TMI Blog1998 (3) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... Tyre (P.) Ltd. [1981] 131 ITR 636. It was held by the Delhi High Court in that case that retreading of worn out lyres to give it a new lease of life is an industrial process, and that activity of processing amounts to an industrial or manufacturing activity. It was held that for all practical purposes and in the commercial sense of the term, the retreaded tyres were almost a new article and they were separately sold in the market in the same way as newly manufactured tyres. Learned counsel for the Revenue submitted that the decision of the Tribunal is erroneous. It was submitted that the decision of the Delhi High Court on which the Appellate Tribunal relied was rendered in the context of the definition of industrial company under section 2(6)(d) of the Finance Act, 1968, which definition was made applicable to companies, inter alia, engaged in the manufacture or processing of goods or in mining. The fact that processing is involved in retreading by itself would not render it a process of manufacture, as according to counsel, no new commercial product comes into being as a result of that processing. Counsel also submitted that to the extent that the Delhi High Court held that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle emerges." Learned counsel for the respondent-assessee contended relying upon the decision of the apex court in the case of CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, that the word "manufacture" as it is used in section 80HH of the Act is to be interpreted in a popular sense having regard to the communicated (sic) in that case. The Supreme Court in that judgment approved the test stated by Pathak J., as he then was in the case of Deputy CST v. Pio Food Packers [1980] 46 STC 63, 65. That test is as under : "Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article, that a manufacture can be said to take place." The court adopted that test fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle, that it has come into existence as a result of the same having been produced by the assessee. As pointed out by the apex court, the word "production" or "produce" has been used in the section in juxtaposition with the word "manufacture" and it would take in bringing into existence new goods by a process which may or may not amount to manufacture. The article referred to in the section, therefore, has reference to new articles and brought into existence by a process of manufacture or by any other mode, which can be regarded as production. The resultant article whether it is by manufacture or by way of production must be a new article. The term "new" is not found in the section. It must be held to be implicit in the word "manufacture". Having regard to the fact that the word "production" or the word "produce" is used in juxtaposition with the word "manufacture" these terms also must be regarded as referring to production, which brings into existence a new article. As to what is a new article has been explained by Pathak J., as he then was, in the test proposed by him, in the case of Pio Food Packers [1980] 46 STC 63, adopted by the apex court in the case of N. C. Budharaja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and distinct commodity cannot be said to have come into existence as a result of the retreading. Counsel for the respondent submitted that the object of section 80J is to promote the establishment of industrial undertakings in backward areas and that object will not be well served unless a liberal interpretation is given to the terms used in the provisions of the Act, which confer benefits to new industrial undertakings. Counsel referred to the decision of the apex court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188. That decision was rendered under section 15C of the Indian Income-tax Act, 1922. It was submitted that it corresponds to section 80J of the 1961 Act. The court observed in that decision, that section 15C of the Act of 1922, read as a whole is a provision directed towards encouraging industrialisation by permitting an assessee setting up a new industrial undertaking, to claim relief from tax and that a provision in a taxing statute granting incentives for promoting growth and development, should be construed liberally. Any restriction in the provision conferring the incentives has to be so construed so as to advance the objective of the provision and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions made for the assessee that the retreading of tyres results in the production of an article for the purpose of section 80HH. Though the finding given by the apex court in the case of P. C. Cheriyan v. Mst. Barfi Devi, AIR 1980 SC 86 ; 1 SCJ 331, with regard to the retreaded tyres was in the context of the Transfer of Property Act and the words " manufacturing purposes" used in section 106 of that Act, the test that was applied in that decision is not different from the test that has been accepted by the Supreme Court for the purposes of section 80HH in the case of N. C. Budharaja [1993] 204 ITR 412. The apex court has held in the case of P. C. Cheriyan, AIR 1980 SC 86, that retreading does not transform the old tyre into another commercial article and that from retreading, no new or distinct article emerges. Our answer to the question referred to us, therefore, is that the Appellate Tribunal was not right in holding that the business of tyre retreading amounts to the production of a new article entitling the assessee to the relief under sections 80J and 80HH of the Income-tax Act. The Revenue shall be entitled to costs in the sum of Rs. 1,000. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
