TMI Blog2011 (12) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... 'imported' goods has reference to the nature of the goods as in the case of expressions 'import' or 'export', and not a person/owner.-Decided in favor of the assessee. - IT Appeal Nos. 67 & 458/2010 and 1223/2011 - - - Dated:- 20-12-2011 - Sanjiv Khanna And R.V. Easwar, JJ. JUDGMENT Sanjiv Khanna, J As identical legal questions arise for consideration in the aforementioned appeals under Section 260A of the Income Tax Act, 1961 (the Act, for short), they are being disposed of by this common order. 2. The contention of the Revenue in these appeals is that the respondent assessee is not entitled to deduction under Section 10A/ 10B of the Act for the following reasons:- (i) The assessee had not "exported" gold ornaments as the imported standard gold (i.e. 24 carat gold bars, bricks or biscuits), which was converted into ornaments by the assessee, was not owned by the assessee. The assessee was paid making charges and not sale consideration. The imported standard gold was owned by the third parties resident abroad. Accordingly the assessee had not derived profits and gains as are derived by an undertaking from export of articles/things. (ii) The assessee is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing the jewellery, it was "exported" to M/s Onrich at Dubai and to a third person at London on instructions from M/s Onrich, Dubai. The gold imported into India was of 0.995 purity and was required to be converted into jewellery of 22/21 carats. On another occasion gold was received by the assessee in form of "breads" and was required to be "manufactured" into jewellery. The gold, on all occasions, was sent free of cost. 6.1 In the present case, the assessee had claimed deduction under Section 10B of the Act. The Assessing Officer disallowed the said deduction on the ground that the assessee did not manufacture any article or thing and the ownership over raw gold and jewellery was of the foreign party i.e. M/s Onrich Jewellery and the assessee had received making charges. 6.2 The CIT (Appeals) held that the conversion of raw gold or gold bars into jewellery amounts to manufacture. He also held that whether or not assessee's activity was manufacture or not, was independent of the question of ownership of the gold. He relied upon decisions of the Gujarat High Court in CIT v. J.B. Kharwar Sons [1987] 163 ITR 394 and the Madras High Court in Taj Fire Works Industries [2007] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2003-04. Whether the assessee is an undertaking engaged in manufacture or production of articles or things ? 8. Section 10A/10B of the Act stipulates that an assessee is entitled to deduction from such profits and gains as are derived by an undertaking from export of articles or things or computer software, from the total income of the assessee. Deduction under the said Section is admissible for the prescribed period from the date when the assessee begins to manufacture or produce articles or things or computer software. 9. The assessee converts standard gold into ornaments. The standard gold has purity levels of 0.999/0.995, whereas the ornaments have a purity level of 22 carats or lower. Purity is reduced by mixing other metals like silver, copper, etc. This is necessary to give strength and durability to the ornaments as gold with 0.999/0.995 purity is very soft and tends to bend or break easily. The contention of the Revenue is that conversion of standard gold into ornaments does not amount to "manufacture or production" of articles or things as the primary material is the same, i.e. gold, and no new product with different chemical composition or attributes com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tariff Act, 1985 as amounting to manufacture". 12A. Clause (f) gives an inclusive definition of the term 'manufacture'. According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes 'manufacture' no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. 13. The term manufacture has been defined by the Black Law Dictionary (5th Edition) as under: 'Manufacture : The process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labor or machine. 14. The word 'manufacture' has been defined in Halsbury's Laws of England, 3rd Ed. Vol. 29 p.23 as under:- 'Manufacture has been defined as a manner of ada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished product which has a separate identity (Commissioner of Income tax v. Ajay Printery Pvt. Ltd.(1)). This shade of meaning is more appropriately used in the past participle "manufactured". See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is "fabricated from raw material". In Aswathanarayana v. Dy Commercial Tax Officer (1) at page 801 one finds a useful compilation of meaning attached to the word "manufacture" from various dictionaries and other sources. Similarly, the word "produce" with reference to its meaning in industry or political economy has two different senses. In vol. 8 of the Oxford Dictionary, at page 1422, the two meaning are given as follows: "To bring forth, bring into being or existence (a) generally to bring (a thing) into existence from its raw materials or elements or as the result of a process" and "(d) To compose or bring out by mental or physical labour (a work of literature of art); to work up from raw material, fabricate, make, manufacture (material object)". In the Ajay Printer's case, a Division Bench of the Gujarat High Court pointed out that the word "manufacture" has a wider and a narrower connotation. In the wider sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry production need not amount to manufacture. The original marble block does not remain a block when it becomes slab or a tile and undergoes polishing, etc. and, therefore, amounts to production and qualifies for deduction under Section 80IA of the Act. Even though the chemical composition or the basic material may be the same but in commercial parlance, the two products were different. In this case, the Supreme Court noticed and observed that if the contention of the Revenue is accepted, it would have negative revenue consequences as the assessees are also liable to pay excise duty, sales tax, etc. because of the processing involved, resulting in the said change. The aforesaid change was held to be sufficient. After referring to CIT v. N. C. Budharaja Co. [1993] 204 ITR 412 (SC), it was observed that the word "production" when used in juxtaposition with the word "manufacture" takes within its ambit bringing into existence new goods by a process which may or may not amount to manufacture. The word "production" takes in all the by-products, intermediate and residual products, which emerge in the course of manufacture of goods. 15. In CIT v. Emptee Poly Yarn (P.) Ltd. [2010] 320 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whether the assessee have earned profits/gains as are derived by an undertaking from the export of articles/things ? 18. Case of the Revenue is that the assessee had not exported jewellery as the assessee were not owners of the imported gold or the exported jewellery and were paid making charges. The income earned does not qualify for deduction under Section 10A/ 10B of the Act. 19. The term "export" has not been defined in the Act. The said term, therefore, has to be interpreted and given a meaning for the purpose of Section 10A/10B. The terms 'export' and 'import' out of India are associated, and have an indelible link, with the Customs Act, 1962. In the present case, we are concerned with 'export' or 'import' of goods/articles out of India. It will be, therefore, appropriate to appreciate how the terms 'export' and 'import' have been understood and interpreted, and whether the question of ownership is relevant and material. As noticed below, in some decisions, the Supreme Court has referred to the interpretation given to the terms 'import' and 'export' in the Customs Act, 1962 to decide and interpret the provisions of the Act i.e. Income Tax Act. We have also taken into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transported can hardly be called goods 'imported into or exported from' because they are neither being exported nor imported but are merely goods carried across a particular stretch of territory or across a particular area with the object of being transported to their ultimate destination which in the instant case was Nagpur. The respondent's counsel sought to support his argument by referring to the following cases decided by various Indian High Courts where the words , import' and 'export' were construed as meaning 'bring in' or 'take out of or away from' and it was also held that goods in transit are also covered by the words 'imported into 'or 'exported from'." 21. In the case of Abdulgafar A. Nadiawala v. Assistant Commissioner of Income Tax [2004] 267 ITR 488 (Bom.) with reference to Section 80HHC of the Act, it has been held as under:- "The phrase' export out of India' has been defined in cl. (aa) in Explanation-s. (4A). The apex Court has considered this clause in the case of CIT v. Silver Art Palace: 2003 (259) ITR 684(SC), wherein the apex Court has observed that for the purposes of special deduction under that section there will be no export out of India; if two c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip' can have various connotation and meanings. The concept has evolved over a passage of time and has to be interpreted keeping in view the context in which the word is used. The following passage from the said judgment is appropriate: "32. .In the meantime, it would not be irrelevant to go into the concept of 'ownership'. What is ownership after all? Read from the Roman law up to the English law at the present stage, medieval stage having been interspersed with different formulae, the position that now juristically emerges is this. The full rights of an owner as now recognised are: '(a) The power of enjoyment (e.g., the determination of the use to which the res is to be put, the power to deal with produce as he pleases, the power to destroy); (b) possession which includes the right to exclude others; (c) power to alienate inter vivos, or to charge as security; (d) power to leave the res by will.' One of the most important of these powers is the right to exclude others. The property right is essentially a guarantee of the exclusion of other persons from the use or handling of the thing.... But every owner does not possess all the rights set out above a particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (25) "imported goods" means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption; (26) "importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer;" 25. The expressions/terms, 'importer' and 'exporter' are wide and not restricted to the 'owner' of the goods at a particular point of time. Owner is treated as the importer/exporter but a person who holds himself out as an importer or exporter is also an importer or exporter. The activity undertaken i.e. export/import is important and the person involved and associated with the said activity is important/relevant, mere ownership is not the sole criteria to determine whether a person is an importer or exporter. Further the expression 'exported' or 'imported' goods has reference to the nature of the goods as in the case of expressions 'import' or 'export', and not a person/owner. 26. Referring to the definition clause as well as the clauses of the Imports (Control) Order, 1955 and Export- Import Policy, the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent, the question of title or property in the goods exported is not relevant to Section 80-HHC. The section does not in terms require the exporter to be the owner of the goods. Even Section 2(18) of the Customs Act does not include the idea of ownership within the definition of the word "export". This may be contrasted with Section 5(3) of the Central Sales Tax Act, 1956 where the emphasis is on the transfer of title by a last sale or purchase "... preceding the sale or purchase occasioning the export". That is why in C.T. Ltd. v. CTO relied on by the appellant, this Court held that although State Trading Corporation (STC) was shown as the exporter of goods, since there was no sale to STC, STC merely acted as an agent of the assessee who had purchased the goods for export. This decision cannot be relied on to construe Section 80-HHC of the Income Tax Act. The object of Section 80-HHC is to grant an incentive to earners of foreign exchange. The matter will, therefore, have to be considered with reference to this object ." [Emphasis supplied] 29. The Supreme Court relied upon their earlier decision in Mineral and Metal Trading Corp. v. R.C. Mishra [1993] 201 ITR 851, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would have been liable in case of loss etc. The concept of and the term "ownership", as observed above, has various jurisprudential connotations. For all practical purposes, the assessee was in possession of gold and had a right, dominance and dominion over it. They were liable to pay Customs duty etc. in case export was not made. Keeping in view the nature of transactions in question, it is not possible to hold that the assessee did not "export" the jewellery/ornaments and that the transactions in question cannot be regarded as export for the purpose of Section 10A/10B of the Act. Thus, when the assessee had exported the ornaments, it was exporting articles or things. The assessee were exporters or had exported articles/things as understood in common parlance. 32. Reliance placed by the learned counsel for the Revenue on Commissioner of Income Tax v. Ravindranathan Nair [2007] 295 ITR 228 (SC) is not appropriate. In the said case, as recorded, in paragraph 2 of the decision, the assessee had a factory in which he processed cashew nuts, which were grown in his farm. These were exported. The assessee also processed cashew nuts, which were supplied to him by third party exporte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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