2024 (8) TMI 691 - HC - Income Tax

Deduction u/s 80IA - scope of expressions manufacture and production - AO rejected the claim on the ground that activity of the appellant cannot be categorized as manufacturing or production - HELD THAT - The substantial question of law arising in the present appeal is no longer res-integra and has been decided in Arihant Tiles Marbles P. Limited 2009 (12) TMI 1 - SUPREME COURT blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of section 80-IA of the Income-tax Act, 1961. Activity will not amount to manufacture or production under Section 80-IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. The activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of section 80-IA - Appeal of assessee allowed.

Summary

Issues:
1. Interpretation of the term "production" under Section 80IA of the Income Tax Act, 1961.
2. Whether the term "production" is synonymous with "manufacture" or has a wider meaning.
3. Application of the Supreme Court judgment in Income Tax Officer Vs. Arihant Tiles & Marbles P. Limited to the present case.

Detailed Analysis:
Issue 1: The appellant claimed a deduction under Section 80IA of the Income Tax Act, 1961 for the assessment year 2003-04 for engaging in the business of producing gitti from sand stone blocks. The Assessing Officer rejected the claim on the basis that the activity did not amount to "manufacturing" or "production." The appellant's appeal before the Commissioner of Income Tax (Appeals) was successful, but the tribunal accepted the Department's appeal, leading to the present appeal against the tribunal's order dated 29.08.2008.

Issue 2: The substantial question of law in the present appeal was whether the term "production" used under Section 80IA is synonymous with "manufacture" or if it has a wider meaning. The appellant relied on the Supreme Court judgment in Income Tax Officer Vs. Arihant Tiles & Marbles P. Limited, while the respondent relied on a decision of the High Court. The Supreme Court judgment emphasized that the activity of converting blocks into polished slabs and tiles results in the emergence of a new commodity, constituting both manufacture and an activity beyond manufacture, bringing a new product into existence. The Court highlighted the serious revenue consequences if such activities were not considered as manufacture under Section 80IA.

Issue 3: The Supreme Court judgment in Income Tax Officer Vs. Arihant Tiles & Marbles P. Limited was crucial in deciding the present case. The Court reiterated that the activity of converting blocks into slabs and tiles amounted to manufacture or production under Section 80IA. The Court also noted that the Department's contention against considering such activities as manufacture would have adverse consequences, especially concerning excise duty and tax liabilities. Ultimately, the Court allowed the appeal, answering the substantial question of law in favor of the assessee based on the interpretation of the term "production" in the context of Section 80IA.