TMI Blog2006 (2) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the issues that fall for our consideration are (i) as to whether the activity of manufacturing of sand constitutes industrial undertaking within the meaning of s. 80-IA of the Act and (ii) as to whether the assessee's activity of preparation of identity card constitutes industrial undertaking for the purpose of s. 80-IA of the Act. We shall first take the question whether the assessee's activity of manufacturing of sand constitutes industrial undertaking for the purpose of deduction under s. 80-IA of the Act. 4. The assessee's claim of deduction under s. 80-IA in respect of manufacturing sand has been rejected by the AO by giving the following reasons: 1. Sand was manufactured out of rock by mechanical means. The production of sand from stone was not an industrial activity for the purpose of computing deduction under s. 80-IA, inasmuch as for the purpose of claiming deduction under s. 80-IA, the assessee should manufacture or produce article or thing which implies that there must be a change as a result of manufacturing or producing activity. 2. The AO has relied on the decision of Rajasthan High Court in the case of CIT vs. Lucky Minerals (P) Ltd. (1996) 134 CTR (Raj) 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the facts of the assessee's case. It was clarified that in CIT vs. Lucky Minerals (P) Ltd., the assessee was merely cutting and sizing limestones and marble blocks which did not create any new article, though in the assessee's case a different article in the nature of sand has been produced from the boulders. 6. After considering the assessee's submissions as well as the AO's stand, the CIT(A) held that the activity of preparation of sand by crushing stones did not amount to manufacturing or producing any article or thing. The CIT(A) has relied on the decision of Hon'ble Madhya Pradesh High Court in the case of Indian Poultry vs. CIT (1997) 138 CTR (MP) 382 : (1998) 230 ITR 909 (MP) as well as the decision of Hon'ble Calcutta High Court in the case of J.M.D. Medicare Ltd. vs. Union of India Ors (1996) 132 CTR (Cal) 29 : (1996) 218 ITR 184 (Cal). The CIT(A) also relied on the decision of Hon'ble Supreme Court in the case of CIT vs. N.C. Budharaja Co. Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). 7. Being aggrieved, the assessee has preferred this appeal before us. 8. The learned counsel for the assessee has drawn our attention to the following note on sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als vs. Dy. CIT (2001) 70 TTJ (Pune)(TM) 278 : (2001) 76 ITD 1 (Pune)(TM). 7. CIT vs. Best Chem Limestone Industries (P) Ltd. 9. The learned Departmental Representative, on the other hand, supported the orders of the authorities below and contended that conversion of boulder into sand is not a manufacturing activity for the purpose of claiming deduction under s. 80-IA of the Act. He relied on the decision of the Hon'ble Madhya Pradesh High Court in the case of Indian Poultry vs. CIT. 10. We have heard both the parties and have gone through the orders of the authorities below. 11. On perusal of s. 80-IA, it is seen that the deduction under that section is available to an assessee, whose gross total income includes any profits and gains derived from any business of an industrial undertaking, which fulfils all the special conditions laid down in that behalf under s. 80-IA(2) of the Act. In this case, we are concerned with the question as to whether the assessee's gross total income includes any profit or gains derived from any business of industrial undertaking. The business of the assessee is of conversion of boulders into sand. It is, therefore, to be seen as to whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place." 14. In the case of Lucky Minmat (P) Ltd. vs. CIT, the decision of Rajasthan High Court in the case of CIT vs. Lucky Mineral (P) Ltd. was affirmed by holding that mere mining of limestone and marble and cutting the same before it was sold in the market would not be considered to be a manufacturing process while the conversion into lime and lime dust or concrete by stone crushers could legitimately be considered to be a manufacturing process. In this case, the Hon'ble Supreme Court had distinguished the decision of Rajasthan High Court in the case of CIT vs. Best Chem Limestone Industries (P) Ltd. in which case the assessee was engaged in the business of extracting limestone and its sale either as such or after converting it into lime and lime dust or concrete by stone crushers. 15. The Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the case of Lucky Minmat (P) Ltd. and in the light of the Rajasthan High Court decision in the case of Lucky Mineral (P) Ltd. as well as Best Chem Limestone Industries (P) Ltd. In the case of CIT vs. R.C. Construction, the Hon'ble Gauhati High Court has held that the assessee is entitled to investment allowance, when it was found that the assessee was making chips out of big boulders. 16. The decision of the Hon'ble Madhya Pradesh High Court in the case of Indian Poultry vs. CIT relied on by the learned Departmental Representative is also not found to be applicable to the assessee's case. In that case, the assessee-company was carrying on the business of rearing chick to broilers by applying scientific process. In this case, the chicks were also reared for few days and they were developed. Thereafter, they became broilers. Therefore, even after rearing they remained chicks only. In this context, the activity of the assessee-company of rearing chicks was held to be not amounting to manufacture, and the assessee, therefore, was held to be not an industrial undertaking entitled to deduction under ss. 80HH and 80-I of the Act. In the case on hand, stone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Since the job was to be completed in a time-bound programme, the assessee-company decided to have a separate, fulfledge division called software division. The work of this division was divided in six areas as under: 1. Data entry-to enter name, age and address of voters and convert it into Devnagiri. 2. Photograph-boothwise photography of voters. 3. Processing-co-relating photographs with details of voters entered. 4. Printing-i.e., printing of identity cards 5. Lamination-to laminate printings 6. Miniature printing-to print duplicate cards For the above purpose, computer system like accessories, VCRs, TVs, etc. were purchased and new staff was appointed Discussing his contentions on the above lines, assessee states that deduction under s. 80-IA is available on the software division. I am afraid, I am not in agreement with the assessee's aforesaid contentions. The preparation of identity cards even after passing through various activities/stages as discussed above cannot by any stretch of imagination be held as an industrial activity. In fact, the assessee itself has referred to the word 'preparation' of identity cards. To make an industrial undertaking en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article or thing. He further stated ~hat if in an ordinary social gathering, someone were to say that he was manufacturing sand or producing identity cards, he should be making a laughing stock of himself. The CIT(A) further said that mere crushing of stones or making identity cards and to construe the same as amounting to manufacture or production would amount to overstraining the language from its normal and ordinary meaning. In support of the contention that every change is not manufacture, the CIT(A) has relied on the decision of the Madhya Pradesh High Court in the case of Indian Poultry vs. CIT. He was of the view that the decision of the Hon'ble Madhya Pradesh High Court is applicable to the assessee's case. He further relied on the decision of the Calcutta High Court in the case of J.M.D. Medicare Ltd. Ors vs. Union of India Ors. as well as the decision of the Hon'ble Supreme Court (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC). The Hon'ble Calcutta High Court held in that case that a diagnostic centre is, by no ordinary meaning of the words, an industrial undertaking merely by purchase of a scanning machine. It was further held that a scanning machine produces phot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 232 ITR 707 (Cal); 2. Asstt. CIT vs. Soni Photo Films (P) Ltd. (1999) 64 TTJ (Del)(SB) 682 : (2000) 245 ITR 11 (Del)(SB); 3. CIT vs. Emirates Commercial Bank Ltd. (2003) 262 ITR 55 (Bom); 4. Daks Copy Services (P) Ltd. vs. ITO (1989) 34 TTJ (Del)(SB) 604 : (1989) 30 ITD 223 (Del)(SB); 5. CIT vs. Ajay Printery (P) Ltd. (1965) 58 ITR 811 (Guj). 24. The learned Departmental Representative, on the other hand, supported the orders of the authorities below and submitted that in the light of the decision of Hon'ble Supreme Court in the case of (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC), service activity of providing identity card by the assessee did not amount to manufacture of any articles or things for the purpose of computing deduction under s. 80-IA of the Act. 25. We have considered the rival contentions of both the parties and have carefully perused the materials on record. We have deliberated upon the various decisions cited at the Bar. 26. In the case of Asstt. CIT vs. Soni Photo Films (P) Ltd., the Tribunal, Special Bench has observed and held as under: "It is not necessary that the original article or material should have lost its identity completely. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation reports come out. Hence, banks are entitled to deduction under s. 32A in respect of the computers installed in the office premises. CIT vs. Comp-Help Services (P) Ltd. (2000) 159 CTR (Mad) 220 : (2000) 246 ITR 722 (Mad) and CIT vs. Computerised Accounting Management Service (P) Ltd. (1998) 147 CTR (Ker) 274: (1999) 235 ITR 502 (Ker) followed." 29. Following the decision of the Special Bench in the case of Asstt. CIT vs. Soni Photo Films (P) Ltd. as well as the Hon'ble Rajasthan High Court decision in the case of CIT vs. Laxmi Art Studio (2001) 168 CTR (Raj) 380 : (2001) 249 ITR 710 (Raj), the Tribunal Pune Bench in the case of Fotofast Colour Processors vs. Jt. CIT vide ITA Nos. 1159, 1160, 1309 1310/Pune/2002, where we were parties, has treated the activities of printing of photographs from negatives as amounting to manufacture or production of an article or thing for the purpose of s. 80-IA of the Act. The Tribunal held that the assessee was engaged in the business of production of photographs. 30. The cases relied on by the learned Departmental Representative are distinguishable on the facts, inasmuch as they are not directly related to the activities undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, deleted. The order of the authorities below on this issue is therefore set aside. 33. Ground No. 8 is against the CIT(A)'s order in restricting the deduction under s. 80-O being fees received for technical consultancy to Rs. 35,000 as against Rs. 59,000 claimed by the assessee. 34. We have heard both the parties and have gone through the orders of the authorities below. This disallowance of deduction under s. 80-O was made only on the ground that the foreign travelling was not fully in connection with the assessee's business. The AO has reduced the deduction under s. 80-O by saying that certain expenditure should have been attributable towards earning of income covered by s. 80-O. After considering the totality of the facts and circumstances of the case, we are of the considered view that only net amount is deductible under s. 80-O. There is no doubt that certain expenses should be allocated towards earning of income covered by s. 80-O. Total receipts shown by the assessee is of Rs. 1,18,000. No expenses have been allocated towards these receipts. It is not in dispute that the assessee's foreign travelling expenses has been allowed in full. Certain foreign expens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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