2001 (9) TMI 3 - SC - Income Tax

Whether the Tribunal is right in law and fact in holding that the assessee s activity of curing coffee amounts to manufacturing and the assessee is entitled to relief under section 32A -Held yes - Held that the High Court was wrong in its opinion that the processing of the raw berries into coffee beans ready for consumption would not be a manufacturing activity disentitling the assessee to the investment allowance provided under section 32A

Summary

Issues:
1. Entitlement to investment allowance under section 32A of the Income-tax Act for the activity of curing coffee.

Analysis:
The appellant, a public limited company, claimed investment allowance under section 32A of the Income-tax Act for the machinery used in curing coffee for the assessment years 1980-81 and 1983-84. The Income-tax Officer initially denied the allowance, but the Commissioner of Income-tax (Appeals) allowed it. The Tribunal upheld the Commissioner's decision based on a previous ruling in the appellant's favor. The High Court, however, disagreed, stating that the appellant was not entitled to the investment allowance for the machinery used in curing coffee.

The High Court examined the process of coffee curing, involving various stages such as drying, hulling, grading, and polishing. The Tribunal observed nine distinct processes involved in curing coffee, leading to the production of coffee beans. The High Court, referring to the common understanding of "coffee" as a beverage, concluded that the process did not result in a commercially different commodity, thus not constituting a manufacturing activity.

The Supreme Court analyzed the concept of "manufacture" as per common parlance and legal interpretation. Citing the Deputy CST v. Pio Food Packers case, the Court emphasized that a manufacturing activity involves transforming the original commodity into a new and distinct article recognized in trade. In this case, the Court found that the appellant's process of converting raw coffee berries into coffee beans resulted in a commercially different commodity, meeting the criteria for a manufacturing activity.

The Court held that the High Court erred in its interpretation and reinstated the Tribunal's decision, allowing the investment allowance under section 32A of the Act for the appellant. The judgment favored the appellant, ruling in their favor against the Revenue.