2005 (7) TMI 61 - HC - Income Tax

Section 80-IB - industrial undertaking - whether the blending of different types of tea by the assessee amounts to production of a thing or an article by an industrial undertaking within the meaning of the expression as used in section 80-IB - expression manufacture or producing any thing or article under section 80-IB(2)(iii) has been used in a generic sense and within its ambit it does not include any processing of goods, which does not bring out a new or commercially distinct commodity - blending of different teas by a trader of tea who has purchased the tea from the auction house or the dealer does amount to processing of tea but falls short of manufacturing process and it does not amount to manufacturing or producing any article or thing within the meaning of section 80-IB - assessee cannot be held to have fulfilled the condition for availing of the benefit of deduction under section 80-IB appeal dismissed

Issues Involved:
1. Whether blending of different types of tea by the assessee amounts to production of an article or thing by an industrial undertaking under Section 80-IB of the Income-tax Act, 1961.
2. Interpretation of the terms "manufacture" and "produce" under Section 80-IB of the Income-tax Act, 1961.
3. Applicability of judicial precedents and definitions from other statutes to the current case.
4. Impact of the Tea Act, 1953, and relevant provisions of the Income-tax Act on the issue of blending tea.

Detailed Analysis:

1. Blending of Different Types of Tea:
The primary issue is whether the blending of different types of tea by the assessee constitutes production under Section 80-IB of the Income-tax Act, 1961. The court found that blending different grades of tea does not result in the creation of a new commodity. The blended tea remains tea, although with different specifications. Therefore, blending does not amount to the production of a new article or thing.

2. Interpretation of "Manufacture" and "Produce":
The terms "manufacture" and "produce" have distinct meanings. "Manufacture" involves transforming raw material into a new and distinct commodity, whereas "produce" has a broader connotation, including obtaining a product from natural elements or by applying processes. The court emphasized that both terms imply bringing into existence a new commodity. The court relied on several judicial precedents, including CIT v. N.C. Budharaja and Co. and Chowgule and Co. P. Ltd. v. Union of India, to establish that blending does not meet the criteria for either "manufacture" or "produce."

3. Judicial Precedents and Definitions from Other Statutes:
The court examined various judicial precedents and definitions from other statutes to interpret the terms "manufacture" and "produce." It referred to cases like Pio Food Packers, Deputy CST (Law), Board of Revenue (Taxes) v. Pio Food Packers, and Aman Marble Industries (P.) Ltd. v. CCE, which highlighted the necessity of a transformation that results in a new and distinct commodity. The court also considered the definitions in Black's Law Dictionary and the Oxford Dictionary to elucidate the meanings of "manufacture" and "produce."

4. Impact of the Tea Act, 1953, and Income-tax Act:
The Tea Act, 1953, distinguishes between the production and manufacture of tea. The court noted that tea is a natural product, and the manufacturing process involves converting green tea leaves into marketable tea. The Income-tax Act exempts agricultural income, which includes income derived from processes that make agricultural produce marketable. The court concluded that blending tea, being a process for marketing, does not qualify as manufacturing or producing a new article or thing under Section 80-IB.

Conclusion:
The court concluded that blending of different grades of tea does not amount to the manufacture or production of a new article or thing. Consequently, the assessee does not fulfill the conditions for availing the benefit of deduction under Section 80-IB of the Income-tax Act, 1961. The appeal was dismissed on merits.

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