Commissioner Of Income Tax-Ii, Amritsar v. M/S S.s. Embroiders

IN THE HIGH COURT FOR THE STATES OF PUNJAB ANDHARYANA AT CHANDIGARH 1. ITA No.201 of 2012 (O&M) Commissioner of Income Tax-II, Amritsar ... Appellant v. M/s S.S. Embroiders ... Respondent 2.ITA No.202 of 2012 (O&M) Commissioner of Income Tax-II, Amritsar ... Appellant v. M/s S.S. Embroiders ... Respondent Date of decision: July 23, 2013. CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLAHON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Shri Denesh Goyal, Advocate for the appellant. , J. Dr. Bharat Bhushan Parsoon By this common order, we shall dispose of ITA Nos.201 and 202 of 2012, preferred by the appellant. The two appeals pertain toAssessment years 2005-2006 and 2006-2007.Details of Appeals: For convenience and clarity, facts have been taken from ITA No.201 of 2012. This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (for short, the 1961 Act) has been filedagainst order dated 23.4.2012 (Annexure A-3) passed by IncomeTax Appellate Tribunal, Amritsar in ITA No.358(Asr)/2010 for theassessment year 2006-07, on the following questions of law:- Questions of law: “(i) Whether on the facts and in the circumstances of thecase and in law, the learned ITAT was right in notappreciating the non inclusion of the word'Embroidery' by the legislature consciously whilemaking Rules for higher Depreciation as referred toin new Appendix-I?case and in law, the learned ITAT was right in notappreciating the non inclusion of the word'Embroidery' by the legislature consciously whilemaking Rules for higher Depreciation as referred toin new Appendix-I? (ii) Whether on the facts and in the circumstances of thecase and in law, the learned ITAT was right in notappreciating that if Government provides subsidy inpurchase of machinery used in textiles under TUFS,the same is not automatically entitled for higherdepreciation as per Income Tax Rules?”case and in law, the learned ITAT was right in notappreciating that if Government provides subsidy inpurchase of machinery used in textiles under TUFS,the same is not automatically entitled for higherdepreciation as per Income Tax Rules?” Notwithstanding formulation of so-called 'substantial questions of law' in paragraph 13 of this appeal by the revenue,which are neither happily worded nor reflect the real controversy,following substantial question of law is formulated fordetermination:- “Whether the machinery purchased under the TextilesUpgradation Fund Scheme (TUFS) and used forembroidery on unembroidered cloth used in textileindustry are eligible for higher depreciation of 50% ashas been held by ITAT?” Facts of the case Brief resume of the facts necessary for understanding the matter in controversy, is necessary. The respondent is engaged in the business of garmentsand textiles. It has been using its machinery for embroidery work ongrey cloth. During the assessment year 2006-07, it had claimeddepreciation, on the machinery purchased under the “TextilesGradation Fund Scheme (TUFS)”, @ 50% to the tune ofRs.17,36,202/-. The Assessing Officer rejected the claim of therespondent on this count and allowed only normal depreciation i.e.,@ 15% on the ground that the assessee had not been using itsmachinery in weaving, processing, manufacturing, etc., which couldentitle him for higher depreciation @ 50%. In appeal preferred by the assessee, Commissioner ofIncome Tax (Appeals), vide its order dated 28.5.2010 reversing theorder of the Assessing Officer allowed depreciation @ 50% on themachines purchased by the assessee under TUFS, as claimed. Insecond appeal preferred by the revenue, Income Tax AppellateTribunal, Amritsar confirmed the findings of Commissioner ofIncome Tax (Appeals) and dismissed the appeal of the revenue videorder dated 23.4.2012 (Annexure A-3).:Rival claims of the parties In appeal preferred by the assessee, Commissioner ofIncome Tax (Appeals), vide its order dated 28.5.2010 reversing theorder of the Assessing Officer allowed depreciation @ 50% on themachines purchased by the assessee under TUFS, as claimed. Insecond appeal preferred by the revenue, Income Tax AppellateTribunal, Amritsar confirmed the findings of Commissioner ofIncome Tax (Appeals) and dismissed the appeal of the revenue videorder dated 23.4.2012 (Annexure A-3).:Rival claims of the parties Contention of counsel for the appellant are two-fold. Itis averred that to claim higher rate of depreciation @ 50% onmachinery and plant purchased under TUFS on or after the 1[st] day of April, 2001 but before the 1[st] day of April 2004, compliance withAppendix-I to Income Tax Rules, 1962, requires use of suchmachinery in weaving, processing and in garment sector of textilesindustry before 1.4.2004. It is canvassed that since the assessee was using itsmachinery only for embroidery work on grey cloth, it was entitled toonly normal depreciation @ 15% and not enhanced rate of 50%. Plea of the assessee, on the other hand, is that the words“processing” and “garment sector” are wide in amplitude inaddition to being dynamic in content and thus, include in their ambitutilization of machinery in any activity in textile industry and thusmake the machinery eligible for higher depreciation. In short, it isurged that once it is proved that the machinery purchased by theassessee under TUFS is being used in the garment sector of textileindustry, no other conditions of Section 32 of the 1961 Act read withAppendix-I of the Income Tax Rules, 1962, are required to besatisfied for claiming higher depreciation.Discussion follows: If Section 32 of the 1961 Act and Appendix I of theRules framed thereunder, regarding eligibility for higherdepreciation, are conjointly gone through, it emerges that followingconditions must co-exist:- (1) the machinery should have been purchased underTUFS;TUFS; (2) such purchase should be between the period from1.4.2001 to 31.3.2004;1.4.2001 to 31.3.2004; (3) such machinery and plant, inter-alia, should be usedin weaving, processing and garment sector of textilesindustry.in weaving, processing and garment sector of textilesindustry. The revenue does not dispute that the case of the assessee is in complete conformity with conditions (1) to (3)mentioned earlier but it is asserted that since the machinerypurchased by the assessee was being used only for embroidery workon the cloth not manufactured by it, such higher rate of depreciationis not available to it. Other circumstances supporting eligibility for higherdepreciation (on the machinery deployed for embroidery on cloth in textile sector) by the assessee, are as under:- (1) Machinery purchased under TUFS is also eligible forgrant of subsidy. The revenue has not disputed thatthe assessee got interest subsidy of Rs.11,33,072/- inits Term Loan account with its Bankers;grant of subsidy. The revenue has not disputed thatthe assessee got interest subsidy of Rs.11,33,072/- inits Term Loan account with its Bankers; Other circumstances supporting eligibility for higherdepreciation (on the machinery deployed for embroidery on cloth in textile sector) by the assessee, are as under:- (1) Machinery purchased under TUFS is also eligible forgrant of subsidy. The revenue has not disputed thatthe assessee got interest subsidy of Rs.11,33,072/- inits Term Loan account with its Bankers;grant of subsidy. The revenue has not disputed thatthe assessee got interest subsidy of Rs.11,33,072/- inits Term Loan account with its Bankers; (2) Assertion of the assessee is that as per Ministry ofTextiles, Govt. of India, in its book “TechnologyUpgradation Fund Scheme for Textiles & JuteIndustry, fabric embroidery machinery are coveredunder “machinery eligible for loomshed (weaving) atSerial No.14, Part B and multi-head computerizedembroidery machinery are covered in list of eligiblemachines for garments/made ups manufacturing inAnnexure E at Serial No.42. These contents of thecited book have not been disputed by the revenue;andTextiles, Govt. of India, in its book “TechnologyUpgradation Fund Scheme for Textiles & JuteIndustry, fabric embroidery machinery are coveredunder “machinery eligible for loomshed (weaving) atSerial No.14, Part B and multi-head computerizedembroidery machinery are covered in list of eligiblemachines for garments/made ups manufacturing inAnnexure E at Serial No.42. These contents of thecited book have not been disputed by the revenue;and (3) When the textiles were subjected to excise duty, inthe assessment year 2005-2006, the assessee hadpaid a sum of Rs.15,52,195/- as excise dutythe assessment year 2005-2006, the assessee hadpaid a sum of Rs.15,52,195/- as excise duty establishing that process of embroidering ofunembroidered cloth is covered in the ambit andscope of word 'manufacturing' of garments as well. Though concededly compliance only of conditionsenumerated herein-before in points No.(1) to (3) ipso facto wouldnot make the said machinery eligible for higher rate of depreciation,but contention of the revenue that the machinery having been usedonly for embroidery work on grey cloth, disentitles such machineryto be eligible for higher rate of depreciation, is not tenable. There is no stipulation by the Government of India or inlaw that the machinery purchased under TUFS is necessarily to bedeployed in “manufacture” or “production”, as has been claimed bythe revenue. Rather, existence of the words “used in weaving,processing and garment sector of textile industry” appearingimmediately after the words “machinery and plant” in Appendix-I ofthe Rules is not without significance. Even Section 32 of the 1961Act, to claim depreciation, nowhere restricts user inter-alia of themachinery in 'manufacture' or 'production'. Similarly, conditions ofTUFS also do not hedge user of the machinery to activities ofmanufacture or production only. In nutshell, use of words“processing” and “garment sector” are vibrant enough to include intheir fold user of the machinery for any activity in textile industryso as to be eligible to claim higher depreciation. Even when item 32 of the V Schedule referred to by the revenue is gone through, it does not help the revenue. Item 32 of the V Schedule is reproduced as under:- “Textiles (including those dyed, printed or otherwiseprocessed) made wholly or mainly of cotton, includingcotton yarn, hosiery and rope.” The words “otherwise processed” in relation to textilesdefinitely, would include embroidery done interalia on any textilecloth. Application of 'Embroidery' on grey cloth is 'processing' ofsuch cloth which makes the embroidered cloth distinct and set apartas compared to unembroidered cloth. Application of some operationon any commodity which brings about change or alteration in it is“processing” irrespective of the nature, content or sweep of suchchange. Thus when unembroidered cloth is embroidered, it amountsto processing of textiles. revenue is gone through, it does not help the revenue. Item 32 of the V Schedule is reproduced as under:- “Textiles (including those dyed, printed or otherwiseprocessed) made wholly or mainly of cotton, includingcotton yarn, hosiery and rope.” The words “otherwise processed” in relation to textilesdefinitely, would include embroidery done interalia on any textilecloth. Application of 'Embroidery' on grey cloth is 'processing' ofsuch cloth which makes the embroidered cloth distinct and set apartas compared to unembroidered cloth. Application of some operationon any commodity which brings about change or alteration in it is“processing” irrespective of the nature, content or sweep of suchchange. Thus when unembroidered cloth is embroidered, it amountsto processing of textiles. Plea of the revenue that non inclusion of fabricembroidery and textiles in the TUFS as per Note 8 of Part B ofAppendix-I by the Govt. of India in the form of a Resolution ofMinistry of the Textile of 31.3.1999 is a conscious decision not toallow special depreciation on the machinery deployed forembroidery work on the clothes, is not tenable. When the words inthe said Note are “weaving, processing and garments sector oftextile industry”, there was no necessity of mentioning of any otheruses to which the machinery purchased under TUFS could be deployed to get depreciation at higher rate, as the words“processing” and 'textile industry' are potent enough to includeembroidery etc. on the cloth. Clearly enough, it appears that theword 'embroidery' etc. were dropped to avoid verbosity in the text ofthe Resolution of the Textile Ministry. Conclusion: Looking from yet another angle, these words depict thatthe entire process starting from the weaving stage culminating uptothe stage of manufacturing of garments is covered in these words.Embroidery is a sort of process on the clothes so as to turn thoseclothes into different textile products. In short embroidery is one ofseveral processes which are carried out on cloth to make such clothdifferent products. In CIT v. Sorvin Knit Words, (1993)109 CTR310, it was held that business of bleaching, dyeing, finishing andembroidery of grey cloth which is not manufactured by the assesseeitself but is purchased by it constitutes business of manufacture ofproducing textiles. Confirming the order dated 28.5.2010 (Annexure A-2)of Commissioner of Income Tax (Appeals), Amritsar, the IncomeTax Appellate Tribunal, Amritsar citing decision of its coordinatebench at ITAT, Ahmedabad in ITA No.2892/Ahd./2009 dated8.7.2011 in which, on an identical issue, appeal of the revenue against allowing of higher depreciation was dismissed, haddismissed appeal of the revenue in the present case as well. Finding no infirmity in the impugned orders ofCommissioner of Income Tax (Appeals) and Income Tax AppellateTribunal, as a sequel to the discussion made earlier, the substantialquestion of law, as framed earlier, is answered in favour of theassessee and against the revenue. Sequelly, the appeal is dismissed. [Dr. Bharat Bhushan Parsoon] Judge July 23, 2013. kadyan [ Rajive Bhalla ] Judge