1979 (8) TMI 94 - AT - Income Tax

Summary

Issues:
1. Whether the assessee is engaged in the manufacture or production of articles or things within the meaning of s. 32(1)(iv) of the IT Act, 1961 to entitle it to initial depreciation on new machinery installed during the year.

Detailed Analysis:
The judgment revolves around the issue of whether the assessee is involved in the manufacturing or production of goods as per the provisions of the IT Act, 1961. The assessee, engaged in processing coffee seeds, claimed initial depreciation on new machinery installed during the year. The lower authorities, ITO and AAC, ruled against the assessee, stating that it was only involved in processing coffee seeds and not manufacturing. The appellate tribunal, after hearing arguments from both sides, requested a note from the assessee explaining its activities in coffee curing works. The note detailed the various processes involved in coffee curing, highlighting the use of machinery at different stages to produce different grades of coffee products. The tribunal noted that no challenge was made to the correctness of the statements in the note by the departmental representative during the hearing.

The tribunal referred to various legal precedents to support the contention that the assessee's activities can be considered as manufacturing or production of goods. It cited cases where processes like ginning cotton, husking paddy, converting boulders into small stones, and printing documents were considered manufacturing processes by the courts. Applying these precedents to the assessee's case, the tribunal concluded that the assessee's activities, involving multiple machinery stages in coffee curing, qualify as manufacturing or production of goods. It emphasized that the process of dehiscing coffee by removing the husk using machinery constitutes a manufacturing process. The tribunal also highlighted a recent ruling where storing potatoes in a cold storage was considered production of processed seeds, further supporting the assessee's case.

The tribunal distinguished a previous case involving an exporter of chillies engaged in processing activities, stating that the current case focuses on whether the assessee is involved in the production or manufacturing of goods, not just processing. Despite acknowledging that the assessee is engaged in processing goods, the tribunal held that the assessee's activities qualify as manufacturing or production of goods. Consequently, the tribunal allowed the appeal and directed the allowance of initial depreciation under s. 32(1)(vi) of the IT Act, 1961 in favor of the assessee.