Commissioner Of Income Tax-I, New Central Revenue Building,Statue Circle, Jaipur (Raj v. D.b. Income Tax Appeal

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 56 / 2011 Commissioner of Income Tax-I, New Central Revenue Building,Statue Circle, Jaipur (Raj.) ----Appellant Versus Smt.Varsha Singh, Thaltara, Sirsi Road, Khatipura, Jaipur ----Respondent D.B. Income Tax Appeal No. 219 / 2012 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Smt.Varsha Singh, Thaltara, Sirsi Road, Khatipura, Jaipur ----Respondent/Assessee D.B. Income Tax Appeal No. 181 / 2015 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus Smt.Varsha Singh, Thaltara, Sirsi Road, Khatipura, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sandeep Taneja _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE INDERJEET SINGHJudgment 22/08/2017 1.By way of these appeals, the appellant has challenged thejudgment and order of the tribunal whereby the tribunal hasdismissed the appeal of the department. 2.This court while admitted the matter has framed followingsubstantial questions of law:- D.B. Income Tax Appeal No.56/2011 admitted on04.05.2011 “Whether on the facts and circumstances of thecase, the learned Tribunal was justified inallowing the assessee deduction under Section10BA of Rs.77,59,185/- even when the assesseedoes not fulfil the mandatory conditions ofeligible article or thing as prescribed in Section10BA?” D.B. Income Tax Appeal No.219/2012 admittedon 31.07.2012 “Whether on the facts and circumstances of thecase, the Tribunal was justified in allowing theassessee deduction under Section 10BA ofRs.74,10,291/- even when the assessee does notfulfill the mandatory conditions of ‘eligible articleor thing as prescribed in Section 10BA?” D.B. Income Tax Appeal No.181/2015 admittedon 19.09.2016 “Whether on the facts and circumstances of thecase, the Tribunal was justified in allowing theassessee deduction under Section 10BA ofRs.1,82,27,594/- even when the assessee doesnot fulfill the mandatory conditions of ‘eligible article or thing as prescribed in Section 10BA?” 3.The issue is now squarely covered by the decision of thisCourt in D.B. Income Tax Appeal No.25/2009 (Commissioner ofIncome Tax, Jaipur-II, Jaipur Vs. M/s Manglam Arts, Govind Nagar,Amber Palace Road, Jaipur) decided on 14.02.2017 and otherconnected matters whereby this court has observed as under:- 4. He has contended that the word which hasbeen used in the section ‘manufacturing orprocess’ is to be construed very strictly and sinceit is an exemption, it should be equated with theprovisions of Section 80I which has beeninterpreted by the Supreme Court in the case ofCommissioner of Income-Tax Vs. Gem IndiaManufacturing Co.- (2001) 249 ITR 307,wherein it has been held as under: 4. The Tribunal took the view that it didbecause in "common parlance andcommercial sense raw diamonds are notthe same thing as polished and cutdiamonds. The two are different entities inthe commercial world. Though thechemical composition remains the samethe physical characteristics of shape andclass, etc., are substantially different". Itwould appear that no material had beenplaced on the record before the Tribunalupon which it could have reached theconclusions that, either in common or incommercial parlance, raw diamonds werenot the same thing as polished and cutdiamonds, and that they were differententities in the commercial world. An ipsedixit of the Tribunal is not the bestfoundation for a decision. 4. The Tribunal took the view that it didbecause in "common parlance andcommercial sense raw diamonds are notthe same thing as polished and cutdiamonds. The two are different entities inthe commercial world. Though thechemical composition remains the samethe physical characteristics of shape andclass, etc., are substantially different". Itwould appear that no material had beenplaced on the record before the Tribunalupon which it could have reached theconclusions that, either in common or incommercial parlance, raw diamonds werenot the same thing as polished and cutdiamonds, and that they were differententities in the commercial world. An ipsedixit of the Tribunal is not the bestfoundation for a decision. “5. The High Court, as aforestated,concluded that the case was covered by itsdecision in the case of CIT v. London StarDiamondCo.(I.)Ltd.:[1995]213ITR517(Bom) . It was notpointed out to the High Court that thequestion in that case was whether theassessee was an industrial company withinthe meaning of Section 2(8) of the Finance Act, 1975, and that, in answering thatquestion, the High Court had held that rawdiamonds and cut and polished diamondswere different and distinct marketablecommodities having different uses;therefore, a company engaged in cuttingand polishing raw diamonds for thepurpose of export was engaged in the"processing of goods" to convert them intomarketable form. The question that theHigh Court and we are here concerned withis whether, in cutting and polishingdiamonds, the assessee manufactures orproduces articles or things. 6. There can be little difficulty in holding that the raw and uncut diamond issubjected to a process of cutting andpolishing which yields the polisheddiamond, but that is not to say that thepolished diamond is a new article or thingwhich is the result of manufacture orproduction. There is no material on therecord upon which such a conclusion canbe reached. 7. The appeal is, therefore, allowed. Theorder under challenge is sot aside. Thequestion quoted above is answered in thenegative and in favour of the Revenue. Theassessee shall pay to the Revenue thecosts of the appeal.” 5. He has contended that the view taken by the Tribunal isrequired to be reversed in view of the observations made by theSupreme Court. 6. Mr. Jhanwar, counsel for the respondent has taken us to thejudgment of the Tribunal and contended that while considering theprocess which has been undertaken by the assessee, the Tribunalhas observed as under: “The various activities carried out by the appellant, are as under:- (i) Firstly, the appellant purchases wood,semi finished material which requiresfurther wood and other work ofbeautification and of artistic value. Thereapart, the other raw material, the woodenout of which is the main, and others i.e.grass, nails etc. are purchased. (ii) Thereafter various other items areadded depending upon the designs, size,quality of the subjected item to be exported, (iii) After purchasing the semi finishedgoods and raw material, as stated above,the very first step is to assemble thesame, if so required. Some time the semifinished furniture is required to be givenfurther shape as per the desiredexportable designs. (iv) Thereafter, punching is done byhammering nails by hand. It is pure labourwork which can be done by experts only.It may be noted that the nails are ofspecial type having artistic and antiquelook. (v) Fitting of brass and iron items againwith a view to give artistic and antiquelook. (vi) Filling and filing with a view tosmoothen the surface. (vii) Sanding (viii) Carving with a view to bring theartistic value and to show that these areantique items. (ix) And lastly polishing exported, (iii) After purchasing the semi finishedgoods and raw material, as stated above,the very first step is to assemble thesame, if so required. Some time the semifinished furniture is required to be givenfurther shape as per the desiredexportable designs. (iv) Thereafter, punching is done byhammering nails by hand. It is pure labourwork which can be done by experts only.It may be noted that the nails are ofspecial type having artistic and antiquelook. (v) Fitting of brass and iron items againwith a view to give artistic and antiquelook. (vi) Filling and filing with a view tosmoothen the surface. (vii) Sanding (viii) Carving with a view to bring theartistic value and to show that these areantique items. (ix) And lastly polishing (x) Thereafter, various wooden items arefitted according to the need and design ofthe exportable wooden article, i.e. woodenmoulding is fitted Inlay is done.” 7. He contended that taking into consideration theobservations made by the Supreme Court in thecase of Income Tax Officer, Udaipur Vs. ArihantTiles and Marbles (P) Ltd.- (2010) 320 ITR 79 (SC),the Supreme Court has observed as under: “16. In the case of Aman MarbleIndustries Pvt. Ltd. v. Collector ofCentralExcisereportedinMANU/SC/0858/2003 : 157 ELT393(SC), the question that arose forconsideration was whether cutting ofmarble blocks into marble slabsamounted to manufacture for thepurposes of Central Excise Act. At theoutset, we may point out that in thepresent case, we are not onlyconcernedwiththeword"manufacture", but we are alsoconcerned with the connotation of theword "production" in Section 80IA ofthe Income Tax Act, 1961, which, asstated herein-above, has a widermeaning as compared to the word "manufacture". Further, when onerefers to the word "production", itmeans manufacture plus something inaddition thereto. The word "production"was not under consideration before thisCourt in the case of Aman MarbleIndustries Pvt. Ltd. (supra). Be that asit may, in that case, it was held that"cutting" of marble blocks into slabs perse did not amount to "manufacture".This conclusion was based on theobservations made by this Court in thecase of Rajasthan State ElectricityBoard (supra). In our view, thejudgment of this Court in Aman MarbleIndustries Pvt. Ltd. (supra) also has noapplication to the facts of the presentcase. One of the most importantreasons for saying so is that in all suchcases, particularly under the Excise law,the Court has to go by the facts of eachcase. In each case one has to examinethe nature of the activity undertaken byan assessee. Mere extraction of stonesmay not constitute manufacture.Similarly, after extraction, if marbleblocks are cut into slabs per se will notamount to the activity of manufacture. 17. In the present case, we haveextracted in detail the processundertaken by each of the respondentsbefore us. In the present case, we arenot concerned only with cutting ofmarble blocks into slabs. In the presentcase we are also concerned with theactivity of polishing and ultimateconversion of blocks into polished slabsand tiles. What we find from theprocess indicated herein-above is thatthere are various stages through whichthe blocks have to go through beforethey become polished slabs and tiles. Inthe circumstances, we are of the viewthat on (ITA-25/2009] the facts of thecases in hand, there is certainly anactivity which will come in the categoryof "manufacture" or "production" underSection 80IA of the Income Tax Act. Asstated herein- above, the judgment ofthis Court in Aman Marble IndustriesPvt. Ltd. was not required to construethe word "production" in addition to the word "manufacture". One has toexamine the scheme of the Act alsowhile deciding the question as towhether the activity constitutesmanufacture or production. Therefore,looking to the nature of the activitystepwise, we are of the view that thesubject activity certainly constitutes"manufacture or production" in terms ofSection 80IA. In this connection, ourview is also fortified by the followingjudgments of this Court which havebeen fairly pointed out to us by learnedCounsel appearing for the Department. 18. In the case of Commissioner ofIncome Tax v. Sesa Goa Ltd. reported inMANU/SC/1123/2004 : 271 ITR 331(SC), the meaning of the word"production" came up for consideration.The question which came before thisCourt was whether the ITAT wasjustified in holding that the assesseewas entitled to deduction under Section32A of the Income Tax Act, 1961, inrespect of machinery used in miningactivity ignoring the fact that theassessee was engaged in extraction andprocessing of iron ore, not amountingto manufacture or production of anyarticle or thing. The High Court in thatcase, while dismissing the appealpreferred by the Revenue, held thatextraction and processing of iron oredid not amount to "manufacture".However, it came to the conclusion thatextraction of iron ore and the variousprocesses would involve "production"within the meaning of Section 32A(2)(b)(iii) of the Income Tax Act, 1961 andconsequently, the assessee was entitledto the benefit of investment allowanceunder Section 32A of the Income TaxAct. In that matter, it was argued onbehalf of the Revenue that extractionand processing of iron ore did notproduce any new product whereas itwas argued on behalf of the assesseethat it did produce a distinct newproduct. The view expressed by theHigh Court that the activity in questionconstituted "production" has beenaffirmed by this Court in Sesa Goa's case saying that the High Court'sopinion was unimpeachable. It was heldby this Court that the word "production"is wider in ambit and it has a widerconnotationthantheword"manufacture". It was held that whileevery manufacture can constituteproduction, every production did notamount to manufacture.” 8. He has contended that the word‘production’ is to be construed as a widermeaning than ‘manufacture’ and in view of theobservations made by the Supreme Court, theview taken by the Tribunal is just and proper. 9. Mr. Mathur has also contended thatregarding second issue with regard to ESI and PF,however, the same is covered by the decision ofthis Court in the case of Commissioner ofIncome Tax Vs. M/s State Bank of Bikaner &Jaipur-D.B.IncomeTaxAppealNo.177/2011 decided on 06.01.2014 whereinit has been held as under: “Thus, we are of the view that wherethe PF and/or EPF, CPF, GPF etc., ifpaid after the due date underrespective Act but before filing of thereturn of income under Section 139(1),cannot be disallowed under Section43B or under Section 36(1)(va) of theIT Act.” 4.In that view of the matter, the issue is answered in favour of the assessee and against the department.” 5.All the appeals stand dismissed. (INDERJEET SINGH),J. Jyoti Item No.70-72 (K.S. JHAVERI),J.