TMI Blog2008 (11) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture or production. The AO held that no new articles or things are manufactured or produced by the assessee and, therefore, by virtue of the nature of activities carried on by the assessee, it is not coming under the purview of s. 10A. 4. The issue was taken in first appeal before the CIT(A). The assessee argued before the CIT(A) that the word "manufacture" is defined in s. 10AA(9) r/w Expln. 1 (iii) that manufacture shall have the same meaning as assigned to it in s. 2(r) of the Special Economic Zones Act, 2005. The provision of Special Economic Zones Act defines manufacture as making, producing, etc. including blending. Therefore, according to the assessee, the activity of blending tea carried on by it amounts to manufacture and thereby eligible for s. 10A benefit. 5. The CIT(A) found that the word "manufacture" is not defined in the IT Act for the purpose of s. 10A or 10AA or 10B and the definition now has been provided in s. 10AA w.e.f. 10th Feb., 2006 which includes blending. He agreed with the argument of the assessee that it has been clarified time and again by the Supreme Court that a clarificatory interpretation introduced by an amendment to the IT Act, if it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: "All the three stages, namely, production, manufacturing and processing of tea can be enumerated as under: The tea is produced in the tea gardens. This first stage is called production of tea. The second stage is manufacture of tea. In this stage, the tea leaves are plucked from the tea bushes and by mechanical process, tea leaves are converted to tea. This second stage is considered manufacturing of tea. The third stage is blending of different qualities of tea in order to smoothen its marketability. This third stage is considered processing of tea." 8.3 The assessee is carrying on the third stage activity alone i.e., of blending. Therefore, what is done is processing and not manufacturing or production. The term "processing" was present in the definition of "manufacture" for some period in s. 10A. However, it was omitted by Finance Act, 2000 to phase out the exemption, stage by stage by the end of asst. yr. 2009-10 with a view to rationalise the concession and to phase these out, ss. 10A and 10B have been substituted by new provisions. This is made clear in para 5.2 of Explanatory Note on Finance Act, 2000 as discussed in Circular No. 794, dt. 9th Aug., 2000 [(2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the benefit, it could have done so when it introduced Expln. 4 to this section by Finance Act, 2003 to include the "cutting and polishing of precious and semi-precious stones" in the category of manufacture or production. The fact that it was not done also proves the point that processing is not considered as an activity qualifying for relief under s. 10A. 8.10 When a statute does not define an expression, it has to be understood in common parlance. This principle is upheld by the Supreme Court in the case of CST vs. Jaswant Singh Charan Singh AIR 1967 SC 1454. Manufacture or production in the common parlance means the production of new and distinct articles different from raw materials. The raw material cannot be regarded as the final product but instead it should be a new and distinct article as held by the Kerala High Court in the case of CIT vs. Kanam Latex Industries (P) Ltd. (1996) 132 CTR (Ker) 178 : (1996) 221 ITR 1 (Ker). 8.11 Sec. 10AA was not in the statute during the period relevant to the impugned assessment year. It was introduced by the Special Economic Zones Act, 2005 w.e.f. 2006. There is no retrospective effect given to this provision. It can be invoked only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 It is necessary while interpreting the scope of s. 10A to look into the definition given to the term "manufacture" in Expln. 1(iii) to s. 10AA(9). Such a rule of reference has been upheld by the Supreme Court in the case of CIT vs. Straw Products Ltd. (1966) 60 ITR 156 (SC). In that case, where the Taxation Laws (Merged States) Removal of Difficulties Order, 1949 was amended and an Explanation was inserted, the Supreme Court relied upon the amended provisions and held that the said amendment would be applicable to the then Bhopal Income Act, 1948. On the analogy of the above ratio, as s. 10AA was inserted through the SEZ Act, 2005 and s. 10A was simultaneously given sunset and hence the amended provision being clarificatory, would apply based on the Straw Products case and thus the definition given in s. 10AA(9) would squarely apply to s. 10A as well. Reliance is also placed on the decision of Supreme Court in the case of CIT vs. Bijli Cotton Mills (1964) 15 STC 656 (SC). 9.3 The Supreme Court in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC) has held that if a statute is curative or merely declaratory of the previous law, retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given to legislative history, context and background while examining the issue of applicability of provision of the Act and in this respect, due weightage be given to the definition provided in SEZ Act, 2005. 9.8 The learned senior counsel argued that provisions have to be interpreted to effectuate the object of the legislature and not for the purpose of defeating it. The Courts have to look at the context and purpose as to why the particular section has been enacted. The object of the Exim Policy to grant special relief to all units set up in any SEZ who has committed certain export obligations with a view to have export promotion for the country as a whole. Within this overall scheme, one of the relief was deduction under s. 10A of the IT Act and therefore, the purpose of s. 10A has to be construed in the light of overall objects stated in Exim Policy vis-a-vis SEZ Act, 2005. In order to support the above proposition, the learned senior counsel relied on the following decisions: (1) CIT vs. Mahindra Mahindra Ltd. Ors. (1983) 36 CTR (SC) 300 : (1983) 144 ITR 225 (SC); (2) CIT vs. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108: (1986) 161 ITR 320 (SC); (3) CIT vs. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and policy declarations of the Government. 9.11 In this regard, the learned senior counsel has relied on a series of decisions including that of Supreme Court in the cases of CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 104 CTR (SC) 243 : (1992) 196 ITR 149 (SC), Harshad Shantilal Mehta vs. Custodian Ors. (1998) 231 ITR 871 (SC), C.W.S. (India) Ltd. Etc. Etc. vs. CIT (1994) 118 CTR (SC) 118 : (1994) 208 ITR 649 (SC), etc. 9.12 The learned senior counsel also canvassed his point in the light of Exim Policy 2003, law relating to direct taxes, definition given in SEZ Act, 2005, etc. He has also produced before us copies of various permissions and approvals obtained for setting up of assessee's unit in the Special Economic Zone. The learned senior counsel has also distinguished the impact of the decision of Supreme Court in the case of CIT vs. Tara Agencies which, according to him, does not apply to the case of the assessee. 10. We heard both sides in detail and carefully considered the rival contentions. 10.1 The assessee company is carrying on the business of selling and exporting blended tea. The assessee company is recognised by the competent authority, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e activity carried on by the assessee is manufacture or not? Therefore, we have to examine whether the activity of blending tea carried on by the assessee amounts to manufacture or not. 10.5 In this context, it is necessary for us to refer to the judgment of Indore Bench of Madhya Pradesh High Court on the principle of "causus omissus" to be acted upon while interpreting statutes. In the case of Laxmandas Pranchand Ors. vs. Union of India Ors. (1999) 154 CTR (MP) 315 : (1998) 234 ITR 261 (MP), the Madhya Pradesh High Court has held that a matter which should have been but has not been provided for in the statute, cannot be supplied by Courts. "Causus omissus" is a well settled rule of interpretation. Certain matters have to be left to the wisdom of the legislature. The Court held that a matter which should have been but has not been provided for in a statute, cannot be supplied by Courts. The Court further observed that even a defect in phrasing does not permit addition. If this rule of "causus omissus" is kept in mind, it is possible to say that there is an apparent distinction between s. 10A and the new provision inserted subsequently in s. 10AA. In subsequently inserted s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in the case of CIT vs. Tara Agencies. The said issue has been considered by the Supreme Court in a very analogous situation. It was necessary for the Court to examine whether the activity carried on by the assessee in that case amounted to manufacture or production. In that case also, just similar to the present case in hand, the assessee purchased tea of diverse grades and brands and blended them by mixing different kinds of tea. In that case, the Court held that even if it might amount to processing, did not amount to manufacture or production. We find that the assessee in the present case is also carrying on exactly the same activity. The assessee purchases different grades and brands of tea and blend them in accordance with the requirements of the market. Therefore, we find that the argument of the assessee cannot be accepted in the light of the decision of Supreme Court in the case of CIT vs. Tara Agencies, which is directly applicable to the present case. 10.8 Sec. 10AA was not in the statute during the period relevant to the impugned assessment year. It was introduced by the Special Economic Zone Act, 2005 w.e.f. 2006. No retrospective effect is given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afe and sound to read the whole scheme of the enactment to come to the contextual meaning of a particular section, preferably dealing with exemptions. In fact, the exemptions are artificial antithesis of the purposive scheme of income-tax itself. Therefore, the harmonious flow required in reading and understanding the scheme of the IT law cannot be mutatis mutandis applied to the provisions relating to exemptions. We are of the considered opinion that the entire scheme of relief and exemptions granted by the Government of India in respect of export trade cannot be the ground to adjudicate the issues falling within a particular section of the IT Act dealing with exemption. It is not permissible in law to opt a harmonious construction of s. 10A and s. 10AA. An exemption provided in tax statute is a conscious endeavor on the part of the legislature. Therefore, it is necessary for the Tribunal to understand that every word, expression in a provision relating to exemption has been framed by the legislature so conspicuously with utmost care and caution. We do not think that we can add anything to what is stated in s. 10A. 11. Therefore, we find that the CIT(A) has erred in law in grant ..... 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