1996 (8) TMI 98 - HC - Income Tax

Income Tax Act Industrial Undertaking Manufacture Or Production Special Deduction Subject Matter Wealth Tax Act

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961.
2. Entitlement of the assessee to relief under Sections 80J and 80HH of the Income-tax Act, 1961.
3. Applicability of the Central Board of Direct Taxes (CBDT) circulars and the letter of the Minister of State for Finance to the assessee.

Detailed Analysis:

Issue 1: Jurisdiction of the Commissioner under Section 263 of the Income-tax Act, 1961
The primary question was whether the order of the Income-tax Officer (ITO) had merged with the order of the Appellate Assistant Commissioner (AAC), thereby barring the Commissioner from exercising jurisdiction under Section 263. The court referred to the Full Bench decision in *Punjab State Civil Supplies Corporation Ltd. v. CIT* [1993] 200 ITR 536, which held that the Commissioner's jurisdiction under Section 263 is restricted to parts of the order not dealt with in the appeal. Since the relief under Sections 80J and 80HH was not raised in the appeal, the Commissioner had jurisdiction to revise the ITO's order. Thus, the court answered this question in the affirmative, in favor of the Revenue and against the assessee.

Issue 2: Entitlement of the Assessee to Relief under Sections 80J and 80HH of the Income-tax Act, 1961
The court examined whether the assessee, a forest lessee engaged in converting logs into planks, rafters, and firewood, could be considered as manufacturing or producing articles under Sections 80J and 80HH. The Tribunal had concluded that the assessee was not manufacturing any new commodity but merely processing wood. However, the court differentiated between "manufacture" and "produce," noting that "produce" has a broader connotation. Citing *CIT v. N. C. Budharaja and Co.* [1993] 204 ITR 412 (SC), the court held that the assessee was producing articles even if not manufacturing them. Consequently, the court answered this question in the negative, in favor of the assessee and against the Revenue.

Issue 3: Applicability of CBDT Circulars and the Letter of the Minister of State for Finance
The assessee argued that a CBDT circular and a letter from the Minister of State for Finance entitled them to deductions under Sections 80J and 80HH. The Tribunal had rejected this, stating that the circular related to the Wealth-tax Act and the letter required the manufacture of a new commodity, which the assessee was not doing. The court noted that benevolent circulars providing administrative relief should be given effect, even if issued after the Tribunal's decision. The court found that Circular No. 329, dated February 22, 1982, was clarificatory and supportive of the assessee's claim. Thus, the court answered this question in the affirmative, in favor of the Revenue and against the assessee.

Conclusion:
- Question 1: Affirmative, in favor of the Revenue.
- Question 2: Negative, in favor of the assessee.
- Question 3: Affirmative, in favor of the Revenue.

The court held that the Commissioner had jurisdiction under Section 263, the assessee was entitled to relief under Sections 80J and 80HH, and the CBDT circulars were applicable, reinforcing the view that the assessee was producing articles.