2020 (2) TMI 844 - HC - Income Tax

Deduction u/s 80IA - Whether process of converting raw Urad into Urad Dhal was a manufacturing activity ? - HELD THAT - As relying on M/S. MUTHURAMALINGAM MODERN RICE MILL 2019 (3) TMI 1104 - MADRAS HIGH COURT Tribunal was justified in holding that the process of converting raw Urad into Urad Dhal is a manufacturing activity undertaken by the Assessee and therefore, the Assessee was entitled to deduction under Section 80IA of the Act. - Decided in favour of assessee

Summary

Issues:
- Appeal against the order passed by the Income Tax Appellate Tribunal regarding the eligibility of the Assessee for deduction under Section 80IA of the Act for converting raw Urad into Urad Dhal.
- Interpretation of the term "manufacturing activity" under Section 80IA of the Act.
- Comparison of similar cases regarding the manufacturing activity for eligibility of deductions.
- Analysis of the judgment in CIT v. Muthuramalingam Modern Rice Mill regarding the process of converting Paddy into Rice as a manufacturing activity.

Issue 1:
The Revenue filed an Appeal against the Income Tax Appellate Tribunal's decision favoring the Assessee's eligibility for deduction under Section 80IA for converting raw Urad into Urad Dhal. The Tribunal's decision was based on the premise that the process constituted a manufacturing activity. The Tribunal referred to other decisions, including the Ahmedabad Bench's ruling that a similar process was considered manufacturing activity under Section 80IA. The Tribunal also cited the Indore Bench's decision, which relied on Supreme Court judgments to conclude that the conversion of dal from gram constituted manufacturing and made the Assessee eligible for deductions under Section 80IB(3)(ii). The High Court found no reason to interfere with the Tribunal's order, confirming the Assessee's eligibility for deduction.

Issue 2:
The High Court analyzed the term "manufacturing activity" under Section 80IA in light of the CIT v. Muthuramalingam Modern Rice Mill case, which determined that converting Paddy into Rice qualified as a manufacturing activity for claiming deductions. The Court emphasized that the purpose of deductions under Section 80IA/80IB was to promote industrial activity, and a broad interpretation of "manufacture" or "production" was necessary. The Court highlighted that any activity resulting in a new commercial article with added value fell within the ambit of manufacturing. It rejected the Revenue's argument that dehusking Paddy into Rice did not constitute manufacturing, emphasizing the transformation of the article and the commercial differentiation between Paddy and Rice. The Court concluded that the Assessee's industrial activity of dehusking Paddy into Rice qualified as manufacturing, entitling them to deductions under Section 80IA.

Conclusion:
The High Court upheld the Tribunal's decision that converting raw Urad into Urad Dhal constituted a manufacturing activity, making the Assessee eligible for deductions under Section 80IA. The Court's analysis of the term "manufacturing activity" in light of similar cases involving the conversion of agricultural products reinforced the Assessee's entitlement to deductions. The judgment emphasized the broad interpretation of manufacturing activities to promote industrial development and affirmed the Assessee's right to claim deductions for the said activity.