TMI Blog2005 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... tree and when it is converted into logs, it retains the same characteristics of wood and as such it does not amount to production, particularly, when no new commodity emerges out, of such activity. Submission of the assessee/appellant: Mr. R.N. Dutta, learned counsel appearing on behalf of the assessee, on the other hand, contends that a tree when felled is not a commercially saleable article but when it is de-embarked and cut into pieces and logs are produced by seasoning the same, it becomes a commercially saleable article or thing. The concept of manufacture need not be introduced thereto. Applicability of the decisions cited: Both the learned counsel in support of their respective contentions have relied upon various decisions to which we shall be referring at the appropriate stage. In order to assert that the conversion of trees into logs does not bring out a new commodity and as such would not amount to production, Mr. S. Dutta had relied upon a decision in Collector of Central Excise v. Kutty Flush Doors and Furniture Co. (P.) Ltd., AIR 1988 SC 1164; [1988] 70 STC 314 (SC). This decision may not help us in the present context since it was a case under the Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. Relying on Broach District Cooperative Cotton Sales, Ginning and Pressing Society Ltd. v. CIT [1989] 177 ITR 418 (SC), it had observed further that the law providing for concession for tax purposes to encourage industrial activity should be liberally construed. Relying on the decision in CIT v. Strawboard Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC) and dealing with section 15C(1) the apex court had pointed out that the provision thereof was directed towards encouraging industrialization by permitting an assessee setting up a new undertaking to claim the benefit of not paying tax to the extent of 6 per cent, in a year on the capital employed. Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But, that turned out to be the unintended consequence of construing the clause literally, as was done by the High Court, for which it cannot be blamed, as the provision is susceptible of such construction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (SC); AIR 1978 SC 548; [1978] Lab IC 467 it was held that any undertaking which is engaged in production which includes any goods (article, thing) or service calculated to satisfy human wants and wishes other than religious and spiritual, are industries. This decision had brought almost all establishments within the sweep of industry unless excluded by a special statute governing a particular kind of establishment. Applying the said test the establishment of the assessee is definitely an industrial undertaking when it is engaged in production of certain commodities or things. Admittedly, the assessee's establishment employs more than 20 persons and is carried on the operation with the aid of power. The words "industrial undertaking" cropped up many a time before the High Courts and the Supreme Court. The industrial undertaking has not been defined in the Income-tax Act. Therefore, it must be given the ordinary meaning of an industry. It cannot have a meaning different than that has been defined in the Bangalore Water Supply Sewerage Board [1978] 52 FJR 197 (SC). The interpretation of the word industrial undertaking does not pose much difficulty before us and as such we do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is intended by Parliament is clear from the context in which these words have been used in the section." Eligibility for deduction: Whether satisfied: Each and every industrial undertaking would not be eligible for this deduction. It is only the industrial undertaking that satisfies the test, as indicated hereinabove, common to all these three sections, that would only be eligible and qualified for such deduction. An industrial undertaking which is engaged in manufacture and production of an article or thing would be eligible for the deduction under the head "Investment allowance" under section 32AB; it would be eligible for the deduction under section 80HH if situated in backward area; it would, if established after March 31,1976, be eligible for the deduction allowed under section 80J. As discussed above in the present case, all the above ingredients are undisputedly satisfied. Production: Meaning of: In the present case, the learned Tribunal had proceeded to deny the relief on the ground that the establishment does not undertake manufacture of any article or thing. Mr. R.N. Dutta in his usual fairness, at the very outset, pointed out that the assessee had never clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eejay Pvt. Ltd. [1994] 206 ITR 367 (Cal) was considered in the context of section 80J(4)(iii) as it stood for the relevant assessment year. We may not derive much help from the said decision since it related to the blending of tea purchased from the market. The process of blending is undertaken by purchasing tea of different varieties from the market and blending them in different proportions, which does not bring out a thing or commodity other than tea. In this context, it was held that blending of tea was not a process engaged in production of an article or thing. The tea that was purchased from the market for the purpose of being blended was an equally saleable commodity and could have been sold even without blending and it does not become a saleable commodity only on account of its being blended. Therefore, on the facts this decision is distinguishable and cannot be of any help for the purpose with which we are now concerned. Inasmuch as the preparation of logs converting the felled trees is a process of extracting timber undertaken to produce a commercially saleable thing or article distinct from blending of tea. The question was considered in CIT v. Abdul Ahad Najar [2001] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, the question was answered in relation to the meaning of processing of goods. In the said decision it was held that the word "process" would be understood in the sense in which it is understood in common parlance. In the processing the original article need not lose its identity altogether but some changes are brought into it. In the said case, plain white cloth printed and dyed for converting into bed-spreads, scarves, garments etc. was held to be a process undertaken by an industrial undertaking. The Supreme Court in CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 while considering the question under section 32A(2)(b)(iii) for granting investment allowance dealt with the question of production in a case where the assessee's industrial undertaking was engaged in the business of excavating, mining and processing mineral ore. Mineral ore was not excluded by the Eleventh Schedule. The only question was whether such business was one of manufacture or production of ore. It had noted the issue as dealt with by different High Courts over a period of time. The High Courts held that the activity amounted to "production" and answered the issue in question in favour of the assessee. The High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not amount to manufacture ... The word 'production' or 'produce' when use 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." Having regard to the proposition as discussed above, particularly in view of the decision in Sesa Goa Ltd. [2004] 271 ITR 331 (SC) it appears that the word "production" has been used in a very wide sense within the scope of section 32A to mean to bring out a commercially new product. In the said case mining, processing of ore was held to be a production though the ore did not lose its characteristics and remained ore. Ore without being mined may not be a commercially saleable commodity but when mined it is definitely a commercially saleable commodity. If we read this decision of the apex court in between lines, we would find that it is not the saleability of the goods commercially alone which would be the factor, on the other hand, the Supreme Court proceeded on the concept of raising or converting into a commercially new product. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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