1995 (5) TMI 43 - AT - Income Tax

Summary

Issues:
1. Whether the process of curing coffee amounts to production or manufacture for claiming investment allowance.
2. Determining the eligibility of specific assets for investment allowance in a coffee curing works.

Detailed Analysis:
1. The primary issue in this case revolved around whether the process of curing coffee qualifies as production or manufacture for the purpose of claiming investment allowance under section 32A(2)(b)(iii). The company, which owned coffee lands and operated a coffee curing works, had claimed investment allowance for machinery installed in the curing works. The Income Tax Officer (ITO) and the CIT (Appeals) denied the relief, stating that curing coffee did not involve production or manufacture of any article. The Tribunal was tasked with determining the eligibility based on the arguments presented by both parties.
2. The representative of the assessee argued that curing raw coffee results in the production of coffee seeds or beans, citing a previous decision by the Bench that supported this view. On the other hand, the revenue contended that coffee is a produce of the plantation and curers do not manufacture or produce it. Reference was made to a decision by the Privy Council. The Tribunal noted the need for a detailed examination of the manufacturing activity and process involved in coffee curing, citing a previous case where the High Court directed a rehearing due to lack of detailed analysis.
3. The Tribunal delved into the concept of manufacture and production as interpreted by various judicial authorities, including a Supreme Court decision which emphasized the transformation of a commodity into a distinct and new article to constitute manufacture. The Tribunal highlighted the distinction between mere processing and manufacture, emphasizing the emergence of a new commodity with a distinctive identity. The Tribunal also referred to cases involving milling of paddy to rice, where the Supreme Court had recognized the manufacturing process involved.
4. The Tribunal analyzed the coffee curing process in detail, from the initial stages of processing the raw coffee to the final grading and polishing of the coffee beans. It was observed that while certain processes like husking and grading resulted in a transformation of the commodity, operations like cleaning and polishing did not bring about a new commodity. The Tribunal emphasized the need for a direct nexus to manufacturing or production for assets to qualify for investment allowance.
5. Ultimately, the Tribunal concluded that the plant and machinery employed specifically for husking the coffee to remove the husk/silver skin constituted assets involved in manufacture or production. These assets were deemed eligible for investment allowance, while other assets not directly related to the manufacturing activity were excluded. The Tribunal directed the ITO to calculate and allow the investment allowance for the eligible assets, thereby allowing the appeal in part.