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