechanical process. Thus, there was a wide difference between " manufacture " and " production ". But, in the case of processing, what was involved was only a sort of refining, polishing, repairing or maintaining. Thus distinguishing the assessee's case, the Income-tax Officer denied investment allowance. He also placed reliance upon a decision of the Income-tax Appellate Tribunal, Madras Bench, in the case of Kanakadhara Industries v. Third ITO [1984] 7 ITD 142 and distinguished the other decisions relied upon by the assessee, namely, G. A Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal), CMTv. K. Lakshmi [1983] 142 ITR 656 (Mad) and CITv. Lakhtar Cotton Press Co. P. Ltd. [1983] 142 ITR 503 (Guj).
23. On appeal, the Commissioner (Appeals) affirmed the view taken by the Income-tax Officer placing reliance upon a decision of the Madras High Court in the case of CIT v. S. S. M. Finishing Centre [1985] 155 ITR 791 and another decision of the same High Court reported in CIT v.Veena Textiles Pvt. Ltd. [1985] 155 ITR 794, both of which dealt with cases where, for grey cloth purchased, operations like bleaching, dyeing and sentering were applied, which were all held to be only processing and not manufacture or production.
24. There was then an appeal to the Tribunal. The learned Judicial Member affirmed the view taken by the Revenue while the learned Accountant Member differed from it. According to the learned Judicial Member, the assessee only purchased the yarn from weavers and its activity thereafter was only to dye the said yarn in different colours.
The assessee did not produce yarn nor was it concerned with any activity connected with it and the purchase of yarn manufactured by others and colouring it by the assessee did not amount to either processing of the goods or production of a new article. Since no new article was produced, the claim for investment allowance was rightly rejected. But the learned Accountant Member differed on basic facts with the learned Judicial Member. The learned Accountant Member pointed out that as far as the facts furnished before the Income-tax Officer as well as before the Commissioner (Appeals) were concerned, there are as many as eight operations carried on by the assessee to make the yarn purchased from the market as sewing thread. The yarn available in the market cannot be used for stitching in sewing machines. That yarn has to be strengthened, cleaned and reduced to uniform size so that it can continuously without any obstruction pass through the eye of the needle used in the sewing machine at a much faster speed without snapping and that the yarn so manufactured has to be collected on bobbins and since what the assessee was selling was the end-product, namely, the bobbins containing the manufactured sewing thread, it was not the same as the yarn purchased and, therefore, the end-product was so different from the original product purchased and as such the case of the assessee fell within the meaning of the expression " manufacture " as explained by the Supreme Court repeatedly. Hence, the difference of opinion between the Members which was referred to me in the following manner : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to investment allowance as claimed ?" 25. I have heard the learned representative for the assessee and also the learned Departmental Representative at great length. Learned representative for the assessee, referring to the Supreme Court decisions reported in Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 and Name Tulaman Manufacturers P. Ltd. v. Collector of Central Excise [1990] 183 ITR 577, submitted that since the meaning of the expression " manufacture " was explained by the Supreme Court following its earlier decision of a five-Judge Bench in the case of Ujagar Prints v. Union of India [1989] 179 ITR 317, the case of the assessee fell squarely within the meaning of the expression " manufacture " as the end-product was so different from the original product purchased and, therefore, the investment allowance should not have been denied and that the view taken by the learned Accountant Member was the correct view and should have been accepted. But, the learned Departmental Representative submitted, relying upon the opinion of the learned Judicial Member that there was no manufacture involved in this case and what the assessee was carrying on was only processing operations and those processing operations could not be said to be manufacture. He relied upon a decision of the Income-tax Appellate Tribunal reported in Kanakadhara Industries v. Third ITO [1984] 7 ITD 142 by the Madras Bench and another decision of the Delhi Bench of the Tribunal reported in Budhwar Cold Storage v. ITO [1984] 10 ITD 357. He also pointed out that the Supreme Court decision in the case of Empire Industries Ltd. [1986] 162 ITR 846 was explained and distinguished by the Madras High Court in the case of CIT v. S. S. M. Finishing Centre [1990] 186 ITR 597.
26. On a careful consideration of these arguments and after a perusal of the record and decisions of the Supreme Court and the Madras High Court, I am of the view that the assessee is entitled to succeed inasmuch as it was able to prove that the manufactured product, namely, the end-product was different, distinct in character from the original product. What was purchased originally was only yarn, which was not used or could not be used as sewing thread. That yarn was purchased" in bundles of different weights of 4 to 5 kgs. either bleached or unbleached. It was then dyed in various colours. After bleaching and dyeing, it is put to the shape of what is technically known as entangled lachi and it was put on Adda for disentanglement. By the help of machines this large entangled lachis are rolled into wooden latoos, i.e., bobbins. The bobbins are put on the machine to clear the dust from yarn and also to reduce the size so that it could pass through the eye of the needle used in the sewing machines. These latoos were again put on the machine for reeling purposes on cardboard tubes and reels to be in different specific weights and length. Then they are given finishing touches by hand. Thereafter trade mark labels were printed and fixed on the reels. It was those bobbins after labelling with the trade mark that were sold. Unless these activities are carried out, the sewing thread is not manufactured. What the assessee, therefore, did was to manufacture sewing thread out of yarn purchased from the market with the help of machines. The end-product was therefore different from the original product.
27. Now,, in the case before the Madras High Court reported in CIT v.S. S. M. Finishing Centre [1990] 186 ITR 597, the assessee was purchasing grey cloth and selling the same after carrying out operations like dyeing, etc. It was held by the Madras High Court that these operations did not amount to manufacture but only processing. At page 600 of the Report, the High Court has pointed out that : " In this case, it is not the stand of the assessee that different operations had been carried out or that, by the use of the plant and machinery installed by it, textiles had been manufactured by it. In other words, the nature of the operations carried out by the assessee even during the accounting period relevant to the assessment year 1974-75 had remained just what it was during the prior assessment year 1970-71...." 28. The very same case had come up for consideration on identical facts before the Madras High Court a second time in different assessment years and the Madras High Court decided against the assessee and that case was reported in CIT v. S. S. M. Finishing Centre [1985] 155 ITR .791. The Madras High Court pointed out that in the later year also the operations remained the same and, therefore, no departure was necessary. For the assessee reliance was placed upon the decision of the Supreme Court in the case of-Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 as well as in the case of Ujagar Prints v.Union of India [1989] 179 ITR 317, Both these decisions were rendered by the Supreme Court under the Central Excises and Salt Act, 1944, where the word " manufacture " occurring in Section 2(f) of the Central Excises and Salt Act was considered. The word " manufacture " had been amended by expanding it to include certain operations. The Supreme Court considered the meaning of the word " manufacture " both before and after amendment. Before amendment the word "manufacture" as defined in that Act included any incidental or ancillary process. After amendment the word " manufacture " was to include certain processes like bleaching, mercerising, dyeing, printing, water-proofing, rubberising, shrink-proofing, etc. The Supreme Court had to, therefore, apply this definition under the Central Excises and Salt Act to decide as to whether that particular assessee was to be charged with excise duty or not. Since the word " manufacture " was not defined in the Income-tax Act, 1961, the decision given by the Supreme Court interpreting the meaning of the word " manufacture " as used in the Central Excises and Salt Act for different purposes cannot be imported into the Income-tax Act and, therefore, one has to go by the meaning of the word " manufacture " as explained by the Supreme Court. The Supreme Court explained the general meaning of the word " manufacture " in the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846 that the " test is to find whether the change or the series of changes brought about by the application of processes take the commodity to a point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes ". It was by applying this test to the facts of that case that the Madras High Court came to the conclusion that the processes carried out by the assessee were the same as in the earlier year 1970-71 and, therefore, its earlier decision applied and the decision of the Supreme Court did not make any change as it was not applicable.
29. I have, therefore, now to see whether the general test applied by the Supreme Court to find out the meaning of the word " manufacture " applies here. Earlier, in the case of Union of India v. Delhi Cloth and General Mills Co. Ltd. [1963] Supp. 1 SCR 586 ; AIR 1963 SC 791, the Supreme Court pointed out that the word " manufacture " implies a change, though every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation but something more is necessary and there must be transformation of a new and different article must emerge having a distinct name, character or use. Now, in this case, there has been a transformation of the yarn purchased into sewing thread. The end-product has, therefore, a distinct name, a distinct character, a distinct use and so different from the raw material purchased. It is, therefore, not a case where the principle laid down while dealing with the cases of dyeing of grey cloth purchased, can be applied. There is nothing common in between the two as was supposed by the learned Commissioner (Appeals). All the cases dealt with by them were cases involving grey cloth dyed after purchase and nothing more. Since this case is factually different and involves more operations to make the yarn purchased into sewing thread to be used in sewing machines, the assessee was manufacturing sewing thread and, therefore, entitled to the claim for investment allowance.
30. Now, the matter will go before the regular Bench for decision according to the majority opinion.