TMI Blog2000 (11) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... n the meaning of section 80J(4) and that it is entitled to claim deduction admissible under section 80J of the Income-tax Act, 1961, in respect of the income from this undertaking ?" The controversy in this reference pertains to the assessment year 1975-76. The material facts giving rise to this reference are as follows. The assessee, who is a forest lessee, was engaged in the business of forest exploitation. For the assessment year 1975-76, the assessee submitted a revised return and claimed deduction of Rs. 33,060, being the sum equal to six per cent. of the capital employed, as deduction under section 80J of the Act. In the covering letter attached to the revised return, the assessee claimed that the assessee fulfilled all the conditions of a newly established industrial undertaking within the meaning of section 80J of the Act since it was engaged in the manufacture and production of articles. The case of the assessee was that the planks sawn out of logs and articles produced therefrom were different in shape from logs. The assessee relied upon the order of the Appellate Assistant Commissioner, Jullundur, where he had held that the assessee in that case, who derived income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r also held that the manufacturing process could not be carried on by bare hands and until and unless machinery was employed in the business, there would be no manufacturing operations, As the assessee had not employed any machinery for sawing planks, according to the Income-tax Officer, he could not be said to have fulfilled the conditions of section 80J and, as such, he was not entitled to relief under that section. Aggrieved by the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner of Income-tax. The contention of the assessee before the Appellate Assistant Commissioner was that the forest operations carried on by him amounted to manufacturing process. In support of this contention, he relied upon a letter dated December 2, 1974, of the Central Board of Direct Taxes addressed to Shri J. L. Kuthiala, Vice President, Jammu Forest Lessees Association, confirming that the provisions of clauses (xxxi) and (xxxii) of sub-section (1) of section 5 of the Wealth-tax Act, 1957, would be applicable to such of the undertakings of the forest lessees as are engaged in the business of extraction of wood from forests, i.e., felling, roping, lopping, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to this court for opinion under section 256(1) of the Act, Which the Tribunal allowed. Hence, this reference. We have heard Mr. Anil Bhan, learned counsel for the Revenue and perused the order of the Tribunal. The controversy in this case is about the entitlement of the assessee to deduction under section 80J of the Act. Section 80J, as it stood at the material time, provides for deduction out of profits and gains derived by a newly established industrial undertaking which manufactures or produces articles. Sub-section (4) of section 80J provides that the section would apply only to those industrial undertakings which fulfil all the conditions set out therein. These conditions are : "(i) it is not formed by the splitting up, or the reconstruction, of a business already in existence ; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose : (iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and conversion of timber obtained therefrom into logs and planks can be done by manual labour or mechanical process. However, by whichever method it is done, the process of conversion of the felled tree into logs, planks, etc., would amount to a manufacturing process. Section 80J does not require that in order to get deduction, manufacture should be carried on only with the aid of power. On the other hand, it clearly postulates that manufacturing process can be carried on manually without the aid of power. That is evident from the fourth condition set out in sub-section (4) of section 80J which provides that in a case where the industrial undertaking manufactures or produces articles, it should employ ten or more workers in a manufacturing process carried on with the aid of power and "employ twenty or more workers in a manufacturing process carried on without the aid of power". It is, therefore, not correct to say that the process of manufacturing articles can be regarded as manufacturing process for the purposes of section 80J only if it is carried on with the aid of machines or power. Manufacturing process carried on manually would also be manufacturing process. It is clear fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wood or similar articles, it cannot be said that a new commodity saleable as such has come into existence. As pointed out in our previous opinion dated November 25, 1974, the transformation of wood into sleepers could be considered to be a change in the sense of a manufacture, since a new commodity saleable as such, namely, sleepers, is brought into existence by such process. 4. In other words, it is not merely the cutting of trees and selling of fire-wood that would amount to manufacture. The process should involve the making of a different commodity having distinctive name, character or use. In the case of trees, the making of sleepers would amount to such a process as would amount to manufacture. 5. The result is that to the extent the Jammu Forest lessees convert standing trees into sleepers. they would be entitled to the benefit of section 80J/80HH of the Income-tax Act." There is also an earlier communication on December 2, 1974, from the Central Board of Direct Taxes addressed to Shri J. L. Kuthiala, Vice President, Jammu Forest Lessees Association, Jammu, whereby the Board confirmed to the Association as under : "I am directed to refer to your letter dated April 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstood in relevant commercial circles. So far as the meaning of the word "produce" is concerned, though the word "produce" has a wider connotation than the word manufacture, when used in juxtaposition with the word "manufacture", it takes in bringing into existence new goods by a process which may not amount to manufacture. The activity of extraction of wood by the assessee from the forest by felling the trees and converting the same into logs, planks, sleepers and other articles, undoubtedly, falls within the definition of "manufacture". Moreover, in the instant case, the controversy whether the activity of the assessee-forest lessee amounts to manufacture of articles also stands concluded by the circulars of the Board set out above. Section 119(1) of the Act in clear terms provides that all authorities employed in the execution of the Act are duty bound to observe and follow the orders, instructions and directions of the Board. It is well settled that the circulars issued by the Board are binding on the officers and persons employed in the execution of the Act; more so the circulars beneficial to the assessee which tone, down the rigour of the law. The benefit of such circular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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