2021 (8) TMI 662 - HC - Income Tax

Deduction u/s 10B - Whether the Tribunal was right in deleting the legal issue of manufacture without considering the specific omission of the clause by Legislature u/s.10B? - HELD THAT - As decided in M/S. JANANI HOLDINGS 2013 (12) TMI 1718 - ITAT CHENNAI even the activity of cutting and sizing of marble blocks after excavation would not come within the ambit of expression 'manufacture' or 'production'. In the circumstances, this Court held that the assessee was not entitled to the benefit of section 80HH of the Income-tax Act. This Court distinguished the judgment of the Rajasthan High Court in the case BEST CHEM AND LIMESTONE INDUSTRIES PRIVATE LIMITED 1992 (12) TMI 3 - RAJASTHAN HIGH COURT as engaged in the business of extracting limestone and its sale thereafter converting it into lime and limedust or concrete which was held to be an activity of manufacture or production. The activity of conversion into lime and limedust, according to this Court, in the case of Lucky Minmat (P.) Ltd 2000 (8) TMI 6 - SUPREME COURT certainly constituted a manufacturing process. It was clarified in the said case that mere mining of limestone and marble and cutting the same before it was sold will not constitute 'manufacture' or 'production' but conversion into lime and limedust could constitute the activity of manufacturing or production. This distinction has not been taken into account by the Department while rejecting the claim of the assessee(s) for deduction under section 80-IA - Decided against the revenue.

Summary

Issues:
1. Interpretation of Section 10-B of the Income Tax Act, 1961.
2. Eligibility of the assessee for deduction under Section 10-B.
3. Determining the scope of "manufacture" for the purpose of claiming exemption.
4. Comparison with relevant legal precedents.

Interpretation of Section 10-B:
The appeal under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal regarding the deletion of the legal issue of manufacture under Section 10B. The Tribunal's decision was based on the absence of a specific definition of "manufacture" during the relevant assessment years. The appellant argued that the process should be construed as processing, not manufacture. However, the Tribunal relied on earlier decisions, including Gem Granites v. CIT, to interpret "manufacture" broadly. The High Court upheld the Tribunal's decision, emphasizing that the absence of a specific definition does not restrict the scope of "manufacture."

Eligibility for Deduction under Section 10-B:
The case involved an assessee engaged in the granite business claiming 100% deduction under Section 10-B for the assessment year 2005-06. The Assessing Officer rejected the claim, stating that the assessee was not engaged in the manufacture of any article. The CIT(A) allowed the appeal, emphasizing the process from rough stone to polished granite. The High Court referred to legal precedents, including Arihant Tiles & Marbles (P) Ltd., to support the assessee's claim. The Court highlighted the transformation of rough stone into a new article as crucial for claiming the deduction under Section 10-B.

Scope of "Manufacture" for Claiming Exemption:
The High Court analyzed the process through which rough stones were transformed into polished granite slabs or tiles. It distinguished the case from Gem India Manufacturing Co., where cutting and polishing of diamond did not constitute manufacture. The Court emphasized the importance of the transformation process in determining whether an activity qualifies as manufacture. It also considered the decision in Lucky Minmat Pvt. Ltd. and highlighted the distinction between mere mining activities and processes leading to the production of new articles.

Comparison with Legal Precedents:
The High Court compared the present case with relevant legal precedents, including decisions by the Supreme Court and Division Bench of the High Court of Kerala. The Court emphasized the need to consider the transformation of raw materials into new articles to determine eligibility for deductions under the Income Tax Act. By referencing various judgments, the Court concluded that the Tribunal's decision was appropriate, dismissing the appeals and answering the substantial questions of law against the Revenue.