2020 (3) TMI 130 - HC - Income Tax

Deduction u/s 80-IB - whether production of poultry feeds constitutes manufacture? - HELD THAT - New definition of manufacture which is there in the said Act from April 1, 2009, as stated in paragraph 5 above, it will be clear that all that is necessary to take an activity out of the realm of mere process to that of manufacture, would be that the application of processes brought out a change to take the commodity to a commercially different and distinct commodity that it could no longer be considered as the original commodity . This also satisfies the first limb being Section 2(29-BA)(a) of the said Act, and the definition having two disjunctive clauses, it is clear that there does not have to be change of chemical composition of the end product from that of the original ingredients, to take an activity out of the purview of an ordinary process and constitute manufacture as argued by the Revenue. This is in accordance with the law laid down by the Hon'ble Supreme Court in JALANI ENTERPRISES 2011 (3) TMI 311 - SUPREME COURT As apparent from the facts on record as in paragraphs 6 and 7 of this judgment, where I have set out and dwelt at length on the stages of the process involved, and the end product and its separate commercial utility and identity from that of the original ingredients, it is clear that poultry feed is not merely rice bran or maize or vitamins or minerals but a mixture of all in calculated proportions through a process involving mills and manufacturing by the use of machinery which run on electricity and where the end product being the pellet is wholly different from each of the ingredients and results in a product which is commercially different and distinct as a commodity so that it cannot be considered as any of the original commodities which were used as ingredients. As a result, the question of law framed by this Court as in paragraph 3 of this judgment is answered against the revenue and it is held that the conclusion of the learned tribunal that production of poultry feeds constitutes manufacture is not perverse. Consequentially, appeal of the Revenue is dismissed and the order of the learned tribunal is confirmed. The Revenue shall bear the costs of the appeal assessed at 1000 GMs. - Decided in favour of the assessee.

Issues Involved:
1. Whether the production of poultry feed by the Assessee constitutes "manufacture" under Section 80-IB of the Income Tax Act, 1961.
2. Whether the Assessing Officer was justified in disallowing the deduction claimed by the Assessee under Section 80-IB(5).

Detailed Analysis:

1. Definition and Interpretation of "Manufacture":
The primary issue revolved around whether the activity of producing poultry feed from various raw materials and additives could be classified as "manufacture" under the Income Tax Act, 1961. The court referenced Section 2(29-BA) of the Act, which defines "manufacture" as a change in a non-living physical object resulting in a new and distinct object with a different name, character, and use, or bringing into existence a new object with a different chemical composition or integral structure.

2. Process Involved in Poultry Feed Production:
The Assessee detailed the extensive process involved in producing poultry feed, which included receiving and storing raw materials, weighing and grinding them, mixing with micro-ingredients and oils, conditioning, pelleting, cooling, crumbling, sieving, weighing, packing, and dispatching. This process transformed the raw materials into a new product with distinct utility and commercial identity, even though the chemical composition of the individual ingredients was not altered.

3. Revenue's Argument:
The Revenue contended that the process was merely "mixing" rather than "manufacture," arguing that the end product did not have a different chemical composition from the individual ingredients. They cited the Income Tax Appellate Tribunal, Hyderabad Bench's decision in a similar case to support their argument that mere physical changes do not constitute "manufacture."

4. Assessee's Argument:
The Assessee argued that their activity had been consistently recognized as "manufacture" in previous assessments and cited several Supreme Court judgments to support their claim. They highlighted that the end product, poultry feed, had a distinct commercial identity and utility separate from its raw materials.

5. Supreme Court Judgments:
The court referenced multiple Supreme Court judgments, including CST-v-Pio Food Packers, Aspinwall and Co. Ltd.-v-Commissioner of Income Tax, Income Tax Officer-v-Arihant Tiles and Marbles P. Ltd, Commercial Tax Officer-v-Jalani Enterprises, and Commissioner of Income Tax-v-Vinbros and Co. These judgments established that a process resulting in a commercially distinct product, even without a chemical change, constitutes "manufacture."

6. Tribunal's Decision:
The Tribunal upheld the Assessee's claim, stating that the process involved in producing poultry feed constituted "manufacture" as it resulted in a new and distinct product with a different commercial identity and utility. The Tribunal found the Assessing Officer's disallowance of the deduction under Section 80-IB(5) unjustified.

7. High Court's Conclusion:
The High Court agreed with the Tribunal's decision, concluding that the production of poultry feed by the Assessee met the definition of "manufacture" under the Income Tax Act. The court noted that the end product, poultry feed, was commercially distinct from its raw materials and had a different name, character, and use. The court dismissed the Revenue's appeal, confirming the Tribunal's order and awarding costs to the Assessee.

Separate Judgment by I. P. Mukerji, J.:
Justice I. P. Mukerji concurred with the judgment, emphasizing the clear legislative intent in Section 2(29BA) and supporting the conclusion that the Assessee's process constituted "manufacture." He referenced additional Supreme Court cases to illustrate that processes resulting in commercially distinct products, even without chemical changes, qualify as "manufacture."

Final Order:
The appeal by the Revenue was dismissed, and the Tribunal's order was confirmed. The court held that the production of poultry feeds by the Assessee constitutes "manufacture," and the Assessing Officer's disallowance of the deduction under Section 80-IB(5) was not justified. The Revenue was ordered to bear the costs of the appeal.

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