2003 (10) TMI 24 - HC - Income Tax

Cut and polished minerals - claim for deduction u/s 80HHC - Section 80HHC(2)(b) prior to amendment - Section 80HHC(2)(b)(ii) after amendment - When sub-section (2)(b)(ii) of section 80HHC of the Act is clear and unambiguous, on the basis of the subsequent amendment made to sub-section (2)(b)(ii) of section 80HHC by means of the Finance (No.2) Act of 1991, it is not permissible to take the view that cut and polished minerals are excluded from the purview of minerals under sub-section (2)(b)(ii) - assessees are not entitled to derive any benefit on the basis of the subsequent amendment made to section 80HHC(2)(b)(ii)

Issues Involved:
1. Whether granite falls under the category of 'mineral' in the context of clause (b)(ii) of sub-section (2) of section 80HHC.
2. Whether the extraction of granite is a manufacturing activity, making the assessee eligible for investment allowance under section 32A on the plant and machinery.
3. Applicability of Board Circular No. 729, dated November 1, 1995, for assessment years prior to 1995-96.

Issue-Wise Detailed Analysis:

1. Granite as a 'Mineral' under Section 80HHC(2)(b)(ii):
The primary issue was whether cut and polished granite falls under the category of 'mineral' as per section 80HHC(2)(b)(ii) of the Income-tax Act, 1961. The court referred to the Mines and Minerals (Regulation and Development) Act, 1957, which defines 'minerals' broadly to include all minerals except mineral oils. The court emphasized that the term "mineral" should be given its natural and commercial meaning, encompassing substances forming part of the earth's crust. The court cited previous judgments and authoritative definitions, concluding that granite, even when cut and polished, remains a mineral. The court rejected the argument that cut and polished granite ceases to be a mineral, noting that the Act does not provide a restricted definition that excludes processed minerals. The court also clarified that the subsequent amendment to section 80HHC(2)(b)(ii) by the Finance (No.2) Act of 1991, which excluded processed minerals from the purview of 'minerals', was not clarificatory but a substantive change applicable prospectively from April 1, 1991.

2. Extraction of Granite as a Manufacturing Activity:
The second issue was whether the extraction of granite qualifies as a manufacturing activity, making the assessee eligible for investment allowance under section 32A on the plant and machinery. This question had already been answered by the Division Bench of the court in favor of the assessee, affirming that the extraction of granite is indeed a manufacturing activity. Consequently, the assessee was entitled to the investment allowance under section 32A.

3. Applicability of Board Circular No. 729 for Earlier Assessment Years:
The third issue involved the applicability of Board Circular No. 729, dated November 1, 1995, which clarified that processed minerals and ores specified in the Twelfth Schedule would qualify for deductions under section 80HHC. The court held that this circular was applicable only from the assessment year 1995-96 onwards and not for earlier assessment years. The court noted that the circular, being a clarification issued under section 119 of the Act, cannot be applied retrospectively to alter the legal position for prior assessment years. The court also distinguished between the processing of diamonds and granites, emphasizing that the circular related specifically to diamonds and not to granites.

Conclusion:
The court concluded that cut and polished granite remains a mineral under section 80HHC(2)(b)(ii) of the Act, and the subsequent amendment to exclude processed minerals from this definition was not retrospective. The court affirmed that the extraction of granite is a manufacturing activity eligible for investment allowance under section 32A. The court also held that Board Circular No. 729 applies only from the assessment year 1995-96 onwards. Consequently, the questions were answered in favor of the Revenue and against the assessee, and the appeal (I.T.A. No. 31 of 2001) was rejected.

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