2013 (3) TMI 376 - HC - Income Tax

Relief u/s 80-I - Tribunal directed the A.O. to allow the relief to assessee treating the assessee as engaged in manufacturing - whether processing of mild steel rod, bars and rounds from scrap iron amounts to manufacture within the meaning of Section 80-I? - Held that - As decided in CIT v. Krishna Copper Steel Rolling Mills 1991 (11) TMI 223 - SUPREME COURT the mild steel rods, bars or rounds which are manufactured by the assessees are only finished forms of the metal and not articles made of iron and steel. They only constitute raw material for putting up articles of iron and steel such as grills or windows by applying to them processes such as cutting or turning. The rod or the wire rods are likewise not products of iron and steel but only certain finished or refined forms of the metal itself & CIT Vs. Gem India Manufacturing Company 2000 (12) TMI 7 - SUPREME COURT wherein held that cutting and polishing of diamond does not amount to manufacture and industrial undertaking is not entitled to the benefits of Section 80-I This court in Commissioner of Sales Tax Vs. M/S Tata Iron and Steel Co. Ltd. 1974 (9) TMI 83 - ALLAHABAD HIGH COURT and Commissioner of Sales Tax Vs. M/S Om Engineering Works 1985 (11) TMI 220 - ALLAHABAD HIGH COURT and Supreme Court in Gujarat Steel Tubes Ltd. Vs. State of Kerala 1989 (5) TMI 62 - SUPREME COURT OF INDIA held that by galvanization iron and steel are not changed and remained iron and steel. Thus from the aforesaid discussions, it is held that industrial undertaking of the assessee which is engaged in the business of galvanizing MS Pipes, is not involved in manufacture or production of any article or thing, as such, it is not entitled for the benefits under Section 80I. The view taken by the Tribunal is illegal. The questions of law raised in these are decided in favour of the Revenue.

Summary

Issues:
- Interpretation of Section 80-I of the Income Tax Act, 1961
- Whether galvanizing MS pipes amounts to manufacturing for claiming deduction under Section 80-I

Analysis:
1. The appeals were filed under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal. The key questions of law revolved around the eligibility of the assessee for relief under Section 80-I of the Act for the assessment years 1991-92, 1992-93, and 1995-96. The primary issue was whether the assessee, engaged in galvanizing MS pipes, could be considered as involved in manufacturing to claim the deduction under Section 80-I.

2. The assessee, M/S Aggarwal Tube (P) Ltd., filed its return for the assessment year 1991-92, declaring a total loss. The Assessing Officer, after examining the manufacturing expenses and deductions claimed under Section 80-I, determined the total profit and loss for the assessee. The Commissioner of Income-tax (Appeals) held that the assessee's work of coating zinc on MS pipes did not qualify as manufacturing, thus denying the benefits under Section 80-I.

3. The Tribunal, in its order, referred to a previous decision regarding the nature of the assessee's business activities. It was established that the raw material used was MS pipes, and the final product was GI pipes, concluding that the assessee was entitled to benefits under Section 80-I. This decision led to the appeal by the Revenue challenging the Tribunal's order.

4. The arguments presented by the Revenue focused on the definition of 'manufacture' under the Act, emphasizing that the product must be distinct from the material used. Citing relevant case laws, the Revenue contended that galvanizing MS pipes did not result in the manufacturing of a new product, as only a protective coating was applied. The Revenue relied on precedents to support its stance that processing, such as galvanization, did not constitute manufacturing for the purposes of Section 80-I.

5. The Supreme Court's interpretation of manufacturing activities in the context of Section 80-I was referenced, highlighting the distinction between raw materials and finished products. The Court's stance that certain processes, like cutting and polishing of diamond, did not amount to manufacturing, further supported the Revenue's argument against considering galvanizing as manufacturing for Section 80-I benefits.

6. Ultimately, the Court held that the assessee's industrial undertaking, involved in galvanizing MS pipes, did not meet the criteria of manufacturing or production under Section 80-I of the Act. Consequently, the Tribunal's decision to grant benefits to the assessee was deemed incorrect, and the appeals were allowed in favor of the Revenue. The orders of the Tribunal were set aside, emphasizing that galvanizing MS pipes did not qualify as manufacturing for claiming deductions under Section 80-I.