COMMISSIONER OF INCOME-TAX VS Messrs PASKIN (PVT.) LTD., 2003 PTD-KARACHI-HIGH-COURT-SINDH 2073 (2003)

(a) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cl. (125-A) & S.136---Exemption---Service charges received by assessee for tailoring and stitching leather garments for others---Exemption on such income refused by Assessing Officer was allowed by Appellate Authority and upheld by Tribunal---Validity-- Term "manufacture" not defined in Income Tax Ordinance, 1979, thus, help, had to be taken from dictionary for ascertaining its ordinary meaning ---Assessee had cut leather (raw material), stitched cut pieces to make them into jackets, stitched buttons and made Kajs to make jackets complete---Assessee had used skill of hand as well as of machinery in doing such job---Jackets made by assessee were in large quantity---Job undertaken by assessee was of manufacture of leather garments-- Immaterial for purpose of Cl. (125-A) of Income Tax Ordinance, 1979, whether process of manufacturing of leather garments was undertaken by assessee for itself or others---Such service charges would obviously by profits and gains derived by the assessee from manufacturing of leather garments---High Court answered the question ill affirmative.

Messrs Kaiser Apparels (Pvt.) Ltd. v. The I.T.O I.T.Rs Nos.263/KB of 1988-89 and 189/KB of 1989-90 ref.

(b) Words and phrases---

-----"Manufacture" ---Meaning

Black's Law Dictionary, 6th Edn., p.965 and 21st Century Dictionary, Revised Edn., p. 837 ref.

(c) Words and phrases---

----"Manufacture"---Connotation---Such term is used for describing process of making of goods or any material produced by hand or by machinery or any other process from raw material in large quantities.

Nasrullah Awan and Arif Moton for Applicant.

Nemo for Respondent

Date of hearing: 23rd April, 2003.

JUDGMENT

GULZAR AHMED, J.---In this reference following question of law has been referred to this Court:--

"Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal is justified in treating service Charges received for tailoring and stitching for other parties, cove-red by the exemption under clause 125-A of the Second Schedule of Income Tax Ordinance?"

The facts of the matter are that the respondent asses see is private limited company and is engaged in manufacture of leather garments. The assessee submitted its return for the assessment year 1988-89 in which it declared total income of Rs.268,922 and claimed exemption from levy of Income Tax on the whole of this income under clause (125-A) of the Second Schedule of the Income Tax Ordinance, 1979. The Assessing Officer after examining the return passed assessment order wherein he treated an amount Rs.108,282 received by the assessee as stitching charges for stitching of jackets for other parties as not exempt under the said clause 125.A. The assessee filed an appeal against the assessment order. The Commissioner of Income Tax gave finding in the appeal that stitching for others, does not constitute the whole process of manufacturing of garments which is exempt under clause 125.A for the reason that exemption is admissible when the garments are manufactured with the raw materials including leather owned by the company itself. On further appeal, the Income Tax Appellate Tribunal allowed the appeal.

The Tribunal in its order relied upon its earlier Division Bench order passed in I.T.Rs. Nos.263/KB of 1988-89 and 189/KB of 1989-90 Messrs Kaiser Apparels (Pvt.) Ltd. v. The I.T.O. and held that the income earned by the respondent by way of stitching charges for making or sewing leather garments on orders placed and materials supplied by others is to be treated as income from manufacture of leather garments in terms of clause 125-A and the same is exempt from charge of income -tax. The applicant applied for reference of question of law to this Court which was accepted by the Tribunal and the above referred question of law is referred.

We have heard the arguments of Messrs Nasrullah Awan and Arif Moton, learned counsels appearing for the applicants. Respondent is served but has remained absent. Learned counsels have argued that merely stitching does not amount to manufacture and respondent is not entitled to exemption under 125-A. We have considered the arguments and gone through the record. As the matter relates to the interpretation of Clause 125A of the Second Schedule of the Income Tax Ordinance, 1979, it is reproduced as under:--

"[(125-A) Income from manufacture of leather garments-profits and gains derived by an assessee from an industrial undertaking set up between the first day of July, 1985, and the thirtieth day of June, (1994), both days inclusive, for a period of five years beginning with the month in which the undertaking is set up or the commercial production is commenced, whichever " is the later.

The exemption under this clause shall apply to an industrial undertaking which fulfills the following conditions, namely:--

(a) engaged in the manufacture of leather garments from leather manufactured in Pakistan; and

(b) owned and managed by a company formed and registered under the Companies Ordinance, 1984, having its registered office in Pakistan."]

The above quoted provision of clause 125-A provides that profits and gains derived by an assessee from an industrial undertaking engaged in the manufacture of leather garments from leather manufactured, in Pakistan and which is owned and managed by a company formed and registered under the Companies Ordinance, 1984 having its registered office in Pakistan shall be exempt from payment of income tax for the period mentioned in the clause.

It is admitted position that the respondent has stitched leather jackets for other parties and has received charges for such stitching. The activity of stitching was explained by the authorized representative of the respondent before the Commissioner of Income Tax to be the process or cutting, stitching, buttons and kaj. This process is not disputed. Therefore, in the context of clause 125-A, it is to be determined whether the process undertaken by the respondent amounted to manufacture of leather garments. Leather jackets stitched by the respondent admittedly are leather garments. The term "manufacture" is not defined in the Income Tax Ordinance, therefore, aid has to be taken from the dictionary for ascertaining it's ordinary meaning. In the Blacks Law Dictionary 6th Edition at page 965 it is defined as follows:--

"Manufacture.---The process or operation of making goods or any material produced by hand, by machinery or by other agency anything made from the raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms qualities, properties or combinations, whether by hand labour or machine; Cain's Coffee Co. v. City of Muskogee, 171 Ok1. 635, 44 P.2d 50, 52.

In the 21st Century Dictionary revised Edition at page 837 the term is defined as follows:--

"Manufacture 1.---To make something from raw materials especially in large quantities using machinery. 2. To invest for fabricate something. 3. To practice, act or process or manu facturing something. 4 Anything manufactured."

On examining the definition of the term manufacture, it is clear that it is used for describing the process of making of goods or any material produced by hand or by machinery or by any other process from raw material in large quantities. What respondent appears to have done is that it has cut the leather which is the raw material and then stitched the cut pieces to make them into jacket. Then the respondent appears to have stitched buttons and made kaj to make the jacket complete. In doing this job, the respondent appears to have used the skill of hand as well as of machinery. The jackets made by the respondent are admittedly in large quantity. Now keeping in view the definition of the term "manufacture" as reproduced above, undoubtedly, the job undertaken by the respondent is of manufacture of leather garment. It is immaterial for the purpose of clause 125-A, that the process of manufacturing of leather garment is undertaken by the respondent for itself or for others. The service charges as is referred to in the question will obviously be the profits and gains derived by the respondent from manufacturing or leather garments. In this view of the matter, our answer to the question referred in the affirmative.

This ITR is answered in the above terms and disposed of accordingly.

S.A.K./C-81/K Answered in affirmative.