2009 (11) TMI 536 - HC - Income Tax

Deduction u/s 80-IA process amounts to manufacture - process of conversion of limestone into lime and lime dust is a manufacturing process - no merit in the contention of the Revenue - appeals are disposed

Summary

Issues Involved:
1. Whether converting limestone into limestone powder qualifies as a manufacturing activity under sections 80-IA and 80-IB of the Income-tax Act, 1961?
2. Whether the judgment in Lucky Minmat P. Ltd. v. CIT [2000] 245 ITR 830 supports the view that certain activities can be considered manufacturing processes?
3. What constitutes "manufacture" under the Income-tax Act based on relevant legal precedents and definitions?

Issue 1: Conversion of Limestone into Limestone Powder as Manufacturing Activity:
The primary issue revolves around determining whether the process of converting limestone into limestone powder constitutes a manufacturing activity under sections 80-IA and 80-IB of the Income-tax Act, 1961. The judgment extensively discusses the definition of "manufacture" as per Black's Law Dictionary, emphasizing the transformation of raw materials into new forms or combinations. Reference is made to legal precedents such as Sterling Foods v. State of Karnataka and CIT v. Relish Foods, which establish that processing raw materials does not necessarily change their essential identity. The court also highlights the distinction between processing and manufacturing based on cases like Indian Hotels Co. Ltd. v. ITO and Gem India Manufacturing Co. v. CIT, where the nature of the transformation determines whether it amounts to manufacturing. Ultimately, the court concludes that the conversion of limestone into lime and lime dust by stone crushers qualifies as a manufacturing process, as ruled by the apex court, thereby rejecting the Revenue's argument against it.

Issue 2: Interpretation of Lucky Minmat P. Ltd. v. CIT Judgment:
The judgment in Lucky Minmat P. Ltd. v. CIT is analyzed to determine its relevance in defining manufacturing processes. The court cites the specific observation from the judgment that the conversion into lime and lime dust or concrete by stone crushers can be considered a manufacturing process. The Revenue argues that this observation is obiter dicta and not the ratio of the decision, contending that each case must be assessed individually to determine manufacturing status. However, the court clarifies that the Supreme Court's directive on the conversion of limestone into lime and lime dust is a definitive ruling, not obiter dicta. This clarification solidifies the position that such conversion activities indeed constitute manufacturing processes, aligning with the assessee's position.

Issue 3: Understanding "Manufacture" in Legal Context:
The judgment delves into various legal interpretations of what constitutes "manufacture" under the Income-tax Act, drawing from cases like Aspinwall and Co. Ltd. v. CIT and CIT v. Gem India Manufacturing Co. The court emphasizes that a transformation resulting in a commercially different article signifies a manufacturing activity. The analysis of these precedents establishes that the core identity of a product remains unchanged despite processing, unless a distinct transformation occurs. The court's reference to Sacs Eagles Chicory v. CIT and subsequent apex court validation underscores the importance of identity retention in determining manufacturing status. By aligning these legal principles with the case at hand, the court decisively rules in favor of the assessee, affirming that the conversion of limestone into limestone powder qualifies as a manufacturing activity under the Income-tax Act.

In conclusion, the judgment provides a comprehensive analysis of the issues surrounding the classification of converting limestone into limestone powder as a manufacturing activity. By referencing legal definitions, precedents, and specific judgments, the court clarifies the criteria for identifying manufacturing processes under the Income-tax Act and ultimately rules in favor of the assessee based on established legal principles and interpretations.