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M/s. Cherian Varkey Construction Co. (P) Ltd. Versus The Assistant Commissioner of Income-tax, Circle-1 (1) , Kochi

Entitlement to depreciation - whether the production of readymix concrete amounts to manufacture and hence the assessee would be entitled for deprecation as claimed in respect of the machinery used? - Held that:- It is common knowledge that an uneducated mason does the work of preparation of readymix concrete for construction of houses and it is never treated as manufacturing activity either in the common parlance or in the commercial parlance. The readymix concrete can be produced in huge volum .....

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d to the ratio laid down by the Hon’ble Apex Court in the case of N.C. Budharaja & Co [1993 (9) TMI 6 - SUPREME Court ], bearing in mind the fact that the end product should amount to manufacture or production of an article or thing, the readymix concrete manufactured by the assessee, which is also engaged in the construction activity, cannot be said to be a manufacturing activity.

Therefore, answer the question in the negative and in favour of the Revenue by holding that the assessee .....

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on between the Ld. Judicial Member and the Ld. Accountant Member with regard to allowability of additional depreciation on the machinery used by the assessee, the following question was framed and forwarded to the Hon ble President u/s. 255(4) of the I.T. Act for nominating Third Member to decide the issue: Whether in the facts and circumstances of the case, when the assessee is engaged itself in manufacture and sale of readymix concrete, whether the production of readymix concrete amounts to ma .....

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Officer is that they are road transport vehicles and hence, not eligible for additional depreciation. The case of the assessee was that the transit mixer and other vehicles are suitably adopted to mount the mixer and intended for use for a specific purpose and they are defined as construction equipment vehicles under Central Motor Vehicle Rules; Hence they have to be considered as non transport vehicles . The Assessing Officer, however, was of the opinion that merely because the Transit Mixer, T .....

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this Tribunal. 4. The Ld. Judicial Member observed that the assessee is producing readymix concrete and transporting the same to the construction site to be used by the builders in the construction of buildings etc. An identical issue was considered by the ITAT, Delhi Bench in the case of YFC Projects (P) Ltd. vs. Dy. CIT (2010) 134 TTJ (Del) 167 wherein the Delhi Bench of the ITAT referred to the decision of the Hon ble Supreme Court in the case of N.C.Budharaja & Co. (1993) 204 ITR 412 (SC .....

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activity amounts to manufacture is (a) whether new and different articles or goods emerge with distinctive name, use and character, (b) whether the transformation into a new commodity is commercially known as a distinct and separate commodity having its own character, use and name, (c) whether it is the result of a process or several processes. In the background of ratio laid down by various Courts, including the observations made by the Apex Court in the case of N.C. Budharaja & Co. (cited .....

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s laid down BIS standards, then it would indicate that it is a complicated affair. The mixing of four products in prescribed ratio would result in a different identifiable product which cannot be reconverted to its original shape. The Bench, therefore, observed that the activity carried out by the assessee is a manufacturing activity. 5. By placing reliance on the above findings of the ITAT, Delhi Bench, the Ld. Judicial Member observed that the machinery used for preparing readymix concrete is .....

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Ld. Judicial Member chose to follow the decision of the ITAT, Delhi Bench in the case of YFC Projects (P) Ltd. (cited supra) to hold that the assessee is entitled for additional depreciation. 7. With regard to the question whether the transit mixer, Tata truck or Ashok Leyland truck are plant and machinery, the Ld. Judicial Member observed that specialized chamber is mounted on the transit mixer, Tata truck or Ashok Leyland truck for transporting readymix concrete and hence, it falls within the .....

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- articles and goods, but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building. 9. The Ld. Accountant Member relied upon the decision of the Hon ble Delhi High Court in the case of Bhagat Construction Co. (P) Ltd. 232 ITR 722 wherein the assessee company derived income from construction work including mining work for extracting stones to be used in construction. In the backdrop of the fac .....

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arly, the Ld. Accountant Member relied on the decision of Hon ble Delhi High Court in the case of CIT vs. Minocha Brothers (P) Ltd., 160 ITR 134 wherein the Court observed that the assessee-company while in the process of doing construction work, was engaged in crafting doors, windows, RCC slabs and so on which did not amount to manufacturing activity. 11. The ld. Accountant Member made an observation that the assessee having engaged in construction activity, it cannot be treated as business of .....

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and machinery and tipper was rejected on the ground that the assessee was engaged in road construction contract and manufacture and production of concrete mix. Hence, the Ld. Accountant Member held that the assessee is not entitled to the claim of additional depreciation u/s. 32(1)(iia) on Transmit Mixer, Tata Trucks and Ashok Leyland Trucks. 13. The main issue that arises for my consideration is whether preparation of ready mix concrete amounts to manufacture or production of an article or thin .....

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Projects (P) Ltd. to submit that production of readymix concrete involves a scientific process and hence it amounts to manufacture or production of article or thing. He further submitted that in the instant case, the assessee not only used it for captive consumption but also supplied readymix concrete to others. However, the assessment order passed by the Assessing officer, CIT(A) and the orders passed by the ITAT do not indicate as to whether the assessee carried on the business of sale of rea .....

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erefore, the Transit Mixer, Tata truck and Ashok Leyland Truck on which mixer is mounted should be treated as plant and machinery utilised for manufacture and hence, they should not be considered as road transport vehicles in which event the assessee would be entitled to additional depreciation. When the assessee was specifically asked to point out what is the specialized scientific process involved for production of ready mix concrete, the Ld. Counsel submitted that he is only a Chartered Accou .....

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the raw material. The Bench also observed that the raw material once mixed cannot be reconverted into its original shape and also stated that the expression manufacture has to be understood in the common parlance and any change in the article which results in a new and different article would amount to manufacturing activity. RMC of different categories under different grades are made according to the requirement of the buyer and when it is mixed with water, it cannot be converted back into raw .....

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ascertain whether RMC was sold to outside parties or not. When the Ld. Counsel submitted that common parlance test has to be applied to understand the expression manufacture , the Bench pointed out that under the common parlance, readymix concrete is ordinarily prepared by a mason who is not a qualified engineer and it is never treated as manufacturing activity; Similarly, the Hon ble Kerala High Court, in the case of CIT vs. Casino (Pvt) Ltd. 91 ITR 289, observed that conversion of raw materia .....

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t was rendered. Unless the assessee places before the Bench the phraseology used in the section which was the subject matter of consideration and compares with the section which is under consideration before us, it is not possible to take into consideration any case law under different enactments. When it was pointed out to the Ld. A/R, he did not go into the said case law. However, he referred to the decision of the Hon ble Supreme Court in the case of India Cine agencies vs. CIT (308 ITR 98) w .....

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TR 297) (Guj.). 16. It deserves to be noticed that the point of difference which was referred to for my consideration is limited i.e., whether the preparation of ready mix concrete amounts to manufacture or production of article or thing . Hence the case law, as to whether the mobile crane is a road transport vehicle or not, is not the subject matter in dispute and hence, it is not necessary to go into that aspect. Thus the case law which is relevant in this context, from the point of view of Ld .....

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ed 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 Court approved the observations of the earlier decision of the Apex Court in the case of NC. Budharaja & Co. (cited supra). 17. In the case of N.C. Budharaja & Co., the Court observed (in page 434 of the re .....

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itted that the Hon ble Delhi High Court in the case of CIT vs,. Minocha Brothers (P) Ltd., 160 ITR 134 observed that manufacture of doors, windows for a building is not qualified as manufacture of article or thing because the real activity of the assessee was to construct buildings which are not goods. Here also, the RMC is used for the purpose of construction of buildings, dams, roads, canals etc. and since the end product would not be classified as a new . article or thing, the output in the f .....

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r of buildings (CIT vs. NUC (P) Ltd, 126 ITR 377). He further submitted that the decision in the case of YFC Projects Pvt. Ltd. (cited supra) was rendered on 24.9.2007 and the same was set aside by the Hon ble Delhi High Court and thus, a fresh order came to be passed in 2015 by the ITAT whereas the ITAT, Delhi A Bench, in the case of BSC & CIV vs. ACIT (I.T.A. Nos. 1217/Del/2011 and 1752/Del/2011 dated 15-05-2012), considered the same issue exhaustively, running into 90 pages, and at pgs. 8 .....

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uction of new article or thing, benefit cannot be extended to any intermediatary product. In other words, when the construction of building, etc. would not amount to manufacture, the intermediate product also cannot be treated as manufacturing activity. 19. The Ld. Departmental Representative submitted that the onus is upon the assessee to prove as to whether if any scientific process is involved in preparing readymix concrete; He contended that it can also be done by an ordinary mason and in th .....

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ions and perused the record. It is common knowledge that an uneducated mason does the work of preparation of readymix concrete for construction of houses and it is never treated as manufacturing activity either in the common parlance or in the commercial parlance. The readymix concrete can be produced in huge volume with the help of machines with less manpower but merely because there is increase in volume, it cannot automatically be treated as manufacturing activity. At any rate, the end produc .....

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