2004 (1) TMI 638 - AT - Income Tax

Deduction under sections 80HH and 80-I - Profits and gains from hotels or industrial undertakings, etc., in backward areas - small-scale industrial unit manufacturing graded metal (granite rubble of various sizes)​​​​​​​ - Whether the activity carried out by the assessee qualifies as a manufacturing activity - HELD THAT - One of the principles laid down by the Hon ble Supreme Court on the subject is in the case of Pio Food Packers 1980 (5) TMI 30 - SUPREME COURT . One of the tests laid down by the Hon ble Apex Court therein is that in the case of manufacturing activity, the inputs and outputs shall be commercially different. This commercial identity is to be considered in the light of the respective trade practice, or if no such trade practice, in the common parlance. In the present case, the raw material extracted by the assessee-firm is the granite boulders. What is sold by the assessee is granite aggregates (commonly known as metals) of different commercial sizes of 1 , 1 , , etc. These different sizes of granite aggregates are used for different purposes, even though used generally in construction activities. The granite aggregates of different sizes sold by the assessee are commercially different from granite boulders extracted by the firm from the quarry. There is no doubt that they are commercially different. Therefore, the finding of the CIT(Appeals) is just and proper and I agree with his finding that the assessee-firm is carrying on a manufacturing activity and therefore, the assessee is entitled for the deductions available under sections 80HH and 80-I. Once it is held that the assessee is entitled for the deductions available under sections 80HH 80-I, the incidental question to be considered is the manner in which the deductions are to be given. The Hon ble Rajasthan High Court has held in CIT v. Chokshi Contracts (P.) Ltd. that deductions under sections 80HH and 80-I operate indecently and the assessee is entitled to deduction under both sections, which is to be simultaneously granted without any order of preference. Therefore, we direct the Assessing Officer to grant the benefit of sections 80HH and 80-I independently on the eligible profits of the assessee-firm. In the result, these appeals filed by the Revenue are dismissed. Order accordingly.

Summary

Issues:
The issues involved in the judgment are whether the activity carried out by the assessee qualifies as a manufacturing activity for claiming deductions under sections 80HH and 80-I of the Income-tax Act, 1961.

Issue 1: Nature of Activity as Manufacturing:

The Assessing Officer initially denied the deductions under sections 80HH and 80-I, stating that the conversion of granite boulders into rubble did not constitute manufacturing. However, the CIT(Appeals) found that the processes involved, such as breaking boulders, crushing them into different sizes of granite aggregates, and segregating the products, amounted to manufacturing activities. The CIT(Appeals) relied on relevant case laws to support this view, emphasizing that the end-products had distinct utilitarian value compared to the raw material. The Tribunal agreed with the CIT(Appeals) that the activities qualified as manufacturing, as the granite aggregates produced were commercially different from the initial boulders.

Issue 2: Applicability of Precedents:

The Revenue argued that certain court decisions, such as the case of Lucky Mineral Pvt. Ltd., indicated that activities similar to those of the assessee did not amount to manufacturing. However, the Tribunal distinguished these cases by highlighting the differences in the conversion processes involved. The Tribunal also referenced other judgments, like M.R. Gopal and R.C. Construction, which supported the view that activities akin to those of the assessee constituted manufacturing. By analyzing the various decisions, the Tribunal concluded that the assessee was indeed engaged in manufacturing activities, making them eligible for deductions under sections 80HH and 80-I.

Conclusion:

Ultimately, the Tribunal dismissed the Revenue's appeals and upheld the CIT(Appeals)'s decision to grant the deductions under sections 80HH and 80-I to the assessee. The Tribunal emphasized that the granite aggregates produced by the assessee were commercially different from the raw material, qualifying the activities as manufacturing. Additionally, the Tribunal directed the Assessing Officer to independently grant the benefits of sections 80HH and 80-I to the eligible profits of the assessee-firm, in line with the precedent set by the Hon'ble Rajasthan High Court.