TMI Blog1996 (8) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... n : " 1. Whether, on the facts and, in the circumstances of the case, the Tribunal was right in holding that the order of the Income-tax Officer did not merge with the order of the Appellate Assistant Commissioner and the Commissioner had the jurisdiction to interfere with the order of the Income-tax Officer under section 263 of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the assessee was not entitled to relief under sections 80J and 80HH of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the benefit of the Board's circular and the letter of the Minister of State for Finance could not be extended to the assessee ? " The same questions of law have been referred in Income-tax Reference No. 70 of 1982. The two questions referred in Income-tax References. Nos. 117, 123 and 127 of 1982, are equal to questions Nos. 2 and 3 referred in Income-tax Reference No. 104 of 1982. The question referred in Income-tax Reference No. 89 of 1982 is similar to question No. 2 in Income-tax Reference No. 104 of 1982. The opinion given on questions Nos. 2 and 3 in Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliminary objection raised by the assessee that the jurisdiction of the revisional authority was barred as the order of the Income-tax Officer had been the subject-matter of appeal before the Appellate Assistant Commissioner was also rejected. It was held that the question of relief under sections 80J and 80HH of the Act had not been raised in the appeal and, therefore, it could not be held that the order of the Income-tax Officer had merged as a whole with the order of the Appellate Assistant Commissioner. In appeal, the Tribunal upheld the order passed by the Commissioner of Income-tax. It agreed with the findings recorded by the Commissioner of Income-tax that the assessee did not bring into existence a new item saleable as such and, therefore, did not manufacture anything. However, the Tribunal did not agree with the Commissioner of Income-tax that the workers engaged through the sub-contractors were not the workers of the undertaking. It was held that the workers engaged by the sub-contractors were the workers of the assessee. The Tribunal further held that the clarification given by the Central Board of Direct Taxes regarding the provisions of the Wealth-tax Act and the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consultation with the Ministry of Law and it was clarified that the forest lessees would be entitled to the benefits available under sections 80J and 80HH of the Act. Circular No. 329 dated February 22, 1982, and the advice given by the Law Ministry is reproduced below : " Circular No. 329, dated 22nd February, 1982. To All Commissioners of Income-tax. Sir, Subject : Deductions under sections 80HH and 80J in the case of forest lessees---Regarding. A reference was made to the Board as to whether undertakings engaged in extraction of timber and other forest produce by leasing out forests would be entitled to deductions under sections 80HH and 80J of the Income-tax Act, 1961. 2. The matter was considered by the Board in consultation with the Ministry of Law which had given an opinion (copy enclosed) that the answer to the question posed would depend on the nature of the activity of the forest lessees ; however, if the process involved is not merely conversion of standing trees into firewood but also manufacture of new saleable commodities, the benefit of deduction under sections 80J and 80HH would be available. 3. These instructions may please be brought to the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act would be applicable to the various contractors. Drawing an analogy from the clarification issued by the Central Board of Direct Taxes, it was claimed that the assessee was entitled to the deductions under sections 80J and 80HH of the Act. The letter written by the Minister of State for Finance to a Member of Parliament stating therein that the benefits of sections 80J and 80HH of the Act would be available to the forest lessees provided they were manufacturing a new commodity saleable as such was also placed on record. The Tribunal found that there was a difference between the language of the provisions of the Wealth-tax Act and the Income-tax Act and, therefore, the clarification issued by the Central Board of Direct Taxes in relation to the provisions of the Wealth-tax Act, could not extend the benefit of sections 80J and 80HH of the Act to the assessee. Similarly, the Tribunal found that the letter of the Minister of State for Finance was of no help to the assessee as in that letter as well there was a condition of " manufacture of a new commodity saleable as such ", which the assessee was not doing, in view of the decision of this court in Sidhu Ram Atam Parkash's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction, of a business already in existence in any backward area : Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area ; (iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. Explanation.--- Where any machinery or plant or any part thereof previously used for any purpose in any backward area is transferred to a new business in that area or in any other backward area and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (iii) of this sub-section, the condition specified therein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance ', however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, volume 26, from an American judgment. The passage runs thus : ' " Manufacture " implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation ; a new and different article must emerge having a distinctive name, character or use.' " it was concluded by this court in Sidhu Ram Atam Parkash's case [1974] 34 STC 344 thus : " Applying the above definition to the instant case, the question is when the logs are converted into planks and rafters, does it mean that a manufacturing process has been gone into ? In other words, has a new substance or article come into existence or merely some change in a substance has occurred ? As we look at the matter, when a log, either by manual labour or mechanical process, is converted into a plank or a rafter, a new substance does not come into being and this process is not covered by the definition of the word ' manufacture ' as given by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test in the following words : ' 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 word ' production ' or ' produce ' when used 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." Forest contractors certainly produce articles from the felled trees, after cutting, while converting them into planks, rafters, etc. In producing planks, rafters, etc., the assessee was prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in Navnit Lal C. Javeri v. K. K. Sen, AAC of I. T. [1965] 56 ITR 198, and the two subsequent judgments of the Supreme Court consisting of two hon'ble judges each in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 and K. P. Varghese v. ITO [1981] 131 ITR 597, following the view taken by the Constitution Bench in Navnit Lal C. Javeri's case [1965] 56 ITR 198 (SC), to contend that even if a circular issued by the Central Board of Direct Taxes providing administrative relief to an assessee deviates from the provisions of the Act, the same would be binding on the Income-tax Officers. There is an apparent conflict of opinion between the decisions of the Supreme Court cited before us by the respective counsel for the parties. No doubt, it has also been held in Union of India v. K. S. Subramanian, AIR 1976 SC 2433, that the High Court is duty bound to follow the opinion expressed by the larger Bench of the Supreme Court. We need not involve ourselves in this controversy and we are of the opinion that Circular No. 329, dated February 22, 1982, issued by the Board does not override the provisions of the Act. It is clarificatory in nature. It is a benevolent circular issued in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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