TMI Blog2021 (1) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... would be a process in relation to the manufacture. We are not inclined to admit this tax appeal on the first two proposed questions of law. This appeal stands dismissed so far as the question Nos.2(A) and (B) are concerned. However, we clarify that Question No.2(A) also raises the issue with regard to the trading activities of the assessee. Although both the authorities below have held in favour of the assessee on this ground, yet we do not propose to go into the question of trading activities and keep this question open for being considered in any other appropriate case. Disallowance u/s 14A - sufficiency of own funds - HELD THAT:- Substantial question of law in view of the decision of this High Court in the case of Commissioner of Income Tax-I vs. UTI Bank Ltd. [ 2013 (8) TMI 238 - GUJARAT HIGH COURT] . The ratio of this decision is that if there are sufficient interest free funds to meet the tax free investments, they are presumed to be made from the interest free funds and not the loaned fund and no disallowance can be made under Section 14A. Tax appeal is admitted on the following two substantial questions of law; (C) Whether the Appellate Tribunal has er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 36(1)(ii) by an inference that own funds had been utilized rather than by facts? 3. It appears from the materials on record that the assessee is a Private Limited Company and is engaged in the business of dealing in fuel oil, high speed diesel and all types of petroleum products. The assessee has its process unit in the SEZ. Being in the SEZ, it claimed the deduction from the operations carried out therein (SEZ Unit) under Section 10AA of the Act, amounting to ₹ 4,72,67,584/-. It is the case of the assessee that it is carrying out the activity of blending of different oils in the oil tanks, situated within the SEZ. For this purpose, the assessee hired seven tanks of different capacity for fuel oil storage from Adani Ports and Special Economic Zone Limited (for short the APSEZ ). The principal argument of the assessee is that as a result of such processing, a different product with different chemical composition used to be produced. 4. The assessee also claimed that its activity has been classified by the Development Commissioner, Mundra Port and Special Economic Zone, Ministry of Commerce and Industry, Government of India as a manufacturing activity in the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scosity, sulfur and other parameters at ports of Gujarat. The appellant has hired 7 tanks of different capacity for Fuel Oil storage from APSEZ. The blending activity takes place at the time of import of cargo/new arrival. The product being imported has the specification of e.g. B Grade. The product of B Grade is received in tank which already have the product of A Grade, hence the specs of imported Cargo is changed to C Grade, when it is blended with A Grade cargo already in the tank. At the time of import there remains some product in the tanks which have specification of e.g. A Grade. The blending activity takes place also when the product of different grades lying in various tanks is mixed and a product of a new grade comes into existence. As an operational requirement or specific order for supply, the appellant needs to carry out inter-tank transfers. In this activity the specs of two different grade products are blended and the specs of the mixed product emerge different from the specs of cargo transferred. During the process of inter-tank transfer circulation, churning, heating activity also carried out to have proper blending and homogeneous product at all the levels in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company has hired 7 tanks of different capacity for Fuel Oil storage from APSEZ ITA no.1555/Ahd/2016 CO No.112/Ahd/2016 others Asstt. Year 2010-11 The blending activity takes place at the time of import of cargo/ new arrival. The product being imported have the specification of i.g. B Grade. The product of B Grade is received in tank which already have the product of A Grade, hence the specs of Imported Cargo is changed to C Grade, when it is blended with A Grade cargo already in the tank. At the time of Import there remains some product in the tanks which have specification of i.g. A Grade The blending activity takes place also when the product of different grades lying in various tanks is mixed and a product of a new grade comes into existence. As an operational requirement or specific order for supply the assessee company needs to carry out inter- tank transfers. In this activity the Specs of two different grade products are blended and the specs of the mixed product emerge different from the specs of cargo transferred. During the process of inter-tank transfer circulation, churning, heating activity also carried out to have proper blending and homogen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Agencies vs. Commissioner of Income Tax, Madras, (2009) 308 ITR 98 (SC). In the case before the Supreme Court, the assessee was carrying on business of conversion of jumbo Rolls of photographic films into small flats and rolls in the desired sizes. The assessee claimed deductions under Sections 32AB, 80HH and 80-I of the Act. The lower authorities disallowed the claim of the assessee on the ground that the activity undertaken by it was neither manufacture nor production. The High Court of Madras also held that in any event because of Item 10 of the Eleventh Schedule of the Act, no deduction was permissible. The Supreme Court has observed as under; 3. In Black's Law Dictionary, (5th Edition), the word `manufacture' has been defined as, the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine . Thus by process of manufacture something is produced and brought into existence which is different from that, out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that, in manufacture something is brought into existence, which is different from that, which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article. ( See M/s. Saraswati Sugar Mills and others v. Haryana State Board and others (1992 (1) SCC 418). 6. The prevalent and generally accepted test to ascertain that there is `manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between `processing and manufacture', results in an oversimplification of both and tends to blur their interdependence. ( See Ujagar Prints v. Union of India (1989 (3) SCC 488). 7. To put it differently, the test to determine whether a particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the activity amounted to production and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. [1996) 221 ITR 48, the Calcutta High Court in Khalsa Brothers v. CIT [1996] 217 TTR 185 and CIT v. Mercantile Construction Co. [1994] 74 Taxman 41 (Cal) and the Delhi High Court in CIT v. Univmine (P.) Ltd, [1993] 202 ITR 825. The Revenue has not questioned any of these decisions, at least not successfully, and the position of law, therefore, was taken as settled. The reasoning given by the High Court, in the decisions noted by us earlier, is, in our opinion, unimpeachable. This court had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, defined the word Production , albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort . From the wide definition of the word production , it has to fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building. ( See Moti Laminates Pvt. Ltd. and Anr. v. Collector of Central Excise, Ahmedabad (1995 (3) SCC 23). 11. In Advanced Law Lexicon, 3rd Edn. by P. Ramanatha Aiyar, the expressions `production' and `manufacture' are described as under: 'Production' with its grammatical variations and cognate expressions; includes- (i) packing, labeling, relabelling of containers. (ii) re-packing from bulk packages to retail packages, and (iii) the adoption of any other method to render the product marketable. `Production' in relation to a feature film, includes any of the activities in respect of the making thereof. ( Cine Workers and Cinema Theatre Workers (Regulations of Employment) Act (50 of 1981) S.2(i). The word `production' may designate as well a thing produced as the operation of producing; (as) production of commodities or the production of a witness. `Manufacture' includes any art, process or manner of producing, preparing or making an article and also any article prepared or produced by manufacture. (Patent and Designs Act (2 of 1911), S.2(10). `Manufacture' includes any process- (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee on this ground, yet we do not propose to go into the question of trading activities and keep this question open for being considered in any other appropriate case. 15. We now proceed to consider Question No.2(E) as proposed by the Revenue. Question No.2(E) also cannot be termed as a substantial question of law in view of the decision of this High Court in the case of Commissioner of Income Tax-I vs. UTI Bank Ltd., 2013 (32) Taxmann.com 370 (Gujarat). The ratio of this decision is that if there are sufficient interest free funds to meet the tax free investments, they are presumed to be made from the interest free funds and not the loaned fund and no disallowance can be made under Section 14A. 16. In view of the aforesaid, this appeal stands dismissed so far as Question No.2(E) is concerned. 17. We are of the opinion that the Question Nos.2 (C ) and (D) respectively, as proposed by the Revenue, deserve to be considered. 18. In view of the aforesaid, this tax appeal is admitted on the following two substantial questions of law; (C) Whether the Appellate Tribunal has erred in law in holding that the assessee is eligible for deduction with respe ..... 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