2009 (12) TMI 1 - SC - Income Tax

Deduction u/s 80IA conversion of marble blocks by sawing into slabs and tiles and polishing whether amount to manufacture held that - the word manufacture and the word production have received extensive judicial attention both under the Income Tax as well as under the Central Excise and the Sales Tax laws. - that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence Decision in Commissioner of Income Tax Vs. N.C. Budharaja & Co., reported in 2008 -TMI - 5433 - SUPREME Court followed

Summary

Issues Involved:
1. Whether the conversion of marble blocks into slabs and tiles through sawing and polishing constitutes "manufacture or production" under Section 80IA of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Definition of "Manufacture or Production" under Section 80IA:
The central issue revolves around whether the activities performed by the assessee, which include sawing marble blocks into slabs and tiles and polishing them, qualify as "manufacture or production" under Section 80IA of the Income Tax Act, 1961. The relevant period for this determination is the Assessment Year 2001-2002.

2. Stepwise Activities Undertaken by the Assessee:
The court detailed the process undertaken by the assessee:
- Sorting and marking of raw marble blocks.
- Processing blocks on saw machines to square them by removing waste material.
- Sawing squared blocks into slabs using gang saw or block cutter machines.
- Reinforcing slabs by filling cracks with epoxy resins and fiber netting.
- Polishing slabs and cutting them into required dimensions/tiles.
- Buffing polished slabs and tiles.

3. Consistent Recognition as Manufacturer/Producer:
The assessee has been consistently regarded as a manufacturer/producer by various Government Departments and Agencies, including recognition under the Excise Act and allied tax laws.

4. Interpretation of "Production" and "Manufacture":
The court noted that the term "production" is broader than "manufacture." Parliament amended the Income Tax Act, 1961, to include Section 2(29BA) which defines "manufacture" as resulting in a transformation into a new and distinct object with a different name, character, and use.

5. Authorities' Rejection and High Court's Acceptance:
The lower authorities rejected the assessee's claim that its activities constituted "manufacture" or "production" under Section 80IA. However, the High Court accepted the assessee's contention, holding that the conversion of marble blocks into polished slabs and tiles constituted manufacturing/production, making the assessee eligible for deductions under Section 80IA.

6. Distinction from Previous Judgments:
The court distinguished this case from previous judgments such as:
- Lucky Minmat Pvt. Ltd. vs. Commissioner of Income Tax: This case involved mining and cutting of limestone and marble, which was not considered "manufacture" or "production."
- Rajasthan State Electricity Board vs. Associated Industries: This case dealt with whether pumping out water from mines constituted "manufacture" or "production," which was not applicable to the current case.
- Aman Marble Industries Pvt. Ltd. vs. Collector of Central Excise: This case determined that cutting marble blocks into slabs did not amount to "manufacture" under the Central Excise Act. However, the current case also involves polishing and converting blocks into tiles, which adds an additional layer of activity.

7. Supporting Judgments:
The court supported its decision by referencing:
- Commissioner of Income Tax vs. Sesa Goa Ltd.: Extraction and processing of iron ore was considered "production."
- Commissioner of Income Tax vs. N.C. Budharaja & Co.: The construction of a dam was considered "production."

8. Revenue Consequences:
The court emphasized that accepting the Department's contention that the activities do not constitute "manufacture" would have serious revenue consequences, as the assessee would then argue that they are not liable for excise duty or sales tax.

Conclusion:
The court concluded that the activities undertaken by the assessee, which include sawing, polishing, and converting marble blocks into slabs and tiles, constitute "manufacture or production" under Section 80IA of the Income Tax Act, 1961. Therefore, the assessee is entitled to the benefits of Section 80IA. The Civil Appeals filed by the Department were dismissed.