2011 (7) TMI 40 - HC - Income Tax

Deduction u/s 80IB - in the case of Commissioner of Income Tax v. N.C. Budharaja & Co., (1993 -TMI - 5433 - SUPREME Court), where it was held that the word production , when used in juxtaposition with the word manufacture , takes in bringing into existence new goods by a process, which may or may not amount to manufacture - In the instant case, boulder, which is a stone, would remain a stone even after it is crushed and converted into grits/stone chips/powder. The activity of converting boulder into grits/stone chips/powder may not be a manufacturing activity, but since such activity would be producing grits/stone chips/powder, the same would be production - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of Section 80-IA(2)(iii) of the Income Tax Act regarding manufacturing activity.
2. Determination of whether converting boulders into grits/stone chips/powder qualifies as manufacturing activity under Section 80-IB of the Act.

Issue 1: Interpretation of Section 80-IA(2)(iii) of the Income Tax Act regarding manufacturing activity:
The case involved a dispute over whether the conversion of boulders into grits/stone chips/powder by the assessee constituted a manufacturing activity under Section 80-IA(2)(iii) of the Income Tax Act. The Assessing Officer contended that since the boulder remains a stone even after the conversion process, it does not amount to manufacturing activity. The Assessing Officer emphasized that not every change constitutes manufacturing and denied the assessee the benefit of Section 80-IB of the Act based on this interpretation.

Issue 2: Determination of whether converting boulders into grits/stone chips/powder qualifies as manufacturing activity under Section 80-IB of the Act:
The appellate authority disagreed with the Assessing Officer's view and held that the activities of the assessee, involving the extraction of boulders and their conversion into commercially marketable grits/stone chips/powder, constituted manufacturing activities. The Tribunal, relying on precedents such as the judgment in the case of Arihant Tiles and Marbles (P) Ltd, supported this view by highlighting that the end product, after the conversion process, could not be used as boulders, indicating a transformation significant enough to qualify as manufacturing.

The High Court referenced the Supreme Court's decision in the case of Income Tax Officer v. Arihant Tiles and Marbles (P) Ltd, which emphasized that the word "production" has a broader scope than "manufacture." The Supreme Court clarified that when both terms are used in legislation, the interpretation should not solely rely on the narrower definition of "manufacture." The Supreme Court further explained that the determination of whether an activity constitutes production or manufacture depends on the specific facts and circumstances of each case and the words used in the applicable provisions.

In applying the principles established by the Supreme Court, the High Court concluded that while converting boulders into grits/stone chips/powder may not strictly qualify as manufacturing, it does amount to production. The High Court reasoned that even though the boulder remains a stone post-conversion, the process of producing grits/stone chips/powder from boulders falls within the ambit of production as defined in Section 80-IB of the Act.

In light of the above analysis, the High Court ruled against the Revenue, affirming that the assessee's activities constituted production and dismissed the appeal.