2013 (10) TMI 1080 - HC - Income Tax

Whether assessee-firm is engaged in the business activity of manufacturing or producing articles or things and is entitled to investment allowance under section 32A of the Income-tax Act Held that - Assessee was engaged in the business of making products or things for which the raw material was milk. There is also no dispute that the assessee was employing machinery for making milk products like ghee, flavoured milk, butter milk, rose milk and kova. When once the milk was subjected to the process, in their factory, new products emerge which are altogether different from milk itself. Therefore, it cannot be said that the assessee was not in the business of manufacture or production of articles or things Decided against the Revenue.

Summary

Issues:
- Claim of investment allowance on plant and machinery for manufacturing milk products
- Interpretation of section 32A of the Income-tax Act, 1961
- Eligibility criteria for claiming investment allowance under section 32A
- Comparison with relevant legal precedents

The judgment addressed the issue of whether the assessee, engaged in processing milk and manufacturing by-products, was entitled to investment allowance under section 32A of the Income-tax Act for the assessment year 1983-84. The Income-tax Officer allowed the deduction, but the Commissioner of Income-tax undertook revision, setting aside the allowance. The Appellate Tribunal, considering similar cases, overturned the Commissioner's decision. The Revenue sought a reference to the High Court, which was granted, leading to the question of the assessee's eligibility for investment allowance based on the manufacturing process involved in making milk products.

The key contention revolved around whether the process of making milk products by the assessee constituted manufacturing or production of articles or things, as required for claiming investment allowance under section 32A of the Act. The Department argued that the assessee was not involved in manufacturing, citing legal precedents. In contrast, the assessee contended that their process, involving various steps facilitated by machinery, indeed amounted to manufacturing. The court analyzed the provisions of section 32A, emphasizing the necessity for the machinery to be used for the business of manufacture or production of articles to qualify for the investment allowance.

The court examined relevant legal precedents to determine the nature of activities that qualify as manufacturing or production under section 32A. It differentiated cases where activities did not amount to manufacturing, such as preparing chicory powder or cutting uncut raw diamonds, from the present scenario involving the transformation of milk into various products. Drawing from precedents like A. Hajee Abdul Shukoor and Co., which emphasized the transformation of commodities, and Idandas, highlighting the essence of manufacturing involving labor or machinery, the court assessed the process of making milk products in this context.

Considering the absence of a specific definition of "manufacture" in the Act, the court referred to common parlance understanding, where manufacturing involves producing new articles from raw materials through a transformative process. Applying this interpretation to the case at hand, the court concluded that the assessee's activities of processing milk and manufacturing by-products indeed constituted manufacturing or production of articles or things. Consequently, the court ruled in favor of the assessee, affirming their eligibility for investment allowance under section 32A.

In conclusion, the High Court answered the referred question in favor of the assessee, emphasizing the transformative nature of the manufacturing process involved in making milk products. The case was disposed of accordingly, with no order as to costs.