TMI Blog2009 (4) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... r of items such as ballast, concrete sleepers, specialised mechanical track laying/relaying equipments, railway panels, steel roof panels, columns, gentry, girders, wind girdles, frames, dressings, erection towers, tackles etc.. track laying equipment, cantilever assemblies, termination assemblies, droppers, multi-track portal structures, structure and earth steel bonds, earth mats, jumpers of different sizes, drop arms, super masts for feeders, multiple cross channels of different sizes, double track cantilevers, aluminium bus bars, reel wagons, flat top coaches for pentagraph checking, special beat attachment for pedestal insulators, signals and signal operating systems, relay tracks, relays, signalling truck circuiting power packs, ground gears etc., all of which are used in the fabrication and installation of railway tracks. 3. It is not in doubt or disputed by the Revenue as well as status of the assessee company is that of an 'industrial undertaking' The question was as to whether execution of the project railway track would amount to production of goods/articles. It is because of the reason that ss. 80HH and 80-I allow benefit of deduction to the profits derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit under the aforesaid provisions. The CIT, however, directed the AO to withdraw the relief granted. The assessee appealed against the order of the CIT to the Income-tax Appellate Tribunal (Tribunal), Delhi. This appeal was allowed by the Tribunal vide its order dt. 20th Aug., 1991 and the order of the CIT was quashed. The Department moved reference application, which was also rejected. Another miscellaneous application moved by the Revenue was also rejected by the Tribunal. 5. In these appeals, we are concerned with the asst. yrs. 1984-85, 1985-86. 1986-87, 1987-88 and 1991-92. For the asst. yr. 1984-85, the assessing authority again allowed the claim of the assessee. However, the CIT, exercising its revisional powers under s. 263 of the Act, disallowed the claim vide his orders dt. 7th Feb., 1989. Appeal filed thereagainst by the assessee stands allowed by the Tribunal vide its order dt. 28th April, 2006, which is the subject-matter of IT Appeal No. 222 of 2007. Same is the position in other appeals. 6. To complete the narration of facts, we may point out that for the year 1988-89, the AO himself disallowed the claim. However, CIT(A), relying upon the orders of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. 1988-89 AO-Disallowed the claim of the assessee. However, CIT(A) relying upon the order of Tribunal for the asst. yr. 1983-84 allowed the claim of the assessee. 8. 1989-90 AO-Disallowed the claim of the assessee. However, CIT(A) relying upon the order of Tribunal for the asst. yr. 1983-84 allowed the claim of the assessee. 9. 1990-91 AO-Allowed the claim of the assessee for deductions under ss. 80HH and 80-I of the Act. 10. 1991-92 AO-Disatlowed the claim of the assessee by following the Supreme Court judgment in N.C. Budharaja. CIT(A) also rejects the claim of the assessee. 7. What follows from the above is that deductions under ss. 80HH and 80-I were allowed in favour of the assessee in the first year. In the second year also it was ultimately allowed. From third year, disputes started. However, for the asst. yrs. 1989-90 and 1990-91, the deduction again stands allowed in favour of the assessee. We have mentioned this faet for the reason that, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years subsequent to the first relevant assessment year where the issue of eligibility was decided in favour of the assessee. 12. He further submitted that in the present case, in the first relevant asst. yr. 1982-83, the AO himself allowed claim for the deductions under ss. 80HH and 80-I and that order has become final for that assessment year. Thereafter, in asst. yr. 1983-84, though the AO allowed the claim of deduction, the same was set aside by the CIT in exercise of his revisional powers under s. 263 of the Act. However, the said order of CIT was set aside by the Tribunal by its order dt. 20th Aug.. 1991 and this order also became final. It is, therefore, submitted that, on this ground alone, the present appeals filed by the Revenue deserve to be dismissed and the appellate orders of the Tribunal are required to be upheld. 13. Learned counsel relied upon the following judgments to support this submission:- (i) Saurashtra Cement and Chemical Industries Ltd. vs. CIT (1979) 11 CTR (Guj) 139 : (1980) 123 ITR 669 (Guj), and (ii) CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom). 14. In Saurashtra Cement (supra), the principle was stated by the Gujarat High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now available, such a direction (deduction) cannot be granted. The assessing authority is bound to follow the said principle. Her submission was that the order passed by the CIT(A) in asst. yr. 1985-86, order passed by CIT under s. 263 of the Act for the asst. yr. 1984-85 and the order passed by Tribunal for the asst. yr. 1983-84 as well as the assessment order of 1982-83 are the orders passed before the date of passing of the judgment of the Supreme Court in N.C. Budharaja (supra), which is rendered on 7th Sept., 1993. She submitted that it is a well established principle of law that the Supreme Court does not enact the law. It interprets the law. Therefore, once there is an interpretation from the apex Court, the law should be so understood from the inception and not from the date of the judgment. All the decisions contrary to such interpretation become erroneous. She has also referred to the judgment of the Supreme Court in CIT vs. Model Mills Nagpur Ltd. (1967) 64 ITR 67 (SC), wherein the Court held that in such circumstances power of rectification under s. 154 or reopening under s. 148, if within time, are justified on the basis of the Supreme Court judgment. 17. As fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 338 : (2007) 288 ITR 386 (Cal), where the Court held that subsequent judgment of the Supreme Court is applicable to the pending proceedings either at the assessment stage or at the appellate stage. 21. Therefore, as a matter of law, if N.C. Budharaja (supra) covers the present case in favour of the Revenue, it was open to the assessing authority to depart from the course of action taken in the earlier assessments and take a contrary view. The 2nd question of law, as framed, is answered accordingly. 22. There was heated debate between the counsel for the parties as to whether on the application of N.C. Budharaja (supra), the assessee would be disentitled to deductions under ss. 80HH and 80-I of the Act, as the contention of Mr. Ganesh was that even on the applicability of the principles laid down in N.C. Budharaja (supra), the assessee would be entitled to deductions under the aforesaid provisions. That is, however, a matter which has to be examined while considering the question of law No. 3. 23. Question No. 3:- The moot question is, therefore, as to whether the activity of laying down the railway track amounts to manufacturing of goods/articles. It was the submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e main activity in which the assessee is engaged is the manufacture of these products/articles and the relatively minor and insignificant final operation is that of laying the tracks and bolting down to the sleepers. It is totally insignificant as compared to the earlier operation of manufacturing of various items. On that basis, submission was that the basic eligibility condition for availing of the benefit of ss. 80HH and 80-I stands completely fulfilled in the present case. It is further submitted that the judgment of the apex Court in N.C. Budhiraja (supra) has no application at all in the present case as in that case an assessee was engaged in the construction of a dam. The materials required for constructing the dam are cement, steel, bricks, stone jelly etc. It was not the assessee's contention or claim in that case that all these manufacturing products were manufactured or produced by the assessee. The assessee's only claim was that the assessee had constructed the dam and that constituted manufacture of goods, which was rejected by the Supreme Court on the short ground that a dam is immovable property which cannot be considered to be either goods or articles. The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l undertaking . The High Court opined that the definition of industry in the Industrial Disputes Act can well be relied upon to ascertain the meaning of the expression industrial undertaking , inasmuch as the said expression has not been defined in the Act or the rules. The High Court also agreed with the Tribunal that the word article need not be confined to mere movables that there would be no justification to hold that a dam is not an article in that sense of the term. 28. The Supreme Court, in appeal preferred by the Revenue against the judgment of the High Court, reversed the decision of the High Court. The Supreme Court noted that s. 80HH occurs in Chapter VI-A, which provides for deductions to be made in computing total income . Sub-s. (1) of s. 80HH provides that where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof. Sub-s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is composed of stones, concrete, cement, steel and other manufactured articles likes gates, sluices, etc. But to say that the end product, the dam, is an article is to be unfaithful to the normal connotation of the word. A dam is constructed; it is not manufactured or produced. The expressions 'manufacture' and 'produce' are normally associated with movables - articles and goods, big and small - 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. (Emphasis, italicized in print, supplied) 30. It is clear from the above that:- (i) while interpreting the words 'manufacture' or 'production', the Court drew distinction between manufacture/produce on the one hand and 'construction' on the other hand; (ii) things like dam or, for that matter, bridge, roads, canals, buildings, are constructed and not manufactured; (iii) the expression 'manufacture' or 'produce' are normally associated with movables, i.e., articles and goods, but not with construction activity; (iv) the construction activity may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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