TMI Blog2002 (10) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the assessee. - - - - - Dated:- 1-10-2002 - Judge(s) : R. JAYASIMHA BABU., K. RAVIRAJA PANDIAN. JUDGMENT The judgment of the court was delivered by K. RAVIRAJA PANDIAN J. -The common question of law referred for the opinion of this court is as follows : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in not granting deduction under section 32A of the Income-tax Act, 1961, for the assessment year 1986-87 and deduction under section 80-I for the assessment year 1987-88 ?" The assessment years are 1986-87 and 1987-88. The assessee is a dealer in photographic colour papers. It imported photographic colour papers in jumbo rolls. The width of the said paper is 1.511 meters and the length of the same ranges from 3,100 meters to 3,250 meters. After importation in jumbo rolls, the assessee cut the same into photographic flats and rolls of the desired size in a dark air-conditioned humidity controlled dust proof room with the help of slitting machine. The assessee sells the photographic colour papers to the dealers in the form of small rolls or cut sizes. The photographic paper wound as smaller rolls is of size ranging from 3.5" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts amounts to manufacturing and processing and as such the assessee is entitled to the investment allowance as well as deduction under the abovesaid two provisions of the Act. For that purpose, he heavily relied on the decision of the Supreme Court in Aspinwall and Co. Ltd. v. CIT [2001] 251 ITR 323, wherein the process of manufacturing coffee beans from raw berries has been held to be a manufacturing activity. Learned counsel appearing for the respondent, Mr. Ramanujam, has contended that the activity of the assessee is nothing but reducing the size of the bigger photographic paper into small rolls and flats so as to cater to the needs of the assessee's customers, which process does not involve any manufacturing activity and he relied on the decision of the Supreme Court in CIT v. Gem India Manufacturing Company [2001] 249 ITR 307, wherein the Supreme Court has held that in the absence of any material to show that polished diamond is a new article or thing which is the result of manufacture or production, subjecting raw uncut diamonds to a process of cutting and polishing, which yields the polished diamond, cannot be said to amount to manufacture or production of an article or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er for the purpose of sale. In the facts and circumstances of the case as narrated above, we will have to see whether the activity of the assessee would amount to manufacture or production so as to entitle him to the benefit under sections 32A and 80-I of the Act. The words "manufacture" and "production" have not been defined in the Act. In the case of CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, the Supreme Court while considering whether the construction of dam would amount to manufacture within the meaning of section 80HH of the Income-tax Act has observed as follows : "The words 'manufacture' and 'production' have received extensive judicial attention both under this Act as well as the Central Excises Act and the various sales tax laws. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. The meaning of the expression 'manufacture' was considered by this court in Deputy CST v. Pio Food Packers [1980] 46 STC 63, among other decisions. In the said decision, the test evolved for determining whether manufacture can be said to have taken place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the Tribunal was right of confirming the order of the Commissioner of Income-tax (Appeals) holding that the assessee, engaged in cutting and polishing of diamonds, amounts to manufacturing or production of goods and is entitled to deduction under section 80-I of the Income-tax Act, 1961 and held that : "There can be little difficulty in holding that the raw and uncut diamond is subjected to a process of cutting and polishing which yields the polished diamond, but that is not to say that the polished diamond is a new article or thing which in the result of manufacture or production." Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC) was a case of export of lobsters. In that case, the appellants purchased shrimps, prawns and lobsters locally for complying with orders for export and they cut the heads and tails of the shrimps, prawns and lobsters and then they were subjected to peeling, deveining and cleaning and freezing before being exported in cartons. The Supreme Court held that : "by reason of processing of the goods after their purchase, there wag no change in their identity and that, in fact, commercially they were to be regarded as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner involves a manufacturing and processing activity, is a case in which the assessee had a coffee curing plant. In relation to machinery installed for curing of the coffee, the assessee claimed investment allowance under section 32A of the Income-tax Act for the assessment years 1980-81 and 1983-84. The Appellate Tribunal found that nine processes were involved in curing coffee and that to deal with the nine processes, the assessee had a factory area where godowns for storage of uncured/clean coffee, coffee drying yards, machine rooms, garbling sheds, etc., were located. The Tribunal held that in this process the assessee was involved in an activity of manufacturing the coffee beans from the raw material plucked from the plant, and that, therefore, the assessee was entitled to investment allowance on the machinery installed for curing coffee. On a reference, the High Court held that the assessee was not entitled to the allowance as the activity of the assessee was not either manufacture or production. On appeal to the Supreme Court, the Supreme Court held that the assessee after plucking or receiving the raw coffee berries made them undergo nine processes to give them the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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