1994 (3) TMI 160 - AT - Income Tax

Assessment Year, Backward Area, Deduction In Respect, Industrial Undertaking, Manufacture Or Production, Profits And Gains

Summary

Issues Involved:
1. Whether the conversion of raw groundnut oil into refined oil amounts to manufacture or production of an article or thing under sections 80HH and 80-I of the Income-tax Act.
2. Whether the order of the Commissioner under section 263 of the Income-tax Act was justified.
3. Whether the appeal to the Commissioner of Income-tax (Appeals) was maintainable.

Detailed Analysis:

1. Conversion of Raw Groundnut Oil into Refined Oil as Manufacture or Production:
The primary issue in the assessee's appeal (ITA No. 173/Hyd/89) was whether the conversion of raw groundnut oil into refined oil constitutes "manufacture or production of an article or thing" under sections 80HH and 80-I of the Income-tax Act. The tribunal examined the nature of the conversion process, which involves neutralizing fat contents, bleaching, and deodorizing the groundnut oil. The tribunal referred to several Supreme Court decisions, including Empire Industries Ltd. v. Union of India and Dy. CST v. Pio Food Packers, to determine the definition of "manufacture." The consistent test applied was whether the process results in a commercially distinct product. The tribunal concluded that refined oil remains groundnut oil, serving the same purpose as a cooking medium, and does not constitute a new article. Therefore, the conversion does not qualify as "manufacture or production" under the relevant sections of the Income-tax Act.

2. Justification of the Commissioner's Order under Section 263:
The tribunal upheld the Commissioner's order under section 263, which set aside the Assessing Officer's initial assessment allowing deductions under sections 80HH and 80-I. The Commissioner had relied on the Supreme Court decision in Thungabhadra Industries Ltd. v. CTO, which held that the conversion of groundnut oil into refined oil does not constitute manufacture. The tribunal agreed with this interpretation, noting that the refined oil does not lose its basic character as groundnut oil and thus does not qualify for the deductions under the specified sections.

3. Maintainability of the Appeal to the Commissioner of Income-tax (Appeals):
The Revenue's appeal (ITA No. 1232/Hyd/90) contested the maintainability of the assessee's appeal to the Commissioner of Income-tax (Appeals). The tribunal noted that the Commissioner (Appeals) had relied on the Kerala High Court decision in CIT v. Marwell Sea Foods, which held that certain processing activities amounted to manufacture. However, the tribunal found that this decision was not directly applicable to the facts of the case at hand. Given the Supreme Court's ruling in Thungabhadra Industries Ltd., the tribunal held that the Commissioner (Appeals) erred in concluding that the conversion of groundnut oil into refined oil amounted to manufacture. Consequently, the tribunal set aside the Commissioner (Appeals)'s order and restored the Assessing Officer's order, which had given effect to the Commissioner's order under section 263.

Conclusion:
- Assessee's Appeal (ITA No. 173/Hyd/89): Dismissed. The tribunal found no merit in the claim that the conversion of raw groundnut oil into refined oil constitutes manufacture or production under sections 80HH and 80-I.
- Revenue's Appeal (ITA No. 1232/Hyd/90): Allowed. The tribunal held that the Commissioner (Appeals) erred in his interpretation and restored the Assessing Officer's order, which had disallowed the deductions under sections 80HH and 80-I following the Commissioner's order under section 263.