AI Insights
The case revolves around the interpretation of 'manufacture' in the context of Section 80IB of the Income Tax Act, concerning the activities of M/s Doon Valley Rubber Industries. The Income Tax Officer initially disallowed the deduction claimed by the respondent for the assessment year 2004-2005, which was upheld by the Commissioner of Income Tax (Appeals), Shimla. However, the Income Tax Appellate Tribunal reversed this decision, recognizing the respondent's activities as manufacturing. The High Court, referencing decisions from the Supreme Court, concurred with the Tribunal's conclusion, emphasizing that the end product, rubber crumb, was commercially distinct from the raw materials and involved a significant transformation process.
Appeal Details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 741097 (HC-HIMACHAL_PRADESH)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Others
Pronouncement Date
06-11-2013
Assessment Year
misc
Judgement Text
"IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. I.T.A. 2 of 2009 Decided on: 6th November, 2013. Commissioner of Income Tax, Shimla ……Appellant. Versus M/s Doon Valley Rubber Industries Bangaran Road, Paonta Sahib, District Sirmour …….Respondent. ----------------------------------------------------------------------------------------- Coram The Hon’ble Mr. Justice A. M. Khanwilkar, Chief Justice. The Hon’ble Mr. Justice Kuldip Singh, Judge. Whether approved for reporting? Yes. For the appellant: Mr. Vinay Kuthiala, Sr. Advocate, with Ms. Vandana Kuthiala, Advocate. For the respondent: M/s. Vishal Mohan & Sushant Keprate, Advocates. --------------------------------------------------------------------------------------------- Justice A. M. Khanwilkar, C.J. (Oral) Heard counsel for the parties. 2. This appeal has been admitted on the substantial question of law as to whether cutting, grinding and sieving of old rubber tyres and rubber scrap and converting the same into rubber crumbs is “manufacture” and hence entitled to the deduction under Section 80IB of that Act? 3. The Income Tax Officer, Nahan (HP) during the assessment of the respondent-firm for assessment year 2004-2005, disallowed the deduction under Section 80IB claimed by the respondent. The assessee took the matter in appeal before the Commissioner of Income Tax (Appeals), Shimla which in turn affirmed the finding recoded by the first authority. The Income Tax Appellate Tribunal, however, in the appeal filed by the assessee, reversed the finding recorded by the two Authorities below and concluded that the assesse was entitled to deduction under Section 80 IB. For doing so, the Appellate 2 Tribunal took into account the manufacturing process of rubber crumbs. The same is as under:- “MANUFACTURING PROCESS OF RUBBER CRUMB PURCHASE OF OLD TYRES/SCRAP TYRES CUT INTO SMALL PIECES WITH THE HELP OF CHOPPING MACHINE RUN WITH THE ELECTRIC MOTORS GRINDING OF SMALL PIECES OF TYRES IN THE GRINDERS RUN WITH THE HELP OF ELECTRIC MOTORS THE GRINDED MATERIAL IS SIEVED BY THE DIFFERENT MASH SIEVED, RUN WITH ELECTRIC MOTORS FINAL PRODUCT RUBBER CRUMB IS READY, HAVING DIFFERENT MASH 4. After considering the factual aspects of the matter, the Appellate Tribunal, which is the final fact finding Authority, held that the assessee was engaged in purchasing old and used tyres/ rubber scrap etc., which were cut into small pieces and thereafter grinded with the help of machines and then the end product was rubber crumb, which was sold to the tyre manufacturing company. The Appellate Tribunal thus found, as of fact, that the end product of the assessee was different from its raw material and secondly it was commercially known to be different in the market. As regards this finding of fact reached by the Appellate Tribunal, we are in agreement with the same as in our opinion, the process not only involves re-cycling of the old tyres but also rubber scrap to be converted and transformed into rubber crumb - which incidentally can be re-used for manufacture of new tyres. There is nothing to indicate that the old rubber tyres and rubber scrap could be straightway re- used for manufacture of new tyres without resorting to processing, as is being done by the assessee. 3 5. The question as to what amounts to manufacture is no more res integra. The three Judges Bench of the Apex Court in the case of Aspinwall and Co. Ltd. v. Commissioner of Income Tax1, has expounded thus: …..“The word “manufacture” has not been defined in the Act. In the absence of a definition of the word “manufacture” it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.” 6. In the latest decision of the Apex court in the case of Income Tax Officer vrs. Arihant Tiles and Marbles P. Ltd.2, after analyzing its earlier decisions and including in the case of Aman Marble Industries P. Ltd. vrs. Collector of Central Excise3, it has been noted that the expression used in Section 80IA - which is analogous to the expression used in Section 801B, which uses words manufactures or produces, as applicable to the present case – mandates the Court to consider not only word “manufacture” but also the connotation of word “production”. Having noted this position, the Court went on to observe that the said expressions have wider meaning as compared to the word “manufacture”. Further, the word “production”, means manufacture plus something in addition thereto. The Court also noticed the exposition in CIT vrs. Sesa Goa Ltd.4, wherein it has been held that while every manufacture can constitute production, every production did not amount to manufacture. Further, the test for determining whether manufacture can be said to have taken place is whether the commodity, which is subjected to a process, can no longer be regarded as original commodity, but is recognized in trade as a new and distinct commodity. Further, the word “production”, 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. The word “production” takes in all 1 2001 (251) ITR 323 2 (2010) 320 ITR 79 (SC) 3 (2003) 157 ELT 393 (SC) 4 (2004) 271 ITR 331 (SC) 4 the by-products, intermediate products and residual products, which emerge in the course of manufacture of goods. 7. Keeping in mind the exposition in these decisions, we have no hesitation in holding that the Appellate Tribunal was justified in concluding that the product (Rubber crumb) produced by the assessee was commercially different from its raw material and further, it is commercially known to be different in the market. In other words, the assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IB of the Act. We find no reason to disagree with the said opinion of the Tribunal. As a result, this appeal should fail, the same is dismissed. 8. In fairness to counsel appearing for both the parties, we may place on record that they cited several other reported and unreported decisions. That indeed, indicates their industry. However, we are of the considered opinion that the question to be answered in this appeal can be conveniently answered only with reference to the exposition in the decisions of the Apex Court, referred to above, for which reason, we are not burdening this judgment with the other citations pressed into service by the respective counsel, across the Bar, during the hearing. ( A. M. Khanwilkar), Chief Justice. November 06, 2013, (Kuldip Singh), (karan/cm) Judge. "
Mehul