TMI Blog2006 (6) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment years 1988-89 and 1989-90, the assessing officer, inter alia, disallowed the claim made by the assessee for deduction under section 80HH and 80-I on the ground that the assessee is only a labour contractor and not an industrial undertaking eligible for the benefit of Section 80 HH and 80 I of the Act. 4. Aggrieved by the assessment order, the assessee filed appeals before the Commissioner of Income-tax (Appeals), who held that there is no need for the assessee to be a manufacturer in his own right and even a job worker, or a person who uses the customer's raw material would qualify for being termed as an industrial undertaking, supported by the decision of this Court in C. Kadarkarai v. CWT [1989] 176 ITR 121. The Commissioner of Income-tax (Appeals), by order dated February 2, 1993, regarding the assessing officer's view that the assessee was a unit created by the splitting up of the business of Sri Kaleeswari Fire Works, held that there is nothing on record to indicate such a presumption. 5. Aggrieved by the order dated February 2, 1993 of the Commissioner of Income-tax (Appeals), the Revenue took out fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged 200 labourers. 10. In the light of the above rival contentions and in order to decide the questions raised, we are obliged to render a finding on the following points : (i) Whether the assessee is a manufacturer; (ii) Whether the assessee satisfies the ingredients of an industrial undertaking to claim the benefit of Sections 80 HH and 80-I; (iii) Whether the assessee loses the character of manufacturer merely because it has engaged coolies under a labour contract to produce the end product, viz., crackers and for having obtained raw materials from Sri Kaleeswari Fire Works, who pays the duty; and finally (iv) Whether the payment of duty by Sri Kaleeswari Fire Works will disentitle the assessee to claim the benefit of Sections 80HH and 80-I of the Act. 11. Before proceeding further, it is apt to refer the relevant portions of Sections 80HH and 80-I of the Income-tax Act, as prevailed during the assessment years 1988-89 and 1989-90, which read as follows : "80HH. Definitions in respect of profits and gains from newly established industrial undertaking or hotel business in backward areas. - (1) .... (2) This section applies to any industrial und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section: Provided further that the condition in clause (iii) shall, in relation to a small-scale industrial undertaking, apply as if the words 'not being any article or thing specified in the list in the Eleventh Schedule, had been omitted." 12. In the context of Sections 80 HH and 80-I of the Act, the Gujarat High Court, in CIT v. Prabhudas Kishordas Tobbacco Products [2006] 282 ITR 568, whereunder the assessee purchased tendu leaves and got them rolled into bidis by contract workers, the bidis being a distinct product different from tendu leaves, after referring to the following decisions of the Apex Court as well as its own decisions, namely, (i) Anwarkhan Mehboob Co. v. State of Bombay [1960] 11 STC 698 (SC) ; (ii) Bangalore Water Supply and Sewerage Board v. A Rajappa [1978] 52 FJR 197 (SC) ; AIR 1978 SC 548 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a different kind of process at every stage. That with every process, the commodity would experience a change, but ultimately, it is only when the change, or a series of changes, bring about a result so as to produce a new and distinct article, that it can be said that the commodity used as raw material has been consumed in the manufacture of the end-product. To put it differently, the final product does not retain the identity of the raw material after it has undergone the process or processes of manufacture." (emphasis supplied) 14. That apart, it is also relevant to rely on the decision of the Apex Court in Hindustan Poles Corporation v. Commissioner of Central Excise [2006] 6 RC 403 : [2006] 145 STC 625 (SC) ; AIR 2006 SCW 1685, wherein it is held as follows (page 413 of [2006] 6 RC) : "27. A Constitution Bench of this Court in Union of India v. Delhi Cloth and General Mill Co. Ltd. - AIR 1963 SC 791, had attempted to decide the meaning of expression 'manufacture'. The Court held that ' manufacture' which is liable to excise duty under the Central Excise and Salt Act, 1944, must therefore be the "bringing into existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial undertaking because he is only a labour contractor engaging coolies for converting the raw materials supplied by Sri Kaleeswari Fire Works into crackers by paying labour charges to the coolies and therefore, the assessee cannot be construed as an industrial undertaking. 17. This identical question came up for consideration before this Court in Kadarkarai's case, reported in [1989[ 176 ITR 121 whereunder the assessee was carrying on a business in printing and he undertook the job work such as printing of inland letters, labels, note books, fancy wrappers, wedding cards, etc. with his offset printing machine. In addition to that, he also purchased raw materials like paper and card-board and converted them into inland letters, note books, labels, etc. and sells the same. But, the exemption claimed by the assessee under Section 5(1)(xxxi) of the Wealth-tax Act, was denied by the respondent therein on the ground that the assessee was doing only cooly printing and therefore, the business which he was carrying on was not an industrial undertaking entitled to exemption and this Court, after analysing the ratios laid down in CIT v. Ajay Print ..... X X X X Extracts X X X X X X X X Extracts X X X X
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