2006 (2) TMI 106 - HC - Income Tax

Deduction under section 80HHC - business of manufacturing and exporting granites - benefit of section 80HHC was available to cut and polished granite only with effect from April 1, 1991, by virtue of the insertion of item No.(x) in Schedule XII. - we hold that the assessee which exported granite after being cut and polished, was not entitled to claim the deduction under section 80HHC of the Income-tax Act, 1961, in respect of the profits from the export business for the assessment year 1988-89

Summary

Issues:
1. Interpretation of section 80HHC of the Income-tax Act, 1961 regarding deduction eligibility for the assessee involved in manufacturing and exporting granites.

Detailed Analysis:
The High Court of Madras heard a tax case appeal concerning the eligibility of an assessee engaged in manufacturing and exporting granites for a deduction under section 80HHC of the Income-tax Act, 1961. The assessee claimed relief under section 80HHC for the assessment year 1989-90, arguing that the activity of excavating granite blocks, cutting, and polishing them amounts to the manufacture or production of an article or thing. The Assessing Officer initially rejected the claim, leading the assessee to appeal before the Appellate Commissioner of Income-tax, who ruled in favor of the assessee based on prior Tribunal decisions.

The Revenue, dissatisfied with the Appellate Commissioner's decision, appealed to the Appellate Tribunal, which upheld the ruling in favor of the assessee. The Revenue then appealed to the High Court, arguing that previous court decisions supported their stance. The issue revolved around whether "cut and polished" granite falls under the exclusionary clause of section 80HHC(2)(b) which covers minerals. The court referred to previous judgments, including Stonecraft Enterprises v. CIT, to interpret the term "minerals" in the context of the Income-tax Act.

The court emphasized that the word "minerals" in section 80HHC(2)(b) should be broadly construed to include all minerals extracted from the earth, including granite, without any restriction on processed minerals. Referring to previous cases like CIT v. Pooshya Exports P. Ltd. and Gem Granites v. CIT, the court highlighted that the benefit under section 80HHC is not applicable to exported granites unless they are value-added. The court also analyzed circulars issued by the Central Board of Direct Taxes related to the interpretation of "cut and polished" minerals, emphasizing that the benefit of section 80HHC was available to cut and polished granite only from a specific date.

Ultimately, the High Court concluded that the assessee, exporting cut and polished granite, was not entitled to claim the deduction under section 80HHC for the profits from the export business for the relevant assessment year. Accordingly, the court set aside the Tribunal's order, ruled in favor of the Revenue, and allowed the appeal without costs.