Commissioner Of Income Tax Chennai v. Tax Case (Appeal) Filed Under Section 260A Of The Incometax Act, 1961 Against The Order Of The Income Tax Appellatetribunal, 'B' Bench, Chennai, Dated 7.12.2012

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 7.2.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case (Appeal) No.407 of 2013 Commissioner of Income Tax Chennai Appellant Vs. Smt.S.MahalakshmiPAN: AFZPM 1125 QRespondent Tax Case (Appeal) filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, 'B' Bench, Chennai, dated 7.12.2012 made in ITANo.1523/Mds/2010. Against the Order dated 30/07/2010 made in ITA No.152/09-10 on the file of the Commissioner of Income Tax(Appeals)Trichirappalli, for the assessment year 2005-06. Against the order dated 07/12/09 made in PAN/GIRNo: , on the file of the Income Tax Officer, Ward III(1) Trichirappalli, for the assessment year 2005-06. For Appellant : Mr.M.Swaminathan Senior Standing Counsel assisted by Ms.V.Pushpa, Junior Standing CounselFor Respondent :Mr.R.Vasumithran for Mr.N.Inbarajan 1 JUDGMENT (Delivered by DR.VINEET KOTHARI,J) Heard the learned counsel for both sides. 2. The Revenue has filed the present Appeal aggrieved bythe order passed by the Income Tax Appellate Tribunal on7.12.2012 holding in favour of the Assessee that the processof converting raw Urad into Urad Dhal was a manufacturingactivity and therefore, the Assessee is entitled to deductionunder Section 80IA of the Act. 3. The Appeal was admitted by a co-ordinate Bench of thiscourt by its order dated 22.8.2013, raising the followingpurported substantial question of law:- "Whether on the facts and in the circumstances ofthe case, the Tribunal was right in holding thatthe end product viz., dhall is different from theinput product viz., gram and the assessee hasengaged in manufacturing activity and eligiblefor deduction under Section 80IB?" 4. The Tribunal has relied upon the view of the other Benches of the Tribunal and the Judgments of the Hon'bleSupreme Court as well. The relevant portion of the orderpassed by the Tribunal is quoted below for ready reference:-"17. Further, the Ahmedabad Bench of theTribunal in the case of Mukesh Trading Co. vsITO (supra) also held that the process ofconverting raw urad into urad dal wasmanufacturing activity and assessee wasentitled to deduction u/s 80IA of the Act.Similarly, the Indore Bench of the Tribunal inthe case of ACIT, Bhopal vs. M/s.Shree JankiOverseas Pvt. Ltd., (supra), after taking intoconsideration the decision of the Hon'bleSupreme Court in the case of ITO vs. ArihantTiles & Marbles Pvt. Ltd., 320 ITR 79(SC), CITvs. Oracle Software India Ltd., 320 ITR 546(SC) and various other decisions reported inthat order, came to the conclusion thatmanufacture of dal out of gram, moong, urad,masur, etc. was a commercially new and distinctend product and therefore, amounts to'manufacture' and the assessee was entitled todeduction u/s. 80IB(3)(ii) of the Act.18. In view of the above, andrespectfully following the above quoted decisions of the Tribunal, we do not find anygood and justifiable reason to interfere withthe order of the CIT(A). It is confirmed andthe grounds of appeal of the Revenue aredismissed. 19. In the result, the Appeal of theRevenue is dismissed." 5. Now, both the learned counsel submitted that therecently, this court has also taken a view in CIT v.Muthuramalingam Modern Rice Mill ((2019) 105 taxmann.com 39(Madras)) that the process of converting Paddy into Rice isalso a manufacturing activity and therefore, the Assessee wasentitled to deduction under Section 80-IA/80-B of the Act.The relevant portion of the said Judgment of this Court is quoted below for ready reference:- "14. On the consideration of case laws relied decisions of the Tribunal, we do not find anygood and justifiable reason to interfere withthe order of the CIT(A). It is confirmed andthe grounds of appeal of the Revenue aredismissed. 19. In the result, the Appeal of theRevenue is dismissed." 5. Now, both the learned counsel submitted that therecently, this court has also taken a view in CIT v.Muthuramalingam Modern Rice Mill ((2019) 105 taxmann.com 39(Madras)) that the process of converting Paddy into Rice isalso a manufacturing activity and therefore, the Assessee wasentitled to deduction under Section 80-IA/80-B of the Act.The relevant portion of the said Judgment of this Court is quoted below for ready reference:- "14. On the consideration of case laws relied upon by both the sides and the provisions ofthe Act itself, we are of the consideredopinion that the benefit of Deduction underSection 80IA/ and 80IB of the Act was intendedto promote the industrial activity in the fieldof infrastructural development and othersectors and those engaged, in the process ofmanufacture or production of articles or thingsnot included in the Eleventh schedule of theAct, were held entitled to avail suchdeduction. 15.Thewords“manufacture”or“production” employed jointly in the saidprovisions do not permit us to take a narrow orpedantic approach in the matter. On theother hand, a pragmatic and purposiveinterpretation deserves to be put to thesewords of wider connotations.16.Thesewords"Manufactureorproduction" cover within their ambit anyactivity by which, a different commercialarticle, having a different commercial value,is brought into existence by the process of'Manufacture or Production'. When the Paddy inthe husk is converted into Rice by the processof dehusking, by manual or mechanical processit cannot be said, by any stretch ofimagination that there is no transformation ofarticle. A husked Paddy is not a de-huskedRice, and not only the form undergoes a changebut also the value addition happens by such process. A different commercial articleundoubtedly comes into being. The industrialactivity by employing men and machine in theindustrial undertaking of the Assessee is noteven doubted by the Revenue. It is also not indispute that Rice and Paddy are two differentthings, but the only contention which theRevenue seeks to raise before us is that thesaid process of dehusking is not covered by theterms "Manufacture". We cannot accept thissubmission for the simple reason that whilethe investment in the Industry is made by theAssessee and carrying of industrial activity isnot disputed and the article in question viz.,husked Paddy and Rice are two differentarticles having different value, what can bethe reason to deny them the benefit underSection 80 IA and 80 IB of the Act. We see noreason, much less any justifiable reason, fordenial of the said benefit to the Asseseebefore us. 17. We find that the definition of theword “Manufacture” though was not available inthe Assessment Years before us upto 2003-2004,but the said definition embodies the concept oftransformation of object or article intodifferent commercial article as was discussedin several judicial pronouncements from time totime. If a different commercial article comesinto existence as understood by the persons whodeal with those things, a different approachneed not be taken by the Courts of law to holdotherwise. The dehusked Paddy and Riceobviously are not sold on the same rate nor canthey be consumed for same purpose in the sameform. Therefore, the process of dehusking ofPaddy into Rice with the aid of labour andmachinery is definitely an industry activityundertaken by the Assessee. The cases reliedon by the learned counsel for the Revenue arenot only in different contexts but finallyresulted in giving benefit to the Assessee,depending upon the context of the concernedenactment. Even in case before the CESTAT, inthe case of Dunar Foods Limited (supra) it washeld that Rice and the husk remain in thenatural form and both of them continue to becovered by the term "agricultural product" as was held by the Hon'ble Supreme Court in thecase of M/s.Cynamid India Ltd., (supra). In thesaid case, the Hon'ble Supreme Court held thatthe conversion of Paddy into Rice is not aindustrial operation and the Rice and huskremain in their natural form as a result ofdehusking and are covered by the term'agricultural product' and therefore, theAssessee was entitled to the benefit underSection 35 of the Income Tax Act, which wasdesigned for development of agriculturalresearch specified thereunder. Similarly, theDivision Bench of Karnataka High Court, in thecase of B.Raghurama Chetty case (supra) heldthat the said process of dehusking and millingof Paddy did not bring about new and differentarticle and therefore, Paddy could not be saidto have been consumed in the process ofmanufacture of Rice and hence, it will notamount to violation of the provision of Section6 (1) of the Karnataka Sales Tax Act and theAssessee would not be liable to pay AdditionalSale Tax. 18. Therefore, we are of the opinion thatit would depend upon the context in which thewords “Manufacture or production” have to beinterpreted by the Court of law. In thepresent case, the context is whether theindustrial activity in the form of dehusking ofPaddy into Rice amounts to Industrialundertaking engaged in the ' Manufacture orproduction' of Rice or not. 19. In the said context, in view of theaforesaid cases, we find no reason to hold thatthe activity of dehusking of Paddy into Ricewill not amount to "manufacture or production".We do not find justification to give a narrowermeaning to these terms, which, by themselvesindependently or jointly as employed in thesaid provisions of Section 80IA are wide enoughto cover the industrial activity undergone bythe Assessee." 6. Having heard the learned counsel for the parties andin view of the settled position of law, we are of the viewthat the learned Tribunal was justified in holding that theprocess of converting raw Urad into Urad Dhal is amanufacturing activity undertaken by the Assessee and therefore, the Assessee was entitled to deduction underSection 80IA of the Act. 7. We do not find any merit in the Appeal and the Appealfiled by the Revenue deserves to be dismissed. Accordingly,it is dismissed and the question of law is answered in favourof the Assessee and against the Revenue. No costs. Sd/- Assistant Registrar(CCC) //True Copy// 6. Having heard the learned counsel for the parties andin view of the settled position of law, we are of the viewthat the learned Tribunal was justified in holding that theprocess of converting raw Urad into Urad Dhal is amanufacturing activity undertaken by the Assessee and therefore, the Assessee was entitled to deduction underSection 80IA of the Act. 7. We do not find any merit in the Appeal and the Appealfiled by the Revenue deserves to be dismissed. Accordingly,it is dismissed and the question of law is answered in favourof the Assessee and against the Revenue. No costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrarssk.To1.Commissioner of Income Tax Chennai2.Income Tax Appellate Tribunal, 'B' Bench, Chennai, 3.The Income Tax Officer, Ward III(1), Tiruchirapalli.4.Commissioner of Income Tax(Appeals) Tirchirappalli.+1cc to Mr.M.Swaminathan, Advocate SR.10168+1cc to Mr.N.Inbarajan, Advocate SR.9817TC(A) No.407 of 2013RSV(CO)CB(16/03/2020) 6