9911796707
TMI Blog2010 (7) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 80-IB and therefore the Assessing Officer be directed accordingly. Your appellant carave leave to amend, to alter or to add to any of the above referred grounds of appeal." The revised grounds of appeal raised by the assessee in ITA No. 1062/Mum./010 reads as follows : "The Commissioner of Income-tax (Appeals)-34, Mumbai (hereinafter referred to as 'the CIT') erred in not allowing the claim of your appellants claiming deduction under section 80-IB of the Income-tax Act, 1961 amounting to ₹ 6,41,46,162. Your appellants therefore submit that they are entitled to deduction under the provisions of section 80-IB and therefore the Assessing Officer be directed accordingly. Your appellant carave leave to amend, to alter or to add to any of the above referred grounds of appeal." 3. The assessee is a partnership firm. It is engaged in the business of manufacturing of various types of sheets and pre-engineering building material. It has its factory premises at Dadra & Nagar Haveli. The firm came into existence on 16-1-2004. The assessee claimed deduction under section 80-IB of the Act. Under section 80-IB(4) of the Act, profits and gains derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /10. The assessee has also given the various applications to which the various products manufactured by it can be put to. A typical example will be of a petrol pump station or a bus stand/shelter, or a factory shed. The various products manufactured by the assessee can be assembled to make a petrol pump station, a bus stand/shelter or a factory. The columns are erected using foundation bolt. The columns are connected through rafters. This creates a structure, which is covered by the various roof products manufactured by the assessee. If a covered structure is to be made, the side walls and doors are covered using purlins, girts, trapezoidal and sheet accessories. 5. It is important to mention that the assessee manufactures only the above items and these serve as input for use in building structures stated above. The assessee's customers or end users buy these products from the assessee and use it for various purposes/applications. The assessee has given photographs depicting the end use of its various products and these are at pages 53 to 59 of the assessee's paper book in ITA No. 1062/Mum./10. At page-53 is a depiction of the assessee's products in making a petrol pump. At page-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and machinery Function 1. Automatic beam mfg. M/c. Automatic beam manufacturing machine where plate will undergo through different processes like straightening, assembling, designing, Co2 Welding & SAW Welding etc. 2. Cold Rolled Forming Sheet Mfg. M/c. In the cold roll forming machine the straighten coil will undergo various mechanical process viz. cutting, levelling, punching, shaping, drilling, plating, design, change in strength, change in thickness etc. with the help of this machine the coil is transformed into a Profiled sheet, new and different article called sheets. 3. Z Purline Mfg. M/c. Fully automatic PNC controlled Z purlie Mfg. M/c. the straighten, coil raw material will undergo various mechanical process viz. cutting, levelling, punching, shaping, drilling, plating, design, change in strength, change in thickness etc. with the help of this machine the coil is transformed into a Z shaped new and different article called purline and Girt's. 4. Crimp curve machine The Trapezoidal profiled sheet is then fed in Hydrolic Arch crimping Machine, press break machine to bend, curve and press it to get desired shape, size and thickness. 5. Slitting machine St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been explained at page-40 of the assessee's paper book. The basic raw material used by the assessee is purlin coils, sheets etc. The same is as follows : (i) Unpacking the purlin coils and straightening the coil, (ii) Cutting the coil edges at 90 Degrees. (iii) Feeding the same into cold roll forming machine to get the desired thickness and section. (iv) Thereafter as required for different type of products various mechanical process like cutting, levelling, punching, drilling, plating are done. (v) As required for different products, plating, shaping and designing are done. (vi) Also mechincal process as required by various products, change in strength and thickness is done. (vii) On the crimping machine and press machine desired bending, curing and press is done to get the desired shape, size and thickness as required for different products. (viii) Welding process to be done on semi-finished pieces to join as required by different products. On the semi-finished products Co2 weld pre manufactured cleats, base plates, top plates, cap plate, stiffeners etc., to semi finished columns. (ix)Some products anti-rust primer paint is done on the final product. (x) Mechanic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance. 'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinctive name, character or use. Manufacture in its ordinary connotation, signifies emergence of new and different goods, as understood in relevant commercial circles. 9. The Assessing Officer was also of the view that the assessee was manufacturing pre-fabricated building material, in which input was steel and output was also steel. The assessee had also pointed out that it was assessed to Central Excise Duty because it was engaged in manufacturing activity. The Assessing Officer also held that the fact that the Central Excise Department has accepted the assessee as a person engaged in the manufacturing; and similar acceptance by the Small Scale Industries were irrelevant for the purpose of determining income under the Income-tax Act. For the above reasons, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer correctly relied upon the judgment of Hon'ble Gujarat High Court in the case of Cellulose Products of India Ltd. v. CIT 110 ITR 152, wherein it was held that the 'article' should mean only the end product and not the intermediary product. Without prejudice to the above the process of making of the aforesaid intermediary items from the raw materials cannot come within the meaning of 'manufacture' or 'production'. It is a settled position of law that in the case of manufacturing or production the final products are new and distinct from the raw materials. The appellant purchased steel sheets and made roofing materials therefrom. It purchased steel plates and rods and made columns, rafters etc. therefrom. The process involved was cutting, bending, shaping etc. the intermediary products were not different and distinct in nature and character from the raw materials. There was no chemical change at all. Steel items were made from steel. These intermediary items were fully identifiable with the raw materials. As the process involved even in making the intermediary items would not come within the ambit of manufacturing or production as required under the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Marbles Ltd. (supra) supports the view of the Department. According to him, in the case before the Hon'ble Supreme Court marble blocks were converted into slabs and tiles and thus test of different output from the input was satisfied. According to him, manufacturing process as explained by the assessee was just superficial work done on steel and they cannot be said to be manufacturing activity to claim deduction under section 80-IB of the Act. He relied on the decision of Hon'ble Supreme Court in the case of CIT v. Emptee Poly-Yarn (P.) Ltd. [2010] 320 ITR 665, wherein Hon'ble Supreme Court has highlighted that term 'manufacture' implies change but, however, every change is not a manufacture. According to him, if an article or commodity is rendered fit for use after an operational process, then only that portion or process cannot be said to be manufacture. According to him, it is only steel in different shape that is ultimately given by the assessee to its customers and therefore the assessee does not satisfy the above test laid down by Hon'ble Supreme Court. It was further submitted by him that the fact that industry (steel fabrication) is described as one of the industry under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Co.'s case (supra ) the same test as laid down in the decision in the case of Pio Food Packers (supra) was reiterated. It was further held that the word "production" has a wider connotation than the word "manufacture". While every manufacture can be characterised as production, every production need not amount to manufacture. The word "production" or "produce", when used in juxtaposition with the word "manufacture", takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The expressions "manufacture" and "produce" are normally associated with movables-articles and goods, big and small-but they are never, employed to denote construction activity of the nature involved in construction of a dam or a building. It was further held that the word "article" is not defined in the Income-tax Act or the Rules. It must, therefore, be understood in its normal connotation-the sense in which it is understood in the commercial world. It is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was not manufacturing an article or thing. As observed by the Hon'ble Supreme Court above, one has to look into the activity and decide whether it can be said to amount to manufacture or production of an article or thing. The assessee was manufacturing fabricated steel materials for use in construction of buildings. In the case before the Hon'ble supreme Court in the case of Pressure Piling Co. (India) (P.) Ltd. (supra), the assessee was laying foundation for construction of a dam. The assessee in the present case never did any construction but was only making materials for use in the construction industry. We fail to see how the laying of foundation for construction of dam can be equivalent with manufacture of steel structures for use in buildings. The assessee himself was not constructing building but giving it as an input for use in building. We disagree with the reasoning of the CIT(A) on this issue. The decision in the case of N.C. Budhiraja & Co. (supra) will therefore have no relevance to the case before us. 21. Processing raw berries into coffee beans constitutes manufacture because the end product has a distinct identity and has to be treated as a new commodity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " is wider in ambit and it has a wider connotation than the word "manufacture". It was held that while every manufacture can constitute production, every production did not amount to manufacture. The Court also explained that the assessee was paying excise duty and recognized by various Government authorities as engaged in manufacture and that if for income-tax purposes the assessee is considered as not engaged in manufacture the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. The Court held that in such an event there would be disastrous consequences. 22. In Emptee Poly-Yarn (P.) Ltd.'s case (supra ) the question was whether twisting and texturising of Partially Oriented Yarn ('POY' for short) amounts to 'manufacture' in terms of section 80-IA of the Income-tax Act, 1961 ? The process involved was POY is a semi-finished yarn not capable of being put in warp or weft, it can only be used for making a texturized yarn, which, in turn, can be used in the manufacture of fabric. In other words, POY cannot be used directly to manufacture fabric. According to the expert, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inished goods form of the product. In our opinion, input and output are certainly different and the arguments of learned DR that input is steel and output is also steel, cannot be accepted. It is pertinent to mention that the assessee designs the products according to requirement of its clients. The assessee also takes into consideration functional force like resistance to temperatures, presence of corrosive gases, vapour and liquid radiation and weather conditions. The assessee makes products made depending upon the load that the end-product has to ultimately carry. The end-products of the assessee are used in supporting structure for factory shed, foundation pillar of crane, support to various items of plant and machinery, chemical vessel, housing of generator, compressor, cooling towers, wind bracing, cable housings, roof tops of special purposes roofs to withstand heavy rains, snow, foot traffic movement etc. building and compound gates and many other such uses. The visual picture of raw material and end-product clearly shows that there is a sea change from raw material to finished product. Such change is as a result for fabrication, mechanical and other engineering operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shape on coldrolled mill and thereafter different engineering operations and thus ultimately assessee give technical inputs in respect of tensile strength, long durable service life and structural quality keeping factors in mind like heat resistance, operational requirement, energy consumption and environmental factors. Similarly for beams, columns and rafters, assessee have high duty shearing machine as against simple fabrication tools employ- yed by others. It has auto welding machines which give uniform welding and makes all parts uniform joining and becomes one static body and ultimately improves its tensile strength. 24. In the light of the law on this subject as explained in several judicial pronouncements referred to above and in the light of the activity carried on by the assessee, we are of the view that the assessee was engaged in the production or manufacture of an article or thing; and was therefore, entitled to claim deduction under section 80-IB of the Act. The Assessing Officer is directed to allow the claim of the assessee for deduction under section 80-IB of the Act as claimed by the assessee.
25. We accordingly allow both these appeals by the assessee. X X X X Extracts X X X X X X X X Extracts X X X X
|
