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2001 (10) TMI 288 - AT - Income Tax
Issues Involved:
1. Deduction u/s 80HHC
2. Deduction u/s 80-I
Summary:
1. Deduction u/s 80HHC:
The common issue across the assessment years 1993-94, 1994-95, and 1996-97 pertains to the eligibility for deduction u/s 80HHC of the Income-tax Act, 1961. The assessee, a partnership firm engaged in the business of excavating and processing mineral quartz for export, claimed deductions u/s 80HHC and 80-I. The Assessing Officer (AO) denied these deductions, interpreting that the exported quartz did not qualify as "processed" minerals under Schedule XII, particularly since the quartz was not micronized or pulverized to a grain size of one millionth of a meter. The AO also rejected the interpretation of the Commissioner (Appeals) that non-micronized quartz could be covered under clause (x) of Schedule XII as cut and polished rocks, arguing that such an interpretation would render clause (i) meaningless.
Upon appeal, the Commissioner (Appeals) allowed the deduction u/s 80HHC for the assessment years 1993-94 and 1994-95, interpreting that the process undertaken by the assessee added value to the quartz, qualifying it as "processed" under the broader definition provided in the Board's circular No. 729. However, for the assessment year 1996-97, another Commissioner (Appeals) denied the deduction, stating that the assessee's activities did not meet the specific processing requirements of Schedule XII, particularly noting the absence of polishing.
The Tribunal, upon review, concluded that the assessee's processes of cutting, dressing, and crushing the quartz added value to the mineral, making it eligible for deduction under item (x) of Schedule XII. The Tribunal emphasized a liberal interpretation of incentive provisions and upheld the deduction for all three assessment years, noting that the purpose of section 80HHC is to encourage exports.
2. Deduction u/s 80-I:
For the assessment years 1993-94 and 1994-95, the AO denied the deduction u/s 80-I, considering the assessee as a trading concern rather than engaged in manufacturing or production. The Commissioner (Appeals) allowed the deduction, but the Revenue contested this decision.
The Tribunal, referring to Supreme Court and Madras High Court judgments, concluded that the assessee's activities did not constitute "manufacture" as defined in relevant case law. The process of converting large quartz masses into smaller sizes did not alter the fundamental nature of the material, and hence, did not qualify as manufacturing. Consequently, the Tribunal ruled in favor of the Revenue, denying the deduction u/s 80-I.
Conclusion:
The assessee's appeal for deduction u/s 80HHC was allowed for all three assessment years, while the Revenue's appeal regarding deduction u/s 80-I was upheld, denying the deduction for the assessment years 1993-94 and 1994-95.