Pr. Commissioner Of Income Tax-I Ludhiana v. M/S Vardhman Yarns & Threads Ltd Chandigarh Road,Ludhiana

SMRITI-|-2019.12.20 10:10I attest to the accuracy andintegrity of this document ITA-5-2018 (O&M) and other connected cases IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Date of Decision: 13.12.2019ITA-5-2018 (O&M) Pr. Commissioner of Income Tax-I Ludhiana ... Appellant VS. M/s Vardhman Yarns & Threads Ltd Chandigarh Road,Ludhiana .. Respondent ITA-27-2018 (O&M) Vardhman Yarns and Threads Ltd... AppellantVS.Commissioner of Income Tax, Ludhiana.. Respondent ITA-6-2018 (O&M) Pr. Commissioner of Income Tax-I Ludhiana ... Appellant VS. M/s Vardhman Yarns & Threads Ltd Chandigarh Road,Ludhiana .. Respondent ITA-321-2019 (O&M) Pr. Commissioner of Income Tax-I, Ludhiana ... Appellant VS. M/s VTL Investment Ltd. (Formerly Known as Vardhman ThreadsLtd.) Vardhman Complex, Chandigarh Road, Ludhiana. .. Respondent CORAM: HON'BLE MR. JUSTICE AJAY TEWARI.HON'BLE MR. JUSTICE VIVEK PURI Present :Mr. Rajesh Katoch, Advocate with Ms. Pridhi Jaswinder Sandhu, Advocatefor the appellant(s) inITA Nos. 5, 6 of 2018 and ITA-321-2019 and|for the respondent in ITA-27-2018, Ms. Radhika Suri, Senior Advocate with Mr. M.S.Kanda, Advocatefor the appellant in ITA-27-2018 andfor the respondent(s) in ITA Nos. 5, 6 of 2018 andITA-321-2019. ITA-5-2018 (O&M) and other connected cases AJAY TEWARI, J. (QRAL) 1]This is group of four appeals, three has been preferred by theRevenue and one by the Assessee. ?DITA No.5 of 2018 has heen filed under Section J6O0A of thIncome Tax Act, 1961 against the order dated 13.07.2017 passed by theIncome Tax Appellate Tribunal, Division Bench, Chandigarh, in ITA No.569/Chd/2012 for the A. Y 2008-09 3,ITA No.27 of 2O18 has been filed under Section 260A of theIncome Tax Act, 1961 against the order dated 13.07.2017 passed by theIncome Tax Appellate Tribunal, Chandigarh Bench, in ITA No.1159/Chd/2013 for the A. Y 2009-10 4ITA No.6 of 2018 has been filed under Section J6O0A of thIncome Tax Act, 1961 against the order dated 13.07.2017 passed by theIncome Tax Appellate Tribunal, Division Bench, Chandigarh, in ITA No.02/Chd/2014 for the A.Y.2009-10, 5 ITA No.321 of 2019 has heen filed under Section JO0A of theIncome Tax Act, 1961 against the order dated 11.12.2018 passed by theIncome Tax Appellate Tribunal, Division Bench, Chandigarh, in ITA No.762/Chd/2009 for the A. Y 2006-07 onFor the sake of convenience, facts are being extracted fromITA No.5 of 2018. TiThe brief facts relating to the issues are that the assessee hadearned interest income from the security deposit made with the ElectricityBoard (HPSEB). The Assessing Officer treated the said interest income as‘income from other sources’ and did not allow the set off of the same againstthe interest expenditure incurred by the assessee on the loan amount SMRITI-3-2019.12.20 10:10I attest to the accuracy andintegrity of this document ITA-5-2018 (O&M) and other connected cases obtained from the banks for business purposes. The Assessing Officerdisallowed the claim of the assessee for treating the said income as ‘businessincome’ and further to include the said income into the eligible claim fordeduction under Section 80IC of the Income Tax Act, 1961. AssesseeasSailed the order of the Assessing Officer on this issued before CIT (A),but remained unsuccessful| 8 The following questions have been raised in ITA No. 5 of2018:- “1. That the Hon'ble ITAT has erred in law andfacts indirecting the AO to consider interest income received bythe assessee on the delayed payments from customersand suppliers as ‘Business Income’ instead of ‘Incomefrom Other Sources’ as considered by the AO. ITA-5-2018 (O&M) and other connected cases obtained from the banks for business purposes. The Assessing Officerdisallowed the claim of the assessee for treating the said income as ‘businessincome’ and further to include the said income into the eligible claim fordeduction under Section 80IC of the Income Tax Act, 1961. AssesseeasSailed the order of the Assessing Officer on this issued before CIT (A),but remained unsuccessful| 8 The following questions have been raised in ITA No. 5 of2018:- “1. That the Hon'ble ITAT has erred in law andfacts indirecting the AO to consider interest income received bythe assessee on the delayed payments from customersand suppliers as ‘Business Income’ instead of ‘Incomefrom Other Sources’ as considered by the AO. 2. That Hon'ble ITAT has erred in law and facts inallowing deduction u/s SOIC by holding, that processundertaken by the assessee is a manufacturing activityignoring the facts that conversion of yarn into threaddoes not amount to manufacturing as it does not bringinto existence as new or distinct product and furtherignoring the decision of Hon'ble Supreme Court in thecase of CIT Vs. Emptee Ply Yarn (P) Ltd., in CivilAppeal No. 786 of2010 dated 20.01.2010, wherein it hasbeen held that twisting and texturising ofyarn would notconstitute ‘manufacturing’ in every case.” Q Learned counsel for the Assessee has referred to the judgments of this Court in case titled as Phatela Cotgin Industries Pvt. Ltd. vs.Commissioner of Income Taxwherein it was held that in such a case wherethere is provision in the contract for interest on the delayed payment ofoutstanding balance, any delayed payment and interest thereon would beconstituted as income trom business and not income from other sources. ITA-5-2018 (O&M) and other connected cases 10,Learned counsel for the Revenue has argued that actually inthat case, an appeal could not be carried to the Supreme Court because oflower tax effect. However, he has not been able to cite any judgment toshow or give any reason why the proposition laid down by the Bench in thatcase could not be followed| 11.In the circumstances, we hold question No.1 against theRevenue and in favour of the Assessee. 12.As regards the question No.2, the contention of learned counselfor the Revenue is that metamorphosis of yarn into thread is notmanufacturing but process.13,In this connection, learned Senior counsel appearing on behalfof the Assessee has relied upon the judgment dated 20.01.2010 rendered bythe Supreme Court in Civil Appeal No. 786 of 2010 titled asCommissioner of Income Tac, Mumbai vs. Emptee PolyYarn Pvt. Ltd.and particularlypara 7 thereof which is reproduced hereinbelow:- “Having examined the process in the light of the opinion given bythe expert, which has not been controverted, wefind that POY is asemi-finished yarn not capable of being put in warp or weft, it canonly be used for making a texturized yarn, which, in turn, can beused|in the manufacture of fabric. In other words, POY cannot beused directly to manufacture fabric. According to the expert,crimps, bulkiness etc. are introduced by a process, called as thermomechanical process, into POY which converts POY into atexturized yarn. If one examines this thermo mechanical process indetail, it becomes clear that texturising and twisting of yarnconstitutes 'manutfacture' in the context of conversion of POY inttexturized yarn. At this stage, we may also reproduce, hereinbelow,para 10 of our judgment in the case of C.I.T. v. Oracle SoftwareIndia Ltd., reported in MANU/SC/0040/2010: 2010 (1) SCALEA?5| "The term "manufacture" implies a change, but, everychange is not a manufacture, despite the fact that everychange in an article is the result of a treatment of labour andchange is not a manufacture, despite the fact that everychange in an article is the result of a treatment of labour and SMRITI-5)2019.12.20 10:10I attest to the accuracy andintegrity of this document ITA-5-2018 (O&M) and other connected cases "The term "manufacture" implies a change, but, everychange is not a manufacture, despite the fact that everychange in an article is the result of a treatment of labour andchange is not a manufacture, despite the fact that everychange in an article is the result of a treatment of labour and SMRITI-5)2019.12.20 10:10I attest to the accuracy andintegrity of this document ITA-5-2018 (O&M) and other connected cases manipulation. However, this test of manufacture needs to beseen in the context of the above process.If anoperation/process renders a commodity or article fit for usefor which it is otherwise not fit, the operation/process fall=Swithin the meaning of the wordBmanufactureBC 14.It is not disputed that the yarn which has been used by theAssessee cannot be utilized, for instance for threading purpose. Resultantly,it falls within the definition of manufacturing. Question No.2 is answeredagainst the Revenue and in favour of the Assessee. 15,Consequently, the appeals filed by the Revenue are dismissed,16.Since the appeals filed by the Revenue are dismissed, learnedsenior counsel appearing for the Assessee states that the appeal bearing ITANo. 27 of 2018 has been rendered infructuous and the same may bedisposed of as such. 17.Consequently, ITA No.27 of 2018 is disposed of as having been rendered intfructuous 18.Since the main case(s) is decided, pending application(s), if any, also stands disposed of, (AJAY TEWARI )JUDGE (VIVEK PURI)JUDGE 13.12.2019Ssmrit Whether speaking/reasoned: Yes/NoWhether Reportable: Yes/No