TMI Blog2005 (12) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act on the plea that he was converting raw food materials like maida, sugar, yeast, oil into bread and was, in this way, manufacturing and producing a new product. 4. The Assessing Officer (AO), however, disallowed the deduction claimed by the assessee, by placing reliance on the Supreme Court judgment in Indian Hotels Co. Ltd. v. ITO [2000] 245 ITR 538 , holding as under : "Keeping in view the above facts, it is held assessee does not qualify for deduction under section 80-IB of the Act as it is neither manufacturing or producing any article or thing which is a pre-requisite for any assessee to claim the deduction. Accordingly, the deduction claimed by the assessee to the extent of Rs. 16,06,870 is hereby withdrawn and added back to the income of the assessee. Penalty proceedings under section 271(1)( c ) of the Act for furnishing inaccurate particulars of income are being initiated on this account." 5. The respondent-assessee took an appeal against this before the Commissioner of Income-tax (Appeals) [CIT(A)], distinguishing the Supreme Court judgment ( supra ) and explaining the process of ( sic ) material like maida, yeast, etc., into brea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal calling in question the impugned order dated 25th April, 2005 passed by the Tribunal. 8. The case set up is the same, viz., that conversion of maida, sugar, yeast, etc., into bread was not a manufacturing activity but was a processing activity and, therefore, the respondent-assessee was not entitled to deduction under section 80-IB of the Act. 9. The core issue that falls for determination is whether the making of bread by the respondent-assessee from maida, sugar and other ingredients amounted to manufacturing of bread or processing of bread and whether the assessee was an industrial undertaking ? 10. Since the benefit is claimed under section 80-IB, it becomes necessary to reproduce the relevant part of this section which reads : " Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings . (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence some new commodity by an industrial undertaking as distinct from the processing activity. It laid down thus : ". . .The word manufacture has various shades of meaning but unless defined under the Act it is to be interpreted in the context of the object and the language used in the sections. In the context of the provisions which deal with grant of investment allowance or deduction under section 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. It would not be applicable in cases where only processing activity is carried out. Further, such production activity must be by an industrial undertaking and not by the assessee having mainly trading activity. In case of a hotel business there is no question of manufacturing or producing pulses, wheat, rice, meat or such other items but what is done is - from such raw materials eatable foodstuff is prepared. The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables, meat or the like cannot be regarded as commercially distinct commodity and it cannot be held that such foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was dealing with the claim of investment allowance under section 80J of the Income-tax Act. 20. In this case, the Company, which was running a flight kitchen had claimed benefit of section 80J on the plea that it was a separate industrial undertaking as different from Hotel which it was running and that it was engaged in manufacture of food packages on a large, organised and mechanised basis for the use of various international airlines and, therefore, was entitled to get the benefit of section 80J (investment allowance). The Supreme Court overruled this plea that it was a separate industrial undertaking within the meaning of the relevant provisions or that it was engaged in manufacturing or production of food packages and, on the contrary, held that it was engaged in processing and trading. What appears to be noted is that this judgment of the Supreme Court was limited to the flight kitchen operated by the Indian Hotels Co. Ltd. and no other activity, and it was in that context that the Court held : ". . . for getting benefit of deduction or investment allowance, the requirement is the assessee-company must be engaged in the business of manufacture or production of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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