2004 (11) TMI 14 - SC - Income Tax

Held that extraction and processing of iron ore amounts to production within the meaning of the word in section 32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to manufacture is left open - Following the decision given by us in CIT v. Sesa Goa Limited, the special leave petitions of revenue are dismissed.

Summary

Issues:
1. Interpretation of the term "production" under section 32A(2)(b)(iii) of the Income-tax Act, 1961.
2. Whether mining activity for the production of mineral ores qualifies for investment allowance.

Analysis:
1. The main issue in this case revolved around the interpretation of the term "production" under section 32A(2)(b)(iii) of the Income-tax Act, 1961. The High Court held that extraction and processing of iron ore did not amount to "manufacture" but concluded that it involved "production" within the meaning of the Act, allowing the assessee to claim investment allowance. The Revenue contended that the High Court erred in its conclusion as no new product was created through ore extraction and processing. However, the High Courts in previous cases had consistently held that mining activity for the production of mineral ores falls under the definition of "production."

2. Section 32A(2)(b)(iii) allows investment allowance for a plant used for the business of construction, manufacture, or production of any article or thing. The plant in question was used for excavating, mining, and processing mineral ore, and the dispute centered on whether this activity constituted "production." The Supreme Court referred to various decisions and authorities to establish that the term "production" has a broader connotation than "manufacture." The court emphasized that mining of ore is treated as "production" under other provisions of the Act, indicating Parliament's intent to include mining activities within the scope of "production."

3. The court relied on precedents to define "production" as the act of bringing into existence new goods through a process, which may or may not amount to manufacture. It was clarified that the mined ore did not need to be a commercially new product for it to qualify as "production." The court rejected the Revenue's argument that the definition of the word "ore" was crucial, stating that the focus should be on the broader concept of production. Ultimately, the court concluded that extraction and processing of iron ore constitute "production" under section 32A(2)(b)(iii) of the Act, entitling the assessee to the benefit of the provision.

4. In a related appeal concerning section 80-I of the Income-tax Act, which had provisions similar to section 32A(2)(b)(iii), the court followed its decision in the main case and dismissed the appeal. The consistent interpretation of the term "production" across different provisions of the Act reinforced the court's stance that mining activities qualify as production for the purpose of claiming investment allowances.

In conclusion, the Supreme Court upheld the High Court's decision, affirming that mining activities for the production of mineral ores fall within the ambit of "production" under the Income-tax Act, allowing the assessee to claim investment allowance.