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TMI Blog2008 (10) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... 6723 OF 2003 with 1742/2005, 2294/2005, 1496/2006, 2787/2005, 2725/2004, 4747/2007, 4749-4750/2007, 4752/2007, 4071/2007, ORDER Leave granted in Special Leave Petitions. Two questions, as stated hereinbelow, arise for determination in this batch of Civil Appeals: "(1) Whether appellant-assessee was entitled to deduction under Sections 80-HH and 80-I of the Income Tax Act, 1961 in respect of ship breaking activity undertaken by it? (2) Whether 'usance interest' partakes of the character of purchase price and, therefore, not liable to deduction at source under Section 195(1) of the Income Tax Act, 1961?" We may refer to C.A.Nos.6692-6723/2003 for deciding these appeals. Answer to Question No.1: The Income Tax, 1961 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts which emerge in the course of manufacture of goods. Learned counsel Shri Ranbir Chandra, appearing on behalf of the Department, emphasizes the words "new goods". In fact, the impugned judgment of the Gujarat High Court also proceeds on the basis that when a ship breaking activity is undertaken, the articles which emerged from the activity of ship breaking continued to be the part of the ship; that such parts do not constitute new goods and, consequently, in this case, the impugned judgment proceeds to hold that the assessee was not entitled to claim the benefit under Sections 80HH and 80I of the 1961 Act as there was neither production nor manufacture of new goods by the process of ship breaking. We do not agree with the view take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the definition of the word 'produce'. Secondly, the judgment of the Bombay High Court in the case of Ship Scrap Traders (supra) stands affirmed by the judgment of this Court in the case of Commissioner of Income Tax Vs. Sesa Goa Ltd., reported in 271 ITR 331. In that case, the question arose before a Bench of three Judges of this Court was as to whether extraction and processing of mineral ore amounts to production within the meaning of the word in Section 32A (2)(b)(iii) of the 1961 Act? It was held that the word 'production' is wider than the word 'manufacture'. It was held that the word 'production' has a wider connotation than the word 'manufacture'. It was further held that the mined ore need not be a new product. In fact, the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 2003 with effect from 1st April, 1983. By reason of said amendment, Explanation-2 was added to Section 10(15)(iv)(c), which reads as under: "Explanation 2---For the removal of doubts, it is hereby declared that the usance interest payable outside India by an undertaking engaged in the business of ship-breaking in respect of purchase of a ship from outside India shall be deemed to be the interest payable on a debt incurred in a foreign country in respect of the purchase outside India." On reading that Explanation, it is clear that usance interest is exempt from payment of income tax if paid in respect of ship breaking activity. This amendment came into force only after the impugned judgment. It was not there when the impugned judg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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