TMI Blog1994 (3) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... 'refined oil'. For the assessment year 1985-86, Assessing Officer allowed deductions under section 80HH and section 80-I of the Income-tax Act, to the extent of Rs. 1,37,631 and Rs. 1,10,105 respectively to the assessee-firm, and completed the assessment under section 143(3) of the Income-tax Act. On a scrutiny of the assessment records, the Commissioner of Income-tax found that this action of the ITO in allowing reliefs under section 80HH and section 80-I is erroneous and is also prejudicial to the interests of the Revenue. Accordingly he issued a notice under section 263 of the Income-tax Act, calling upon the assessee to show cause as to why the reliefs allowed earlier under sections 80HH and 80-I should not be withdrawn, as the activity of the assessee does not involve any manufacture or production of any article or thing, for the purposes of granting relief under sections 80HH and 80-I. After considering the objections of the assessee, the Commissioner, by his order dated 21-11-1988, made under section 263, has set aside the assessment made by the ITO for assessment year 1985-86, and directed the ITO to re-do the assessments, after disallowing the deductions under sections 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which manufactures or produces articles in a backward area. Likewise, benefit under section 80-I of the Income-tax Act is available to an industrial undertaking, which manufactures or produces any article or thing not being an article or thing specified in the Eleventh Schedule. There is no dispute that the industrial undertaking of the assessee is located in a backward area. Assessee started a refinery unit in which groundnut oil is converted into refined oil. The question that arises for consideration is whether the conversion of raw groundnut oil into refined oil is an activity involving manufacture or production of an article or thing, as contemplated under sections 80HH and 80-I of the Income-tax Act. 5. Refining of groundnut oil results in neutralising the fat contents, bleaching and deodorising the groundnut oil. It has to be seen whether the process of removing the impurities and fat contents from the raw groundnut oil and deodorising it, amounts to manufacturing or producing an article or thing. In the case of Empire Industries Ltd. v. Union of India [1986] 162 ITR 846, the Supreme Court quoted with approval the following passage giving the meaning of the word 'manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of changes brought about by the processes take the commodity to the point where commercially it can no longer be regarded as the original commodity but it is, instead, recognised as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases..." Further, the Supreme Court held that there is in law no manufacture, unless as a result of some processes, a new and commercially distinct product with distinct use emerges; and that the idea of manufacture might imply change, but every change is not necessarily manufacture. 8. Thus, the test is to find out whether the change or series of changes brought about by the application of various processes, take the commodity to a point, where commercially it can no longer be regarded as the original commodity, but is recognised as a distinct and new article, that has emerged as a result of the processes. The end product must be distinct and commercially different from the original commodity. Mere processing of raw material by itself may not amount to manufacture or production of an article or thing. In Union of India v. Delhi Cloth Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing impurities in the oil would not detract from the resulting oil being "groundnut oil" for the purpose of Rule 18(2). Further, the Supreme Court held that even hydrogenated oil (hardened oil or Vanaspati) also should be treated as groundnut oil for the purposes of Rule 18(2). In that connection, the Supreme Court observed as follows :--- "....To be groundnut oil, two conditions have to be satisfied. The oil in question must be from groundnut oil and secondly the commodity must be 'oil'. That the hydrogenated oil sold by the appellants was out of groundnut not being in dispute, the only point is whether it continues to be oil even after hydrogenation. oil is a chemical compound of glycerine with fatty acids, or rather a glyceride of a mixture of fatty acids--principally oleic, linoleic, stearic and palmitic---the proportion of the particular fat varying in the case of the oil from different oil seeds and it remains glyceride of fatty acids, even after the hardening process, though the relative proportion of the different types of fatty acids undergoes a slight change. In its essential nature, therefore, no change has occurred and it remains an oil---a glyceride of fatty acids--- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. We have before us, a direct decision of the Supreme Court in the case of Thungabhadra Industries Ltd.'s case, directly dealing with a case of conversion of raw groundnut oil into refined oil; and also into hydrogenated oil. Though the said decision was rendered in the context of the Madras General Sales Tax (Turnover and Assessment) Rules, the principles laid down in the said decision on the aspect as to what amounts to 'manufacture', equally apply to the facts on hand. Refined oil cannot be termed as a distinct and new article from the groundnut oil. It is not a distinct and commercially different one from the original commodity. In that view of the matter, it cannot be said that the conversion of raw groundnut oil into refined oil amounts to 'manufacture or production of an article or thing'. Hence, the deductions allowed by the Assessing Officer in the first instance under section 80HH and section 80-I are erroneous. They are also prejudicial to the interests of Revenue. Hence, the learned Commissioner very rightly exercised his jurisdiction under section 263 of the Income-tax Act, and made the impugned order. Both on merits as well as on jurisdiction, the impugned order is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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