1. These two references relate to the assessment years 1973-74 (Samvat year 2028) and 1974-75 (Samvat year 2029). The assessee is a private limited company carrying on business in ginning and pressing of cotton. Admittedly more than 80 per cent. of its income is from pressing charges recovered from customers and the balance relates to ginning charges. The ITO treated the assessee as an "industrial company" within the meaning of s. 2(7)(c) of the Finance Act, 1973. That section in so far as we are concerned, reads as under :

"For the purposes of this section and the First Schedule, - ......

(c) 'industrial company' means a company which is mainly engaged - ...... in the manufacture or processing of goods ......"

2. It is not necessary to notice the Explanation to the said sub-section as it is an undisputed fact that more than 80 per cent. of its income derived by the assessee is from pressing charges recovered from its customers. The Commissioner acting in exercise of the powers under s. 263 of the I.T. Act, 1961, felt that the assessee could not be said to be an "industrial company" as more than 80 per cent. of its income was from pressing charges and ought to have been charged to tax at 65 per cent. In taking this view, he refused to place reliance on the decision of this court in CIT v. Ajay Printery Pvt. Ltd. [1965] 58 ITR 811. After distinguishing the said decision on facts, he placed reliance on the decision of the Punjab High Court in Patel Cotton Co. Pvt. Ltd. v. State of Punjab [1964] 15 STC 865 (Punj), to which a reference is found in the decision of the Kerala High Court in CIT v. Casino (Pvt.) Ltd. [1973] 91 TIR 289 at p. 297. The Punjab High Court took the view that no manufacturing process was involved in ginning cotton as the process of ginning did not create any new or distinctive commodity. Relying on the observations reproduced from the decision in Raghbir Chand Som Chand v. Excise and Taxation Officer [1960] 11 STC 149 (Punj), that every change is not manufacture, in spite of the fact that every change in an article may be the result of treatment, labour and manipulation, the Commissioner came to the conclusion that "raw cotton still remains raw cotton even if it is ginned or pressed" and, therefore, it cannot be said that ginning and pressing of cotton is a manufacturing process within the meaning of the definition of "industrial company" reproduced earlier. In this view, he held that the order passed by the ITO was erroneous, in so far as it was prejudicial to the interest of the Revenue, and called for the exercise of power under s. 263 of the I.T. Act, 1961; he, therefore, held that the assessee was not an "industrial company" within the meaning of s. 2(7)(c) of the Finance Act, 1973. Accordingly, he directed the ITO to levy tax at the rate of 65 per cent. as against 55 per cent. already charged. The assessee feeling aggrieved by the said order carried the matter, in appeal to the Income-tax Appellate Tribunal, Ahmedabad (Bench B). The Tribunal, placing reliance on the decision of the Punjab High Court in Patel Cotton Co. Pvt. Ltd. [1964] 15 STC 865, and the decision of the Kerala High Court in Casino (Pvt.) Ltd. [1973] 91 ITR 289, came to the conclusion that ginning of cotton does not amount to manufacture. So also, it held that pressing of cotton also did not amount to manufacture. Then pointing out that the decisions on which the Revenue relied dealt with only the manufacturing aspect, it concluded that pressing of cotton would fall within the expression "processing of goods" within the meaning of s. 2(7)(c) of the Finance Act, 1973, and, therefore, the order of the Commissioner directing levy of tax at the rate of 65 per cent. instead of 55 per cent. could not be sustained. Accordingly, the appeals in respect of both the assessment years were allowed by the Tribunal. The Revenue feeling aggrieved by the said decision of the Tribunal in the two appeals sought the present two references. As the question involved in both the references is identical, namely :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee is entitled to be treated as an industrial company under section 2(7)(c) of the Finance Act, 1973 ?"

3. We proceed to dispose of them by this common judgment. We may, however, state that in Reference No. 245 of 1978, the relevant section is s. 2(8)(c) of the Finance Act, 1974, and except for this difference, in substance, the question involved in that reference is the same because the definition of industrial company in s. 2(8)(c) of the Finance Act, 1974, is the same.

4. The expression "manufacture or processing of goods" has not been defined by the Finance Act, 1973, or the Finance Act, 1974. According to the dictionary, the term "manufacture" means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes "manufacture", no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. We, therefore, do not think that it is necessary to refer to a catena of decisions dealing with the expression "manufacturing of goods" used in different statutes. We are concerned with the question whether ginning of cotton can be said to be "manufacturing of goods" within the meaning of the expression "industrial company" defined in the aforesaid two Finance Acts. Now, in taking the view that ginning of cotton is not "manufacture of goods", the Revenue relied on the decision of the Punjab High Court in the case of Patel Cotton Co. Pvt. Ltd. [1964] 15 STC 865. That decision was considered by the Supreme Court in State of Punjab v. Chandu Lal Kishori Lal, AIR 1969 SC 1073; [1970] 25 STC 52. Their Lordships of the Supreme Court, after referring to the mechanical aspect of the ginning process described in Encyclopedia Britannica, Volume VI, in terms stated (p. 56 of 25 STC) : "In our opinion, the appellants are right in their contention that the ginning process is a manufacturing process". Their Lordships, therefore, expressly overruled the decision of the Punjab High Court in Patel Cotton Company Pvt. Ltd. [1964] 15 STC 865, on which strong reliance was placed by the Revenue before the authorities below. Therefore, the view of the Tribunal that ginning of cotton is not a manufacturing process cannot be upheld in view of the aforesaid clear pronouncement of the Supreme Court.

5. The Tribunal has also taken the view that pressing of cotton is not a manufacturing process. We do not consider it necessary to enter into a discussion on this question because the Tribunal has ultimately come to the conclusion that pressing of cotton amounts to processing of goods within the meaning of the definition of the term "industrial company" and, therefore, the assessee is entitled to the tax concession available to such companies by virtue of the aforesaid two Finance Acts. We have, therefore, to consider whether the Tribunal was right in coming to the conclusion that pressing of loose cotton into bales amounts to processing of cotton within the meaning of the definition of "industrial company" in the two relevant Finance Acts.

6. Now, before we answer the contention raised by the Revenue, it is necessary to bear in mind the process which cotton undergoes for being compressed into bales. The assessee-company receives cotton in bulk having lighter density which is sprinkled with water and through a mechanical device pressed into small units of convenient sizes and then packed into bales. Cotton packed in bales is commercially acceptable as merchants find it convenient to store cotton in that form because unpressed cotton would require considerable storing space which may ultimately prove uneconomical to the traders dealing in or using cotton. It is, therefore, obvious that cotton in bulk form is first treated with water and thereafter by a mechanical process compressed into small units of convenient sizes and then packed into bales to be made commercially acceptable. We do not consider it necessary to refer to a number of authorities to which our attention was called by the learned counsel for the Revenue because we think that the point is concluded by a decision of the Supreme Court to which we will presently refer. However, before referring to the decision of the Supreme Court it would be appropriate to call attention to the decision of the Calcutta High Court in Sri Om Prakash Gupta v. CCT [1965] 16 STC 935. In the definition of the term "dealer" in the West Bengal Sales Tax Act (IV of 1954), the expression "commodities manufactured, made or processed" was used. In that case the assessee made camphor cubes out of camphor by application of mechanical force or pressure upon camphor powder, without addition or admixture of any other material and without application of any other process. On behalf of the Revenue the submission was that unless as a result of the process the raw material was converted into any other form, which conversion did not take place where camphor was made into cubes from camphor powder, the process would not be a process within the meaning of "dealer" in s. 2(b) of the relevant Act. After reproducing the definition of the word "dealer" at p. 941 and after referring to the meaning of the word "process" in the Oxford Dictionary - "a continuous and regular action or succession of actions, taking place or carried on in a definite manner, and leading to the accomplishment of some result" - the learned judge observed that the activity contemplated by the word "process" in general, requiring any continuous and regular action or succession of actions leading to the accomplishment of some result but it is not one of the requisites that the activity should involve some operation on some material in order to its conversion into some other stuff. In this view that the learned judge took, he held that by converting camphor powder into camphor cubes what the assessee did was to process camphor powder into cubes within the meaning of s. 2(b) of the said Act.

7. In Casino (Pvt.) Ltd. [1973] 91 ITR 289, the Division Bench of the Kerala High Court, while dealing with the word "processing" appearing in s. 2(6)(d) of the Finance Act, 1968, observed that it was evident from the context in which that word was used, that it was complementary to the term "manufacture" and, therefore, would not cover manufacture also. In other words, activities of a nature in regard to goods which may not amount to manufacture but which would result in the doing of something to the goods to change or alter their form may be taken in by the term "processing". Processing, in the context, would, therefore, mean something less than complete loss of identity of the goods because it falls short of manufacturing of goods.

8. The decision of the Calcutta High Court was quoted with approval by their Lordships of the Supreme Court in Chowgule & Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124, 131; AIR 1981 SC 1014. After referring to the meaning of the word "process" in Webster's Dictionary, their Lordships proceeded to observe as under :

"The nature and extent of procession may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of the some oppression would amount to processing of the nature and extend of the change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or add mixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Sri Om Prakash Gupta v. Commissioner of Commercial Taxes [ 1965] 16 STC 935."

9. Therefore, what is necessary in order to characterise an operation as pressing is that the commodity must, as a result of the operation, experience some change.

10. The nature of processing of loose cotton into cotton bales after sprinkling water and mechanically pressing the same is similar to processing camphor powder into camphor cubes. Loose cotton in bulk quantity with lighter density is as a result of pressing converted into bales and to that limited extend certainly undergoes a change. In view of the Supreme Court having the view taken by the Calcutta High Court in the aforesaid case, our task in made easy. There can be no doubt that if camphor powder pressed into cubes can be said to have undergone some sort of processing, loose cotton too can be said to have processed when mechanically pressed and converted into cotton bales. We are, therefore, of the opinion that the Tribunal was right in coming to the conclusion that the assessee-company falls within the definition of an "industrial company" because it processes cotton into cotton bales. We therefore, answer the question framed for our opinion in the affirmative. Both these reference are answered accordingly with no order as to costs.