1985-VIL-49-ITAT-AHM

Equivalent Citation: ITD 017, 353, TTJ 025, 144,

Income Tax Appellate Tribunal AHMEDABAD

Date: 27.12.1985

HARIHAR QUARRY.

Vs

INCOME-TAX OFFICER

BENCH

Member(s)  : K. T. THAKORE., U. T. SHAH.

JUDGMENT

Per Shri U.T. Shah, Judicial Member --- The only point involved in these appeals pertains to the assessee's claim for investment allowance on the ground that it is carrying on manufacturing activities.

2. The assessee is a firm. The assessment years are 1982-83 and 1983-84 and the relevant previous years are Samvat years 2037 and 2038, respectively.

3. The assessee is carrying on business of crushing the rubble into stone grits (kapchis). During the relevant previous year, the assessee installed machinery of Rs. 2,41,980 in the first year and of Rs. 3,08,887 in the second year and claimed investment allowance of Rs. 60,494 and Rs. 77,222, respectively, after creating necessary reserves as contemplated under section 32A of the Income-tax Act, 1961 ('the Act'). The income-tax authorities, however, did not accept the assessee's contention that it is carrying on manufacturing activities as according to them, in making grits (kapchis), no manufacturing activity was involved. For this purpose, they relied on the decision of the Hon'ble Calcutta High Court in the case of CIT v. Radha Nagar Cold Storage (P.) Ltd. [1980] 126 ITR 66 and of the Hon'ble Supreme Court in the case of Idandas v. Anant Ramchandra Phadke AIR 1982 SC 127.

4. Being aggrieved by the action of the income-tax authorities, the assessee has come up in appeal before the Tribunal. The learned counsel for the assessee strongly argued that the income-tax authorities were not justified in denying the assessee's claim for investment allowance as contemplated under section 32A. In this connection, he invited our attention to the assessee's letter dated 22-10-1983 addressed to the ITO, more particularly, the following paragraph :

"2. The process of manufacture is to blast the underground mines with the help of dynamite and the blasted rubble of uneven size and irregular shape is transported to the crushing plant with the help of tractors and trailers and the same is crushed in a primary crusher and with the help of conveyor belt, to vibratory screen where it is classified with the help of automatic vibrating screen of 4 decks into various grades and the irregular crushed material is again retransported with the help of conveyor belt to the crushing plant to the secondary crusher where it is again recrushed and taken out to vibratory screen where it is again screened and classified into various grades. Thus being our manufacturing process."

which clearly shows that the assessee is engaged in manufacturing activity. The learned counsel for the assessee also highlighted the fact that all along in the past, the investment allowance under section 32A was allowed to the assessee up to the assessment year 1980-81 by the ITO himself. He also stated that the assessee was granted depreciation as per the rate applicable to mines and quarries by the ITO himself. Inviting our attention to the aforesaid decision of the Hon'ble Supreme Court in the case of Idandas, the learned counsel for the assessee submitted that the income-tax authorities had failed to appreciate the ratio laid down by the Hon'ble Supreme Court. In that case, a tenant had taken on lease an open piece of land on which a flour mill was installed. The issue before the Hon'ble Supreme Court was whether the lease was granted for the purpose of 'manufacturing process' within the meaning of section 106. The relevant head-note in that case reads as under:

"The tests for determining whether a lease is granted for purpose of 'manufacturing process' are as follows :

(i) That it must be proved that a certain commodity was produced;

(ii) That the process of production must involve either labour or machinery ;

(iii) That the end product which comes into existence after the manufacturing process is complete, should have a different name and should be put to a different use. In other words, the commodity should be so transformed as to lose its original character. AIR 1973 SC 425 ; AIR 1968 SC 922 and AIR 1963 SC 791, Relied on. AIR 1946 Cal. 317 and AIR 1971 Mys. 365, Approved. (Para 10)

In the instant case lease was granted for running a flour mill wherein wheat was transformed, by manufacturing process which involved both labour and machinery, into flour.

Held that all the three tests were fully satisfied and thus the lease was one for manufacturing process and could be terminated only by giving six months' notice under section 106 of the Transfer of Property Act."

4.1 The learned counsel for the assessee, therefore, submitted that since the aforesaid tests laid down by the Hon'ble Supreme Court are clearly applicable in the instant case, the ITO should be directed to allow investment allowance to the assessee as contemplated under section 32A.

4.2 The learned counsel for the assessee also invited our attention to a recent decision of the Hon'ble Supreme Court decided on 6-5-1985 in the case of Empire Industries Ltd. v. Union of India [1985] 20 ELT 179 wherein the Hon'ble Supreme Court has further elaborated the meaning of 'manufacturing process' as under :

"To constitute manufacture it is not necessary that one should absolutely make out a new thing because it is well settled that one cannot absolutely make a thing by hand in the sense that nobody can create matter by hand, it is the transformation of a matter into something else and that something else is question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such. In other words, if by application of labour and skill on object is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place."

He, therefore, strongly urged that the income-tax authorities were not justified in denying the assessee's claim for deduction of investment allowance as contemplated under section 32A. The learned representative for the department, on the other hand, strongly relied on the orders of the income-tax authorities and justified their action.

5. On due consideration of the rival submissions of the parties and the material already brought on record, we are of the opinion that in view of the aforesaid decisions of the Hon'ble Supreme Court, the stand taken on behalf of the assessee is unassailable. It is pertinent to note that the tests laid down by the Hon'ble Supreme Court in the aforesaid two decisions are clearly applicable to the facts and circumstances obtaining in the instant case. The raw material out of which kapchis are manufactured is distinct and having different commercial name than the final products manufactured by the assessee. If one were sent to the bazar to buy kapchis, surely, he would not buy rubbles blasted from the earth surface. It is not in dispute that the assessee has manufactured certain commodities and for manufacturing such commodities it has utilised both manual labour and machinery. Again, it is not in dispute that the end product after the manufacturing process is complete, has a different and distinct name and is also put to use differently than the raw material from which such end products are manufactured. In fact, in the process of manufacturing, the commodity is so transformed as to lose its original character. Respectfully, following the ratio laid down in the aforesaid two decisions of the Hon'ble Supreme Court, we have no hesitation in holding that in the instant case, the assessee is engaged in manufacturing activities, and, therefore, would be entitled to investment allowance as contemplated under section 32A. We would, therefore, direct the ITO to accept the assessee's claim for deduction of investment allowance and modify the assessment accordingly.

6. In the result, both the appeals are allowed.

 

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