2005 (5) TMI 18 - HC - Income Tax

Deduction under sections 80HH and 80-I - Industrial Undertaking - Whether, Tribunal was right in law to hold that the activity of purchase and refining of the oil amounted to manufacturing or processing of goods and that the assessee was entitled to deduction under sections 80HH and 80-I in respect of that activity as well? - Tribunal has held that after purchasing the oil, the same was subjected to the process or treatment and what was sold by the assessee was not the same thing as was originally purchased. No contrary material has been brought on record to the aforesaid findings. Held that there is no error in the order of the Tribunal allowing the benefit of sections 80HH and 80-I to the assessee in respect of refining of the oil from the oil purchased from the local market inasmuch as process of refining amounts to production as contemplated under the sections. Question is answered in the affirmative, i.e. in favour of the assessee and against the Revenue.

Summary

Issues:
- Interpretation of sections 80HH and 80-I of the Income-tax Act, 1961 regarding deduction eligibility for refining activities.
- Whether refining of oil amounts to manufacturing or processing of goods for claiming deductions under sections 80HH and 80-I.

Analysis:
The High Court of ALLAHABAD addressed the issue of deduction eligibility under sections 80HH and 80-I of the Income-tax Act, 1961 concerning refining activities in the assessment year 1987-88. The case involved an assessee deriving income from extracting and refining oil from oil seeds. The assessing authority disallowed the deduction claim related to refining oil purchased from the market, stating it did not amount to manufacturing or processing of goods. The Tribunal, however, allowed the claim based on its decision for the preceding year 1986-87. The Tribunal emphasized that the refined oil was different from the original purchase after undergoing a process or treatment. The High Court examined the relevant provisions of sections 80HH and 80-I, which provide deductions for industrial undertakings involved in manufacturing or producing articles. Citing the case of B.P. Oil Mills Ltd. v. Sales Tax Tribunal, the High Court noted that refining oil can constitute manufacturing. The apex court's interpretation in various cases highlighted that processing involves subjecting a commodity to a treatment for development or market preparation, leading to a change in the commodity. The High Court also referenced earlier decisions on the broad scope of the term "production" compared to "manufacture."

The High Court further referred to the case of CIT v. Sesa Goa Ltd., where the apex court affirmed that extraction and processing of iron ore qualify as "production" under the Income-tax Act. Considering the Tribunal's findings that refining oil involved a process resulting in a distinct product from the original purchase, and in line with the apex court's interpretations, the High Court concluded that refining oil amounts to production as envisaged under sections 80HH and 80-I. Therefore, the High Court ruled in favor of the assessee, upholding the Tribunal's decision to allow deductions for refining activities. The judgment clarified that no contrary evidence was presented to challenge the findings supporting the eligibility of the refining process as production, aligning with the legal precedents and the definition of processing provided by the apex court.

In conclusion, the High Court's detailed analysis reaffirmed the eligibility of the assessee for deductions under sections 80HH and 80-I for refining activities, emphasizing the transformative nature of the refining process and its alignment with legal interpretations and precedents.