256. Textile made wholly or mainly of cotton - Item 21 of Ninth Schedule -Interpretation of word "mainly" - Sub-clause (iii) of clause (b) of sub-section (2)
Circular No. 213 was issued by the Central Board of Direct Taxes on 14 March 1977. Its subject is 256. Textile made wholly or mainly of cotton - Item 21 of Ninth Schedule -Interpretation of word "mainly" - Sub-clause (iii) of clause (b) of sub-section (2).
Puts a figure on the word 'mainly' in item 21 of the Ninth Schedule - 'textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope' - for investment allowance under section 32A on plant installed after 31 March 1976. 'Mainly' is not defined in the Act, so the Board borrows the 51 per cent test used for an industrial company in section 2(9)(c) of the Finance Act, 1976 and holds that the cotton content must be not less than 51 per cent. Cotton content is measured by the weight of the yarn used in the fabric: if the weight of cotton yarn is at least 51 per cent of the weight of all yarn used, the fabric is made mainly of cotton, and where the yarn is itself a mixed yarn its cotton content counts towards the total. The test applies fabric by fabric - if the cotton content in some fabrics produced falls below 51 per cent, the machinery is not for producing textiles made wholly or mainly of cotton.
The Board had occasion to consider the meaning of 'mainly' in item 21, which the Act does not define.
256. Textile made wholly or mainly of cotton - Item 21 of Ninth Schedule -Interpretation of word "mainly" - Sub-clause (iii) of clause (b) of sub-section (2)
1. Section 32A, introduced by the Finance Act, 1976, provides for a deduction at a specified rate by way of investment allowance in respect, inter alia, of machinery or plant installed after 31st March, 1976, for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Ninth Schedule to the Income-tax Act. Item No. 21 of the Ninth Schedule is as follows :
"Textiles (including those dyed, printed or otherwise processed) made wholly or mainly of cotton, including cotton yarn, hosiery and rope."
2. The Board had an occasion to consider the interpretation of the word "mainly" used in item 21 of the Ninth Schedule. The word "mainly" used in this context has not been defined in the Act. However, for the purposes of ascertaining the rate of tax applicable to an "industrial company" which has been defined in section 2(9)(c) of the Finance Act, 1976 to mean a company mainly engaged, among other things, in the manufacture or processing of goods, it has been provided therein that if the income attributable to such activities is not less than 51 per cent of the total income, it would be treated as an "industrial company". Keeping this in view, it can be said that for the purposes of item 21 of the Ninth Schedule the cotton content of the textiles manufactured should not be less than 51 per cent. The percentage of cotton content will be ascertained with reference to the weight of the yarn used in the fabrics. Thus, if the weight of the cotton yarn used for the manufacture of a certain fabric is not less than 51 per cent of the weight of all types of yarn used for the manufacture of that fabric, such fabric can be said to be made mainly of cotton. In cases where the yarn itself is a mixed yarn containing cotton and other fibres, the cotton content of such yarn will also have to be taken into account for determining the total cotton content of the fabric.
3. If the cotton content in some of the fabrics produced is less than 51 per cent, the machinery installed cannot be said to be for the purposes of business of production of textiles made wholly or mainly of cotton. In other words, the cotton content of each fabric produced by the use of the machinery in respect of which investment allowance is allowable, should be 51 per cent or more.
Circular : No. 213 [F. No. 202/5/77-IT(A-II)], dated 14-3-1977.
In an assessment or appeal where investment allowance on textile machinery is refused on the ground that the fabric is not mainly cotton.
A fabric is woven from 60 kg of cotton yarn and 40 kg of polyester yarn per hundred kilograms. Cotton is 60 per cent by weight of the yarn used, so the fabric passes. If the mill also runs a line whose fabric is 45 per cent cotton, the machinery producing that fabric fails the test even though the mill's overall cotton use is higher.
Source: the Income Tax Department’s own published text — its page for this instrument.