TMI Blog2005 (4) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... vely deriving profits and gains from manufacturing of bread by transforming maida along with other materials through a mechanized process with the aid of labour and power and marketing the end product as a commodity different from raw material. The appellant is covered by the definition of industrial undertaking given in Explanation to section 33B of the Income-tax Act, 1961 and thus very much eligible for claiming deduction under section 80-IB." It is stay granted appeal. 2. The facts of the case are that the assessee is engaged in preparation of bread at Gangyal, Jammu under the name and style of M/s. Aagam Food Industries. The assessee has shown profit of Rs. 16,06,870 from this unit which has been claimed as a deduction under section 80-IB of the Income-tax Act. The Assessing Officer found that the assessee is simply converting raw food items like maida, sugar, oil and yeast into bread. According to the Assessing Officer, in this way, no new product is manufactured or produced. The food stuff prepared by way of cooking or by any other process including baking etc. from raw material such as cereal, pulses, vegetables, meat and the like cannot be regarded as a commercially di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, however, did not consider the submissions of the assessee favourably and relying upon the decision of the Hon'ble Supreme Court in the matter of Indian Hotel Co. Ltd and decision of the Hon'ble Madras High Court in the matter of P. Devasahayam held that the preparation of the bread from items as done by the assessee is in no way manufacture or processing and hence the profit is in no way qualified for deduction under section 80-IB of the Income-tax Act. According to the Assessing Officer, the assessee does not qualify for deduction under section 80-IB of the Act as it is neither a manufacturer or producing any article which is pre-requisite for any assessee to claim deduction. Accordingly deduction claimed by the assessee to the extent of Rs. 16,06,870 was withdrawn and added back to the income of the assessee. 3. The addition was challenged before the CIT(A) and it was submitted that the Assessing Officer is not justified in withdrawing the deduction claimed by the assessee rightly and correctly under section 80-IA as the assessee is registered with the Directorate of Industries holding power licence of 104 HP as an industry, which has been further increased by 10 HP. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulder Plant then through Conveyors it is transferred to various moulds which are Oiled. VII. Through trolley the moulds are taken to Steam Chamber Plant for final prooving fermentation. Then transferred to Oven Plant for baking. VIII. Thereafter depaning is done manually and the bread so manufactured is taken to Cooling tunnel in the Trolleys. IX. Finally after slicing the breads which is done through High Speed Slicer Plant the breads are packed through semi-mechanized process. Thereafter put into crates for distribution in the market. 4. The assessee also filed photocopies of the plant to show the manufacturing process. It was also explained that all the process which is totally mechanized with the aid of power and with the involvement of labour, raw material viz. maida, sugar, yeast, oil/fat, salt, preservatives with improvers/cake mix is transformed through process of mixing, diciding, rounding, prooving, moulding, fermenting, baking, cooling, slicing, packing into bread loaf having distinct name character and use. It was further explained that the test which is required to apply is "Does the processing of the original commodity bring into existence a commercially diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the process of making of bread. I have also take note of the appellant's contention in respect of the decision of the Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd. as well as the decision of the Hon'ble Madras High Court in the case of P. Devasahayam. I have also taken note of the various arguments put forward by the Assessing Officer in the assessment order in order to substantiate his finding that the appellant cannot be said to be engaged in the business of manufacture of bread. It is noticed that the Assessing Officer while doing so has extensively relied on decision of the Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd. as well as decision of the Hon'ble Madras High Court in the case of P. Devasahayam. After considering the rival submissions, I am of the opinion that the issue that requires to be decided here is whether the appellant's case can be said to be covered in clause (iii) of sub-section (2) of section 80-IB which requires that one of the conditions for availing the said deduction is that the assessee should be engaged in the manufacture or production of any article or thing not being an article or thing specified in the list in XIth Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by cooking or by any other process from raw material such as cereal, pulses, vegetables, meat or the like cannot be regarded as a commercially distinct commodity and it cannot be held that such food stuff is manufactured or produced.' Therefore, the Hon'ble Supreme Court in the above case held that the flight kitchen operated by the assessee-Indian Hotel Co. Limited Ors. is not entitled to get the benefit of deduction under section 80-J. In view of the finding referred to above of the Hon'ble Supreme Court in the above case law, it is seen that the facts of this case are similar to the facts involved in that case. It is true that in the case of Indian Hotels Co. Ltd. Ors., the main business of the appellant was running of a hotel and the appellant was in addition to the business of running of hotel and involved in operating a flight kitchen i.e., providing food to the air passengers in the aircraft. Incidentally in that case, the Hon'ble Supreme Court in that case also considered the use of machinery, which has been emphasized by the appellant in this case and even after considering the same, it was held that the preparation of food does not amount to manufacture of any ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re business, the provisions of section 80-IA are not applicable to the appellant's case." 6. The assessee is in appeal. We have heard the learned representatives of bath the parties and gane thraugh the abservatians af the autharities belaw. . 7. The learned caunsel far the assessee reiterated the same submissians made be fare the authorities below and submitted that it was third year of manufacturing and in earlier years, the claim was not disputed as a return was processed under section 143(1)(a). He has further submitted that the assessee started productian on 18-10-1998 and registered with the District Industries Centre, Jammu and has sanction of H.P. power load far industrial purpose. He has further submitted that the assessee also registered with the Chief Inspectors of Factories. He has filed copy of process of manufacturing of bread in the unit, which is reproduced above and he has also filed photocopies of various processes done in the unit of the assessee to manufacture and produce the bread. The learned counsel for the assessee referred to the definition of industrial undertaking as was referred to in section 80-IA(12) prior to the year 2000 and submitted that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to manufacture and produce the bread. The learned counsel for the assessee referred to the definition of industrial undertaking as was referred to in section 80-IA(12) prior to the year 2000 and submitted that the definition of "Industrial Undertaking" is defined in Explanation to section 33B is applicable in this case which defined 'Industrial Undertaking' means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form or power or in the construction of ships or in the manufacture or processing of goods or in mining. He has referred to the 14th Schedule of the Income-tax Act and referred to Item 3 therein and submitted that in the North-Eastern States the manufacturing and producing of the bread is also considered as industries manufacturing or producing. He has further submitted that the assessee is not a trader and goods are sold through sales/delivery network to customers and the case laws relied upon by the authorities below are clearly distinguishable and as such the claim of the assessee was not properly considered by the authorities below. He has further submitted that considering the various processes of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards facts of the case and we also do not find any serious dispute as regards to the above conditions fulfilled by the assessee as the assessee has specifically submitted that the assessee was registered with the Directorate of Industries holding power license of 14 H.P. as an industry and unit is installed in industrial area and was not formed by splitting up, or the reconstruction, of the business already in existence. It was also not formed by transfer to a new business of machinery or plant previously used for any purpose. It did not manufacture or produce the article or thing, not being any article or thing specified in the list in the Eleventh Schedule. As per submission of the learned counsel for assessee, this Schedule is not applicable being unit located in backward area. The assessee employed more than 10 workers in the manufacturing process with the aid of power. It is also not in dispute that the assessee started manufacturing/producing breads during the financial year 1998-99 which period is covered by the aforesaid section. The point to be decided in this case is whether the making of the bread by the assessee from maida, sugar and other ingredients amounts to manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'manufacture' has not been defined in the Income-tax Act. The Income-tax Law by Chaturvedi Pithisaria defines it (manufacture) as "the production of articles for use from raw or prepared materials by giving these materials new forms, qualities, properties or combinations, whether by hand labour or machinery, also anything made for use from raw or prepared materials". The expression "manufacture" has in ordinary acceptance a wide connotation, it means making of articles, or material commercially different from the basic components, by physical labour or mechanical process, and a manufacturer is a person by whom, or under whose direction or control the articles or materials are made. The word 'manufacture' used as verb is generally understood to means as bringing into existence a new substance and does not mean merely to produce some change in a substance. "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. Manufacture, in its ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, was of the view that in order to claim relief the industrial undertaking must manufacture or produce articles and these conditions are precedent. The Hon'ble High Court observed that admittedly the assessee cut trees in the forest converted them not only into logs but also into planks and other articles for the purpose of sale. The production of planks and other articles during the year constituted 60 per cent of the total production of the assessee. There can be no dispute about the fact that logs and planks are articles. The Hon'ble High Court further observed that the uncontroverted factual position is that the assessee did not purchase logs and planks etc. As a forest lessee. His business was to cut standing trees and to extract timber and convert the same into form of logs, planks, etc. for the purpose of sale. The logs and planks are never known as trees. They are undoubtedly different from standing trees. A common man who likes to purchase logs or planks would not purchase a standing tree. The Hon'ble High Court accordingly held manufacturing process carried on manually would also be manufacturing process. It is clear from the above that the activity of the forest less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actured/produced by manufacturing unit of the assessee falls within the definition of manufacture for claiming deduction under section 80-IB. We, on consideration of the principles decided by the jurisdictional High Court in the matter of Abdul Ahad Najar, decision of the Hon'ble Supreme Court in the matters of N.C. Budharaja Co. and Kores India Ltd. are of the view that the bread so manufactured or produced can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity. The assessee has explained nine steps of manufacturing reproduced in para 3 of this order through which the raw materials i.e., maida, sugar and other ingredients are processed being original commodity and have to pass, through various manufacturing processes through mechanized process with the aid of power like mixing, diciding, rounding, prooving, molding, fermenting, baking, cooling, slicing etc. and thus the bread so manufactured or produced would have distinct name, character and use. The name of the raw material, originally is maida, sugar, oil, and other preservatives before process and after processes, it would become bread. Therefore, it is commercially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hon'ble Madras High Court in the matter of P. Devasahayam in which the case under Wealth-tax Act was considered and assessee's activity consists of preparing sweetmeats and biscuits out of raw material, which was mainly intended in trading in a stall and the preparation of foodstuffs was incidental to trading and, therefore, it was not considered to be an industrial undertaking. However, in the present appeal, the assessee is dealing with the manufacturing activity having installed a proper plant and machinery with complete manufacturing process registered with the Industries Department in which bread is supplied to whole of market through proper sale network as explained. The main object of the assessee is manufacture. The case laws as are relied upon by the authorities below are, therefore, clearly distinguishable. Although the decision of Hon'ble Madras High Court in a case of P. Devasahayam is distinguishable on facts yet some of the observation are reproduced as under which clarify the distinction between manufacturing concern and trading concern:- "We have already referred to the definition of 'industrial company'. It is possible to read in the context of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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