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TMI Blog2013 (8) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... (Judgment of the Court was delivered by Chitra Venkataraman,J.) The issues raised in the above Tax Case (Appeals) filed by the Revenue as against the order of the Income Tax Appellate Tribunal are identical in respect of the self-same assessee. Following are the questions of law arise for consideration in the above Tax Case (Appeals): "1. Whether on the facts and circumstances of the case, the Tribunal was right in deciding the issue of manufacture contrary to law laid down in 292 ITR 444? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in finding "splitting up" contrary to Section 10 B(2)(ii) (iii) of the Income Tax Act and 137 ITR 851?" 2. T.C.(A)No.299 of 2010 relates to the assessment year 2005-2006. T.C.(A)Nos.804 of 2010 and 805 of 2010 relate to the assessment years 2004-05 and 2006-07 respectively and T.C.(A)No.342 of 2012 relates to the assessment year 2008-09. The Tribunal passed separate orders for the assessment years 2005-06 and 2008-09 and common order for the assessment years 2004-05 and 2006-07. Since the facts are common, for convenient sake, we are referring to the facts relating to T.C.(A)No.299 of 2010. 3. The assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herever required. A final inner and outer corrugated box packaging is carried out for export purposes. Packed products are fumigated as per the legal and customer country specific requirements. Products are stuffed in containers and shipped for exports." The details of the finished goods manufactured by the assessee were as follows: "1. Bouquets 2. Potpurrris 3. Garlands 4. Home and Office dicor arrangements 5. Wall Decors 6. Floor Decors 7. Kitchen Decors 8. Window Decors 9. Christmas Wreaths 10. Christmas Tree ornaments and 11. Gift Sets." The Assessing Officer, however, referred to the website of the assessee, which gave the product catalogue, as follows: "1. Dried flowers 2. Sola (Soft wood) 3. Potpourri 4. Sea shells 5. Stones 6. Ready to sell Wreaths, bouquets, pot arrangement, photo frames, wall frames, garland 7. Incense sticks 8. Aroma gifts and 9. Aroma therapy." 5. Based on this, the Assessing Officer made an analysis of the shipments made by the assessee. The invoice gave the description on decorative items of dried flowers. In the invoices, the botanical names of the flowers, plant parts and sea shells were mentioned. From the purchase bills, it was fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition given to the word 'manufacture', Explanation 4 to Section 10B being added only under the Finance Act, 2003, the law as it existed relevant to the assessment year alone could be adopted; consequently, in the absence of any definition of the word 'manufacture', the word has to be given a meaning as given in common parlance. Thus, applying the decision reported in 251 ITR 323 (Aspinwall Co. Ltd. V. CIT), the Commissioner of Income Tax (Appeals) agreed with the assessee on the aspect of manufacture, to qualify for deduction under Section 10B of the Income Tax Act. 8. On the aspect of splitting up or re-construction of the business, the Commissioner of Income Tax (Appeals) held that the products dealt with by the assessee as well as by the company were totally different. The expenditure of the firm, even if were to be borne by the company and the employees of the company worked in the firm, such expenditure was to be a subject matter of disallowance at the hands of the company. Pointing out that there was no transfer of any assets by the company to the firm or the business of the company transferred to the firm, the question of holding that the firm was formed by splitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting unit. Placing heavy reliance on the decision reported in 292 ITR 444 (CIT V. Tara Agencies), learned standing counsel submitted that mere laquering or painting of the plants, by itself, would not result in manufacture. Consequently, the order of the Tribunal has to be set aside. 12. Countering the claim of the Revenue, learned counsel appearing for the assessee pointed out to the detailed process that the assessee had undertaken to result in a commercially new product to fit in with the export order and submitted that the dried flowers and plants component, which are raw materials, are not exported just by assembling. They should be bunched together and moulded in various shapes and form as per the desire of the foreign purchasers; further, the dried flowers and plant components are cleaned, graded, thereafterwards, according to the requirements, they are bleached, washed and coloured, laquer is applied and after using necessary preservatives to maintain their shape, the products are perfumed and added glitter according to the design. Thus the end product is a totally different one from what was purchased as raw material. If the nature of activity involved was just cleaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld squarely apply. It is contended that every change is not 'manufacture' and every change in an article as the result of treatment, per se, would not result in 'manufacture'. There is no dispute on this broad principle. However, it is not denied by the Revenue that apart from cleaning and grading, the assessee had taken further processing; that what is purchased as raw material and what is exported as a product for export are totally different items. The process that the assessee had undertaken clearly points out the irreversible nature of the final end product from a raw material purchased and given the above said fact, which the Revenue does not deny, we have no hesitation in accepting the contention of the assessee that there was, in fact, 'manufacture'. 16. We accept the contention of the assessee in this regard drawing support from the decision of the Apex Court reported in 251 ITR 323 (Aspinwall Co. Ltd. V. Commissioner of Income Tax (Appeals)) that the word 'manufacture' has to be understood in common parlance, there being no definition of the word 'manufacture' in the Act. Even if one looks at the definition of 'manufacture', as given under Explanation 3 to Section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity." Thus the Apex Court pointed out that if the commodity can no longer be regarded as the original commodity but instead is recognized as a new and distinct article, then the activity of manufacture can be said to take place. 19. The decision relied on by the Revenue reported in 292 ITR 444 (CIT V. Tara Agencies), however, stands on a different footing. There, the assessee was engaged in purchase of different qualities of tea and blending the same for the purpose of export. On the question as to whether the assessee would be entitled to weighted deduction under Section 35B(1A) of the Income Tax act, the Supreme Court pointed out on facts that the assessee's activity amounted to processing only and the activity did not amount to production or manufacture. Thus the case relied on by the Revenue is distinguishable on facts. 20. Given the admitted fact that what was purchased by the assessee as raw material and exported goods are totally different items and commercially known as a different product ..... X X X X Extracts X X X X X X X X Extracts X X X X
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