9911796707
TMI Blog2000 (9) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... w commercial commodity and hence, it is entitled to deduction under Section 80HH of the Act. The said claim of the assessee for the assessment year 1983-84 the Calcutta Bench of ITAT has considered the same issue and decided in favour of the Revenue and against the assessee. But during the course of hearing of the appeals for the assessment years under consideration the learned AR of the assessee brought to our notice the fact that the Madras Bench of ITAT in the case of ITO v. A. Joseph Louis [1990] 33 ITD 485 has decided the identical issue in favour of the assessee and against the Revenue. In these circumstances, the issue was referred to the President, ITAT for constitution of a special bench for deciding the same. The President accordingly constituted the Bench under Section 255(3) of the Income-tax Act. 3. The appeals were fixed for hearing on 4-7-2000 but on that day they were adjourned and posted for hearing on 7-7-2000 on which date they were fully heard. During the course of hearing of the appeals, the learned AR of the assessee submitted that the spirit supplied by Rampur Distillery is totally a different product and the same is processed as various levels which has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounted to manufacturing activity. The learned AR of the assessee further contended that the ITAT, Calcutta Bench decision in the assessee's own case for the assessment year 1983-84 is distinguishable inasmuch as the judgment of Hon'ble High Court in the case of Apeejay (P.) Ltd. v. CIT [IT Reference No. 171 of 1987] is with regard to the blending of different types of tea wherein their Lordships have held that it does not amount to manufacture or production of articles or things. In the case of S. P. Jaiswal Estates (P.) Ltd. v. CIT (No. 2) [1994] 209 ITR 307 (Cal.) their Lordships have held that manufacture or production of food articles in a hotel does not amount to manufacture. The AR of the assessee further submitted that the Assessing Officer has relied on the decision of the Hon'ble Calcutta High Court in the case of G.A. Renderian Ltd. v. CIT [1984] 145 ITR 387 wherein their Lordships have held that blending of different qualities of tea constitutes processing. The learned AR of the assessee contended that the above said case is distinguishable inasmuch as the issue that whether bleeding of different qualities of tea in different proportion would bring into existence a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that 'rectified spirit' and 'potable spirit' are two different things. The assessee purchases potable spirit as per the. agreement with Rampur distillery which has already manufactured. Potable spirit is consumable and rectified spirit is not fit for human consumption as it is. In potable spirit alcohol content is 35% which can be consumed but in case of rectified spirit the alcohol content is 95% which cannot be consumed as it is as the same is harmful. Distinguishing the case of Madras Bench of A. Joseph Louis' case the learned Standing Counsel submitted that the said case is not at all at par with the facts of the present case. In the said case it was rectified spirit but in the case on hand it is potable spirit. In the case of A. Joseph Louis it is case of arrack and in the present case it is potable spirit. If spirit, water and essence is added to potable spirit and bottled up which is called IMFL and is marketable after bottling, this can only be said to be 'processing' and not 'manufacturing' as the identity of alcohol remains same as it was before processing. Potable spirit is already manufactured. Whisky, Brandy and Rum are one and common thread which has intoxicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Standing Counsel has also cited certain cases to show trends of decisions of the Courts regarding processing and manufacturing and they are as under : CIT v. Bharath Sea Foods [1999] 237 ITR 46/103 Taxman 420 (Ker.) (FB), CIT v. Relish Foods [1999] 237 ITR 59/103 Taxman 392 (SC); CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 174/ 103 Taxman 503 (SC); CIT v. Hindusthan Metal Refining Works (P.) Ltd. [1981] 128 ITR 472/6 Taxman 245 (Cal.); CIT v. Lucky Mineral (P.) Ltd. [1997] 226 ITR 245/[1996] 87 Taxman 215 (Raj.); CIT v. Anjani Kumar & Co. (P.) Ltd. [1997] 227 ITR 786 (Raj.) 244 ITR 45 (Statutes) Lastly the learned Standing Counsel while summerising the arguments submitted that the production of whisky, brandy and rum amounts to only processing and not manufacturing and, therefore, the benefits of Section 80HH are not available to the assessee. 7. We have considered the submissions of the parties, gone through the appellate order in the assessee's own case for the assessment year 1983-84 and the decision A. Joseph Louis's case. We have also perused the case laws relied on by both the parties which have already been mentioned in the foregoing paragraphs. We may sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the expression "industrial undertaking". The requirement of Section 80HH(2) is that to be eligible, the industrial undertaking, should be one which is engaged in the manufacture or production of an article or thing. Therefore, the expression can be understood by looking upto the meaning as understood in common parlance or by making a reference to its definition in cognate legislation. In this connection we may mention the Supreme Court's decision in the case of N.C. Bhudharaj & Co. wherein their Lordships have held that construction of a 'dam' did not amount to production or manufacture of an article or thing. That the words used in the Act, take their colour from the context in which these are used. That the expression "manufacture" or "produce" are normally associated with movable articles or goods. That the words "article" and "things" are used interchargeably. That these words never denote construction of a dam or building. That the word "article" in Section 80HH(2) cannot include, a dam, a bridge, a building, a road, a canal or so on. 8. Similarly in the case of Sterling Foods (Goa) it was held that the expressions "manufacture" and "production" used in the Act are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a hotel is mainly a trading concern. It would not be appropriate in the ordinary sense to refer to the production of food materials in a hotel as manufacture. The activity carried on in preparing articles of food from raw materials in a hotel would not constitute "manufacture or processing of goods" within the meaning of Section 2(6)(d) of the Finance Act, 1968. A company which carries on such activity will not fall within the definition of an "industrial company" under that provision. The decisions of Kerala High Court in the case of Abad Hotels India (P.) Ltd. and Madras High Court in the case of Adayar Gate Hotels Ltd. are in the line with Casino (P.) Ltd.'s case . The learned Standing Counsel refers to the trends of the decisions which are not discussed here as they only indicate the trends and does not directly on the issue which is before us. Therefore, they are not discussed here in detail. 9. As regards the decision of Madras Bench of ITAT in the case of A. Joseph Louis we may mention that the assessee a small scale industry was engaged in the production of arrack and its sale. In the said case the Tribunal held that the various processes and blending amounted to 'manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f water to bring liquor from higher strength to lower strength. Mere mixing of water makes rectified spirit country liquor. Rectified spirit is an intoxicating liquor and it retains that character even after adding water to make it country liquor. Even whiskies and brandies are not ordinarily consumed as such but only after mixing water or soda. Addition of water or soda does not change the character of whisky or brandy either. Alcohol remains alcohol. Manufactured rectified spirit is used for the purpose of obtaining country liquor or IMFLs. It may be mentioned that rectified spirit is not used for potable purposes. 12. In the case of Pio Food Packers their Lordships have held that "manufacturing" normally involves consumption of a particular commodity in the process of manufacturing of another commodity, The goods purchased should be consumed, the consumption should be in the process of manufacture and the result must be the manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a-8 of its order which is as follows : "While on the point, we may refer to East Texas Motor Freight Lines v. Frozen Food Express [1955] 100 Led 917, where the U.S. Supreme Court held that dressed and frozen chicken was not a commercially distinct article from the original chicken. It was pointed out - 'killing, dressed and freezing a chicken is certainly a change in the commodity. But it is no more drastic a change than the change which takes place in milk from pasteurizing, homogenizing, adding vitamin concentrates, standardising and bottling'." It was also observed by the Supreme Court in Para-9 of its order which is as under: "......... there is hardly less difference between cotton in the field and cotton at the gin or in the bale or between cotton-seed in the field and cotton seed at the gin, than between a chicken in the pen and one that is dressed. The ginned and baled cotton and the cottonseed as well as the dressed chicken, have gone through a processing stage. But neither has been "manufactured" In the normal sense of the word." In Paras 10 & 11 the Supreme Court has observed as under : "Referring to Anheuser-Busch Brewing Association v. United States [1907] 52 Le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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