COMMISSIONER OF INCOME TAX, COMPANIES-III, KARACHI VS Messrs POLYPROPYLENE PRODUCTS LTD., 2006 PTD-KARACHI-HIGH-COURT-SINDH 2419 (2002)

Income Tax Ordinance (XXXI of 1979)---

----S.136(2) & Second Sched., Cl.125---Claim of exemption---Reference to High Court--Application for---Income Tax Appellate Tribunal, observing that assessee was a manufacturer, allowed exemption to assessee and also refused to refer question to High Court as according to it, that was a question of fact and not question of law---Question whether on facts and in circumstances of case, Income Tax Authority was justified in declaring assessee as "manufacturer" as framed was a question of fact---Reference application was dismissed.

Commissioner of Wealth Tax v. SMT Sajjanbai ITR 1982, Volume 137 at page 329 ref.

Nasrullah Awan for Applicant.

Abdul Ghaffar Khan for Respondent.

Date of hearing: 5th September, 2002.

JUDGMENT

ZAHID KURBAN ALAVI, J.---This is an application filed under section 136(2) of the Income Tax Ordinance. The following question of law has been raised:--

??????????? "Whether on facts and in the circumstances of the case the learned ITA was ????? justified in declaring the assessee as "manufacturer" when in fact the garments ????????? were not manufactured by the assessee."

Briefly the facts of the case are that the assessee besides carrying on manufacturing of Polypropylene Bags was also running a garment manufacturing unit income of which was claimed as exempt under clause 125 of the Second Schedule to the Income Tax Ordinance, 1979.

The I.T.O. disallowed the claims of exemption on the pretext that the assessee got the garments stitched from another party and the I.T.O. treated that party as "manufacturer" and not the assessee. Since exemption was available to manufacturers of garments, it was not allowed to the assessee.

4. The I.T.A.T. vide I.T.A. No.539/HQ of 1990-1991, dated 23-8-1992 observed that the whole process of manufacturing viz. purchase of cloth manufactured in Pakistan, its designing, stitching and marketing was done by the assessee. The assessee purchased cloth, approved the design and assigned the work of stitching to another party in the assessee's own premises and on the machine owned by the assessee. The product was ultimately marketed by the assessee itself, only the expertise of the party, which stitched the garments, was utilized. Therefore, there was no doubt that the assessee is a manufacturer and exemption was allowed to it.

The learned Tribunal also refused to refer the question of law to this Court as according to them this was a pure question of fact and no question of law has arisen. Hence the present application.

We have heard the learned counsel and have noted that indeed the question so framed is a question of fact and not law in support of this observation we are fortified by a judgment of the Madhia Pardesh High Court (Indore Bench)' viz. Commissioner of Wealth Tax v. SMT Prematabai and Commissioner of Wealth Tax v. SMT Sajjanbai, reported in ITR 1982, Volume 137 at page 329. In this case it was held that:

??????????? That the activities of the firm were in the nature of manufacture or processing of goods falling within the Explanation to S.5(1)(xxxi) of the W.T. Act and, ??? therefore, the capital invested by the assessee in the firm in which she was a ??????????? partner was entitled to exemption under the section.

In the case of Commissioner of Income Tax, Bombay City-II v. Neo Pharma (Private) Ltd. reported in Income Tax Reports Vol. 137 1982, at page 879 it was held that:--

??????????? "Affirming the decision of the Tribunal; that although the plant and machinery ???? employed for the purpose of manufacturer belonged to Pharmed and the services ???? of certain employees of Pharmed were also utilized in that process, the ?????? manufacturing activity was really that of the assessee. Therefore, it could not be said that it was not the assessee but Pharmed which manufactured the drugs and ???? pharmaceuticals, and since the income of the assessee attributable to the ??????????? manufacturing activity was not less than 51 per cent, of its total income; the ?????? assessee was an "industrial company" entitled to the concessional rate of tax."

The above are the reasons for the short orders passed earlier dismissing this application.

H.B.T./C-19/K??????????????????????????????????????????????????????????????????????? Application dismissed.