2007 (7) TMI 4 - SC - Income Tax

Issues Involved:

1. Whether the respondent-assessee's activity of blending tea qualifies as "manufacture" or "production" under Section 35B(1A) of the Income Tax Act, 1961.
2. Whether the respondent-assessee is entitled to weighted deduction under Section 35B(1A) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the respondent-assessee's activity of blending tea qualifies as "manufacture" or "production" under Section 35B(1A) of the Income Tax Act, 1961:

The court examined the definitions and interpretations of "manufacture," "production," and "process" in detail. It was noted that the term "manufacture" has not been defined in the Income Tax Act, 1961, but has been defined in Section 2(f) of the Central Excise Act, 1944, as including any process incidental or ancillary to the completion of a manufactured product. The court referred to various dictionary definitions and judicial interpretations to understand these terms. For instance, "manufacture" implies a change resulting in a new and different article with a distinctive name, character, or use. "Production" includes the act of producing or making goods, encompassing activities that bring forth new goods by a process that may or may not amount to manufacture. "Process" involves a series of actions leading to the accomplishment of a result, often transforming raw materials into marketable forms.

The court analyzed the stages of tea production, manufacturing, and processing. It concluded that the respondent-assessee's activity of blending different qualities of tea falls under "processing" rather than "manufacture" or "production." The blending of tea results in a qualitative change but does not create a new and distinct article.

2. Whether the respondent-assessee is entitled to weighted deduction under Section 35B(1A) of the Income Tax Act, 1961:

Section 35B(1A) of the Act provides weighted deduction for expenditure incurred by small-scale exporters on goods manufactured or produced by them. The court emphasized that the benefit under this section is restricted to goods that are "manufactured" or "produced" and does not extend to goods that are merely "processed." The respondent-assessee's activity of blending tea, being classified as "processing," does not meet the criteria for "manufacture" or "production."

The court referred to previous judgments, including the Calcutta High Court's decision in G.A. Renderian Ltd. v. Commissioner of Income-Tax and the Supreme Court's decision in Chowgule & Co. (P) Ltd. v. Union of India, which dealt with similar issues. However, it distinguished these cases based on the specific language of the statutes involved. In those cases, the term "processing" was included in the relevant statutes, allowing the assessees to claim benefits. In contrast, Section 35B(1A) of the Income Tax Act, 1961, explicitly omits the term "processing."

The court concluded that since the legislature deliberately omitted the term "processing" from Section 35B(1A), the respondent-assessee cannot be granted the benefit of weighted deduction under this section. The court emphasized the principle that it is not the role of the judiciary to rewrite or expand the scope of legislation beyond its clear language.

Conclusion:

The court allowed the appeal, set aside the impugned judgment, and ruled that the respondent-assessee's activity of blending tea does not qualify as "manufacture" or "production" under Section 35B(1A) of the Income Tax Act, 1961. Consequently, the respondent-assessee is not entitled to the weighted deduction under this section. The parties were directed to bear their own costs.