TMI Blog1999 (4) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... or coating of titanium substrates numbering 1212 and started production w.e.f.1-8-1993. For assessment year 1994-95, the year under consideration, the assessee filed return at a loss of Rs. 1,28,71,873. Assessing Officer noted that assessee had claimed deduction under section 80-IA amounting to Rs. 2,62,20,966 against total income computed at Rs. 1,33,49,093. He called upon the assessee to show cause as to how the claim of the assessee for deduction under section 80-IA was allowable. The assessee vide their letters dated 28-2-1997 and 7-3-1997 submitted that as per agreement dated 26-2-1993 in between assessee-company and U.H.D.E., the assessee was to be supplied titanium substrates as free issue material by said UHDE and assessee shall be coating chemicals on the said titanium substrates. The product so manufactured by the assessee shall be called' Coated Titanium Metal Anodes' which was to be complete in all respects as per the scope described in the agreement. The product was to meet the various technical requirements as per different clauses of the agreement. The assessee-company had incurred expenditure of Rs. 1,67,80,525 on the raw material consumed for coating the titanium s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of assets at Kundain,Goa, as per IT Rules and that also indicate that no production or manufacturing operations were performed so as to bring into existence commercially new product. Assessing Officer also relied upon this decision of Bombay High Court in the case of CIT v. Sterling Foods [1995] 213 ITR 851/79 Taxman 381 in which their Lordships have defined the scope of expression 'manufacture' or produced articles used in section 80HH of the Act in the light of 'expression 'new material or processing of goods' appearing in explanation of section 33B of the Act and section 2(8)(c) of Finance Act, 1975 and noted that Legislature has specifically used the expression 'processing' in juxtaposition to 'manufacture' wherever it was intended to extent the benefit to an industrial undertaking which is engaged in the processing of goods or articles and avoided using the expression in cases where it intended to confine the benefit to industrial undertaking only engaged in the 'manufacture' or 'Production' of goods or article. Their Lordships further opined that three expressions 'processing', 'manufacture', and 'production' used in various taxing statutes are not inter-changeable expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d favour with the submissions of the assessee. According to him, the assessee was to satisfy different tests so as to be eligible for deduction under section 80-IA. He proved to be an industrial undertaking but he failed to prove that it was manufacturing or producing articles which is the fundamental requirement for claim under section 80-I. The assessee was found engaged in the job work of coating and after placing reliance on the reasoning of their Lordships in the case of CIT v. N. C. Buddharaja Co. [1993] 204 ITR 412 / 70 Taxman 312 (SC) the CIT(A) concluded that assessee was processing the goods and not engaged in the production and manufacturing of these and the ground was rejected against which the assessee is in appeal before us. 4. The ld. counsel for the assessee pointed out that authorities below were not able to understand the factual position that is why mistake crept in the order of Assessing Officer as well as that of CIT(A). According to him, the Assessing Officer had wrongly noted in the assessment order that basis function and purpose of both 'Titanium Substrates' and 'C.T.M.A.' are the same i.e. to be used as electrodes and they have the same features. He fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k prior to its activation carried out by assessee from the above process. 5. The ld. counsel had placed reliance on the decision of Hon'ble Supreme Court in the case of Empire Industries Ltd v. Union of India [1986] 162 ITR 846 in which their Lordships have observed that the taxable event under excise law is manufacture. The moment there is transformation into a new commodity commercially-known as a distinct and separate commodity having its own character, use and name, whether it be the result of one process or several processes, manufacture takes place. In that context, their Lordships concluded that process of bleaching, dye and printing means manufacturing process. The test laid down by their Lordships to find out as to whether a particular activity amounts to 'manufacture' or not was: Does a new and different goods emerge having distinctive use and character. The ld. counsel submitted that said ratio is fully applicable to the facts as after different processes adopted by the assessee, a new commodity commercially known as distinct and having its own character, use and Dame emerges and that amounts to manufacture. Their Lordships have also laid down that said transformation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by coating Titanium Substrate, a new thing came into existence which is commercially a different commodity and thus, the reasoning of their Lordships is fully applicable. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of N. C Buddharaja Co. and that of ITAT Special Bench decision in the case of ACIT v. Soni Photo Films (P.) Ltd. [1998] 67 ITD 81 in which all the case laws on the points were discussed by the Special Bench and concluded that assessee's case was that of manufacture. According to ld. counsel, the same is the fact in hand and processing of coating produces a new thing and that amounts to production and manufacture of an article and assessee should have been held entitled for deduction under section 80-IA. 9. The last plea was that section 80-IA applies to industrial undertaking and definition of industrial undertaking is adopted as given in Explanation to section 33B of the Act where it has been laid down that an undertaking which is mainly engaged in the business of generation of electricity etc. or construction of ships or in the manufacture or processing of goods. The submission of the ld. counsel is that assessee is carrying on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e coating, the articles being received by assessee was Titanium Metal Anodes and he is simply coating the same with chemical solutions and that activity will amount to processing only and nothing more.' 12. Ld. DR placed reliance on the reasoning of Calcutta High Court in the case of CIT v. Hindustan Metal Relining Works (P.) Ltd. [1981] 128 ITR 472 in which identical facts were involved. Assessee was galvanising and coating iron or steel with zink to make it rust proof and their Lordships concluded that such an activity undertaken by the assessee will not involve manufacture or production of any article u/s 84 of the Act and words of that section were identical to the facts before us. 13. Ld, DR placed reliance on the decision of Bombay High Court in the case of Sterling Foods and submitted that said reasoning is fully applicable to the facts. Again, ld. DR placed reliance on the decision of Kerala High Court, in the case of CIT v. Aspinwall Co. Ltd. [1997] 227 ITR 916/93 Taxman 331 in which the activities carried out by the assessee were identical to the activities of present assessee. Assessee was receiving coffee from the estate and drying the same. Later on, hulling/ pea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h our attention was drawn and also carefully looked into the citations of different case laws. 17. To appreciate the submissions of ld. representatives of parties, it will be in the fitness of things to point out that provisions of section 80-IA were brought to statute by Finance Act, 1991 w.e.f. 1-4-1991 and a perusal thereof shall show that these have been made applicable to industrial undertakings and we are producing the relevant provisions of section 80-IA(2) which reads as under :--- "80-IA(2): This section applies to any industrial undertaking which fulfils all the following conditions, namely :--- (i) (ii) (iii) It manufactures or produces article or thing, not being any article or thing specified in the list in the 11th Schedule .... It is also relevant to point that sub-section of this section gives out that definition of industrial undertaking to the effect that it shall have the meaning assigned to it in the explanation to section 33B of the Act. Explanation to 33B provides as under :--- In this section 'industrial undertaking' means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture can be characterised as production, every production need not amount to manufacture. The word 'production' or 'Produce' when used in juxtaposition with the word 'manufacture', takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods." As pointed out above, the requirement of section 32A for allowing the deduction are identical to the requirement of section 80-IA(2) reproduced above and undisputedly, the same reasoning has to be applied here. 19. Further, Hon'ble Bombay High Court in the case of Sterling Food had further discussed the words 'processing', 'manufacture' and 'production' and laid down as under after discussing the ratio of Apex Court in the case of NC Buddharaja Co. and relevant observations are as under :--- "The three expressions 'processing', 'manufacture' and 'production' used in various taxing statutes, are not interchangeable expressions. Though often used in juxtaposition, they convey different concepts and refer to different activities. 'Processing' is a much wider con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving that there may be different stages involved in the processing but the only thing required is whether after such processing of different stages, any commercially different article was available or not and in case answer is in affirmative, then only it can be said that assessee was manufacturing or producing an article. 21. On the basis of these facts, we have to examine the case of the present assessee and find out as to whether the different processes being adopted by the assessee new commercial commodity distinct from the original one in coming into existence or not. 22. In this connection, at the very beginning, we have to start with the certificate of IIT given by Prof. (Retd.) N.K. Sarkar and Dr. K. Gadgil, copy of which is appearing at pages 12-14 of the paper book and relied upon by the assessee. These two Professors have given their opinion on the basis of encyclopaedia of Chemical Technology by Kirk and Othmer Vol. 15 and have also filed the relevant pages relating to metal anodes as appearing at pages 172 to 183 which is also made part of the said certificate. We have looked into the same and relevant portion relating to metal anodes is appearing at page 173 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itanium Substrates and after coating, it becomes C.T.M.A. and it becomes a new commercial commodity. This is based on the copy of agreement executed in between assessee and M/s UHDE India Limited in which the word used by these parties is Titanium Substrates and after coating, it becomes C.T.M.A. This description is a misnomer in view of the description of Titanium anode in the book by Kirk Othmer as it is only titanium anode which is being used for variety of solutions but it was later on established that if it is coated with oxides of noble metals, then it gives proper results. However, the fact remains that it is titanium anode in the very beginning and it remains titanium anode even after coating and that fact is corroborated by other relevant material on record. It is submitted that assessee is getting alleged titanium substrates from M/s UHDE India Ltd. through I.P.C.L. and Bench asked the assessee to file relevant documents through which receipt of raw material was received and assessee filed before us the copy of good receipt note dated 10-1- 1993 by which it received 408 Nos. of raw material and a perusal thereof shall show that it had received 408 Nos. of 'uncoated elec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... despatched by the assessee to M/s Alpha to undertake further fabrication work to manufacture membrane cell elements as per requirement. It shows that CTMA again requires further fabrication work and it is not that after coating carried out by the assessee, said CTMA can be so useful or it is different commercial commodity but it still requires further processing. The conclusion shall be that it was another process which was required to be carried out by different concerns and the processing work carried out by the assessee was not going to give final shape to an article. 26. It has also not been brought on record by assessee that titanium metal anodes after coating carried out by the assessee becomes saleable article as such or becomes different commodity. What had been done by assessee by coating work is to increase its longevity and its utility by making that article as resistant to corrosion and provided excellent conductivity and dimential stability but the article remains the same. 27. It has been settled preposition of law that ratio of that particular case can be applied if facts of that case are identical to the facts before the Court. The case law cited by assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below. 29. Grounds No. 12 to 14 were argued together by ld. counsel and arc being decided together. Facts are that assessee-company was incorporated on7-6-1989. Assessee-company purchased metal anodes division situated atRampurfrom M/s Wimco Ltd. under agreement dated30-11-1989. The purchase consideration was Rs. 6,10,02,641 which was an admitted fact. The assessee-company arrived at cost of depreciable assets at Rs. 6,10,02,641 and details thereof arc appearing at page 174 of the Paper Book. It transpires that assessee claimed depreciation on this amount for the first time in assessment year 1990-91 but Assessing Officer allowed the claim of the assessee for depreciation purposes at Rs. 3,51,66,272. Appeal was preferred and by that time assessment order for assessment year 1991-92 was finalised on same figure of depreciable assets without taking into consideration the plea of the assessee that M/s Mehta Padamsee Pvt. Ltd. had given out the price of assets which was totally different from the cost of the assets as in cost, in addition to the price, various other elements are included and report of M/s Mehta Padamsee should have not been made the basis for arrivin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind out the true facts since appeal for assessment year 1990-91 was pending and to, decide the controversy afresh keeping in view the finding of CIT(Appeals) in the earlier years. The assessee is in appeal before us. 31. The ld. counsel for the assessee had reiterated the submissions as taken up before the CIT(Appeals). In respect of value of depreciable assets, the ld. counsel had raised the same points that authorities below had wrongly placed reliance on the report of M/s Mehta Padamsey Pvt. Ltd. who had simply given the price of assets without giving out the actual cost of the assets while price of asset and cost of the asset are two different concepts. Cost includes the price, interest, administrative and establishment expenses, cost of trained manpower and even royalty amount payable to M/s National Research Development Corporation at Rs. 75 lakhs. The CIT(Appeals) had not looked into these aspects and order is not substainable. On the point of royalty, it was submitted that amount of royalty paid by the assessee is allowable under section 35AB if not u/s 28 or 37 of the Act but the same have not been discussed at all by Assessing Officer and by CIT(Appeals). The ld. DR p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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