2012 (5) TMI 506 - HC - Income Tax

Deduction u/s 80HH & 80I - whether extracting stones and then cutting them into the required size and weight, can be held as manufacturing activity - assessee, engaged in the business of excavating stone boulders of specific size and weight - Held that - Present is a case where boulders are cut to different sizes and weights. The nature and character of the boulders remain the same and from the facts which are brought on the record as noticed by the Tribunal, it cannot be said that the assessee was engaged in any manufacturing activity so as to enable him to take the benefit of deduction u/s 80-HH and 80-I - Decided in favor of Revenue.

Summary

Issues:
1. Interpretation of manufacturing activity under Sections 80HH and 80I of the Income Tax Act.
2. Entitlement to deductions under Section 80HH and 80I of the Income Tax Act.

Analysis:
1. The primary issue in this case revolved around whether the activity of extracting stones and cutting them into required sizes and weights qualifies as a manufacturing activity under Sections 80HH and 80I of the Income Tax Act. The Tribunal noted that the appellant was engaged in excavating stone boulders, processing them, and supplying them for a specific project. The Tribunal compared this case to a similar case and held that the activity of cutting stones constituted a manufacturing activity, making the assessee eligible for deductions under the mentioned sections. However, the Department argued that the appellant was not engaged in a manufacturing process as per the conditions laid down in the Act.

2. The second issue addressed the entitlement of the assessee to deductions under Section 80HH and 80I of the Income Tax Act. The appellant contended that the activity of cutting boulders into different sizes and weights constituted a manufacturing process, fulfilling the conditions for claiming deductions. On the other hand, the Department argued that the activity did not meet the criteria specified in the Act for claiming such deductions. The respondent supported the Tribunal's decision by stating that the transformation of boulders into different sizes for specific use constituted a new article production, meeting the requirements of the Act.

3. The Court analyzed the definition of "manufacture" as per Section 2(29BA) of the Act, which involves a change in a physical object resulting in a new and distinct object with different characteristics. It was observed that the activity of the assessee involved mining boulders and cutting them into different sizes without transforming them into new objects. The Court referred to previous judgments to support its decision, highlighting cases where activities involving transformation into new products qualified as manufacturing processes, unlike the current scenario where only cutting boulders into different sizes was not considered a manufacturing activity.

4. By comparing the present case to precedents, the Court concluded that the activity of cutting boulders into various sizes and weights did not meet the criteria for a manufacturing process as defined in the Act. The Court ruled in favor of the Revenue, setting aside the Tribunal's decision and disallowing the deductions claimed by the assessee under Sections 80HH and 80I of the Income Tax Act. Both appeals were allowed in favor of the Revenue, emphasizing that the nature and character of the boulders remained the same after cutting, indicating a lack of manufacturing activity to qualify for deductions.