TMI Blog1990 (1) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... led by him in his business as well as deductions under sections 80-I and 80HH of the Income-tax Act, 1961. Though the industries manufacturing alcoholic spirits are not entitled to investment allowance because they are included in the 11th Schedule, such prohibition does not extend to small scale industries involving such business activity. It is accepted by the Department that the assessee is a small scale industrial undertaking and so the prohibition under 11th Schedule does not apply to him. The assessee's claim was that he purchases rectified spirit from the State Government, gets it tested for its ethyl alcohol content, specific gravity, miscibility with water and for other purposes. After satisfying himself that the rectified spirit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Representative that the CIT(A) is not correct in holding that the assessee is an industrial undertaking manufacturing arrack, which is entitled to investment allowance under section 32A and deductions under sections 80-I and 80HH. The claim of the Department is that the preparation of arrack by blending of water with rectified spirit cannot be called a manufacturing activity so as to entitle the assessee to the above benefits. "Arrack", according to the learned Departmental Representative, is only a modified version of rectified spirit and not a different and distinct commodity and the material with which the commodity was so manufactured did not lose its identity. Reliance was sought to be placed on the following decisions : Tungabhad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the above test, it will be clear that the assessee's activity of making arrack from out of rectified spirit amounts to a manufacturing activity. The assessee purchases rectified spirit which is said to be unfit for human consumption from a Government Department. Various tests are carried out to find out its ethyl alcohol content, etc. The water that is to be mixed with rectified spirit is known as treated water, which is used for blending of arrack. The water is tested from time to time by sending it to Water Analysis Laboratory, King Institute, Guindy in the container supplied by them to satisfy whether it is fit for blending with rectified spirit. The water is treated with 'sodium hydrochloride' and then with 'alum'. This is filter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er augmentation fluid mainly in aeroplane engines for the purpose of take off. The Bombay High Court held that a new commercial commodity, viz., Methimix, had been brought into existence by the activity of mixing methonol with distilled water and, therefore, the activity of mixing methonol with distilled water carried out by the assessee amounted to manufacture within the meaning of section 2(17) of the Bombay Sales-tax Act. The Court noticed that clause (17) of section 2 of the Bombay Sales-tax Act gives a very wide definition of the word 'manufacture', which includes processing, treating, or adapting any goods. While holding that the activity of the assessee came within the extended definition of the word 'manufacture' the Court went furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt decision. We, therefore, hold that the assessee's activity of mixing rectified spirit with treated water which brought about a totally new commercial commodity known as 'arrack' which is used for human consumption amounted to 'manufacture'. In the circumstances we agree with the first appellate authority that the assessee is entitled to reliefs under sections 32A, 80-I and 80HH of the Income-tax Act, 1961. 10. The various decisions sought to be relied upon on behalf of the Department, in our opinion, are clearly distinguishable. In the case of Tungabhadra Industries Ltd., the question before the Supreme Court was whether groundnut oil which was a raw material for Hydrogenated Ground nut oil remained the same even after the said hydroge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al on behalf of its customers did not involve manufacture or production of any article and so the assessee was not an industrial undertaking engaged in manufacture and production of articles. 16. In the case of Koshy's (P.) Ltd., the Karnataka High Court had held that a restaurant by and large is a trading concern and the object of the restaurant is not to manufacture or process goods for the purpose of sale. 17. Thus it can be seen that all the cases sought to be relied upon by the Revenue are clearly distinguishable as they do not deal with an issue similar to the one which is present in the present case. 18. In the result, we are of the opinion that the first appellate authority is correct in holding that the assessee is entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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