2021 (10) TMI 143 - HC - Income Tax

Disallowance u/s 10B - Denial of deduction as business of the assessee did not involve any manufacturing process - whether assessee will be entitled to exemption under Section 10B of the Income Tax Act for business of blending of tea being carried on by it by taking aid from provisions of other statutes and the policies? - whether either the definition from the SEZ Act or the export import policy should be considered? - HELD THAT - The scheme of the Act in the various provisions as referred to about especially Sections 10A, 10AA, 10B and 10C which though provide for deductions to the industries engaged in manufacture or production of articles but operate in different fields. The term manufacture has not been defined in Section 10B after the amendment was carried out in the year 2001. That has created an ambiguity if the argument by the learned Counsel for the assessee is considered where he sought to claim that to grant benefit to the assessee either the definition from the SEZ Act or the export import policy should be considered. The law is now well-settled that in case of ambiguity in an exemption provision the benefit has to go to the revenue.- Decided against assessee.

Issues Involved:
1. Entitlement to exemption under Section 10B of the Income Tax Act for the business of blending tea.
2. Interpretation of the term "manufacture" under Section 10B.
3. Applicability of other statutes and policies in interpreting Section 10B.
4. Burden of proof and interpretation of exemption provisions in tax law.

Detailed Analysis:

1. Entitlement to Exemption under Section 10B:
The primary issue was whether the assessee's business of blending tea qualifies for exemption under Section 10B of the Income Tax Act. The Tribunal had previously allowed the exemption, but the Revenue contested this, arguing that blending tea does not constitute manufacturing, thus disqualifying the assessee from the exemption.

2. Interpretation of "Manufacture" under Section 10B:
The court examined the historical context and legislative amendments of Section 10B. Initially, the term "manufacture" included processing, but post-amendment in 2001, this definition was omitted. The Revenue argued that without explicit inclusion of processing in the definition, blending tea does not qualify as manufacturing. The court referred to the Supreme Court's judgment in Commissioner of Income Tax Vs. Tara Agencies, which held that blending tea does not amount to manufacturing.

3. Applicability of Other Statutes and Policies:
The assessee argued that definitions from the Special Economic Zones Act and Export-Import policies should be considered to interpret Section 10B. However, the court emphasized that tax statutes must be interpreted based on their provisions without importing definitions from other statutes or policies. The court noted that where Parliament intended to include specific activities within "manufacture," it explicitly did so, as seen in other provisions of the Income Tax Act.

4. Burden of Proof and Interpretation of Exemption Provisions:
The court reiterated that exemption provisions in tax law must be interpreted strictly, with the burden of proof on the assessee to show eligibility for the exemption. In case of ambiguity, the benefit of doubt goes to the Revenue, not the assessee. This principle was reinforced by the Constitution Bench judgment in M/s Dilip Kumar and Company, which overruled earlier judgments that favored a liberal interpretation in favor of the assessee.

Conclusion:
The court concluded that blending tea does not qualify as manufacturing under Section 10B, thus denying the exemption. The substantial question of law was answered in favor of the Revenue. The judgment highlighted the necessity for strict interpretation of tax exemption provisions and clarified that definitions from other statutes or policies should not influence the interpretation of the Income Tax Act. The court also suggested that the CBDT reconsider its circulars to address legal issues with significant ramifications.

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