Commissioner Of Income Tax-Iii, Chennai v. M/S.premier Tobacco Packers Pvt.ltd., Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 13.2.2006 CORAM : THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (A) No.201 of 2003 Commissioner of Income Tax-III,Chennai...Appellant -Vs- M/s.Premier Tobacco Packers Pvt.Ltd.,Chennai...Respondent Prayer: Appeal filed under Section 260-A of the Income Tax Act1961 against the order of the Income Tax Appellate Tribunal Madras'A' Bench dated 22.5.2003 in I.T.A.No. 433, 1856/Mds/95 for theassessment year 1990-91 against the order of the Commissioner ofIncome Tax (Appeals) VII, Madras 34 dated 29.6.1995 in ITANo.65/92-93 against the order of the Deputy Commissioner of IncomeTax Special Range VII Madras 34 dated 10.3.1992 PAN/GIR No.47-064-CT-0181. For Appellant :Mrs.Pushya SitaramanO R D E R Heard. The above appeal is directed under Section 260-A ofthe Income Tax Act 1961 against against the order of the IncomeTax Appellate Tribunal Madras 'A' Bench dated 22.5.2003 inI.T.A.No. 433, 1856/Mds/95. 2. The facts in brief are : The assessee company is engagedin the activity of processing tobacco for others. This is knownas thrashing. The assessee filed its return of income on28.12.1990 admitting an income of Rs.32,57,510/- and claimeddeduction under Section 80HH on the ground that the assessee'sactivity of thrashing and re-drying of tobacco leaves amounts tomanufacture or production. The assessing officer, disallowed theabove claim. On appeal by the assessee, the Appellate https://hcservices.ecourts.gov.in/hcservices/ Commissioner of Income Tax, following the earlier orders of theTribunal, allowed the appeal and answered the issue in favour ofthe assessee. Hence, the Revenue went on appeal and the AppellateTribunal, confirmed the order of the Commissioner of Income Tax(Appeals) following its earlier order on the ground that theassessee's activity falls within the purview of the manufacture orproduction and dismissed the appeal. 3. Aggrieved by the said order of the appellate Tribunal, theRevenue has filed the above appeal and raised the followingsubstantial questions of law:- 1. Whether in the facts and circumstances of the case,the Tribunal was right in holding that the assessee isentitled to deduction under Section 80HH? 2. Whether in the facts and circumstances of the case,the Tribunal was right in holding that the threshing andredrying of tobacco leaves amounts to manufacture andproduction.?" 4. It is fairly conceded by the learned counsel appearingfor the Revenue that the issue involved in the above questions iscovered by the decision of the Supreme Court rendered in Aspinwalland Co.Ltd., vs. Commissioner of Income Tax(251 ITR 323). 5. The word 'manufacture' has not been defined in the Income-tax Act. In the absence of a definition, the word 'manufacture'has to be given a meaning as is understood in common parlance. Itis to be understood as meaning the production of articles for usefrom raw or prepared materials by giving such materials new forms,qualities or combinations whether by hand labour or machines. Ifthe change made in the article results in a new and differentarticle then it would amount to manufacturing activity. 4. It is fairly conceded by the learned counsel appearingfor the Revenue that the issue involved in the above questions iscovered by the decision of the Supreme Court rendered in Aspinwalland Co.Ltd., vs. Commissioner of Income Tax(251 ITR 323). 5. The word 'manufacture' has not been defined in the Income-tax Act. In the absence of a definition, the word 'manufacture'has to be given a meaning as is understood in common parlance. Itis to be understood as meaning the production of articles for usefrom raw or prepared materials by giving such materials new forms,qualities or combinations whether by hand labour or machines. Ifthe change made in the article results in a new and differentarticle then it would amount to manufacturing activity. 6. Though the assessee was doing only the processing work andwas not involved in the manufacture, the process is amanufacturing process when it brings out a complete transformationin the original article so as to produce a commercially differentarticle or commodity. That process itself may consist of severalprocesses. The different processes are integrally connected whichresults in the production of a commercially different article. Ifa commercially different article or commodity result afterprocessing then it would be a manufacturing activity. Theassessee after thrashing and re-drying, which is called asVirginia Flue-Cured Tobacco(VFT) in commercial parlance, convertsthem into Lamina and N.R.Stems etc. The end product is used inthe manufacture of cigarettes and that the raw materials namelyVirginia Flue-cured Tobacco(VFT) could not be used directly in themanufacture of cigarettes. The assessee after processing the raw Virginia Flue-cured Tobacco converts them into Tobacco which is acommercially different commodity. Conversion of the Virginia Flue-cured Tobacco into Tobacco would be a manufacturing activity. 7. The Supreme Court in the decision cited supra, held thatthe assessee after plucking or receiving the raw coffee berriesmade them undergo nine processes to give them the shape of coffeebeans. The final produce was absolutely different and separatefrom the input. The change made in the article resulted in a newand different article which was recognised in the trade as a newand distinct commodity. The coffee beans had an independentidentity from the raw material from which they were produced.Conversion of the raw berry into coffee beans was a manufacturingactivity. The assessee was, therefore, entitled to the investmentallowance under Section 32A. 8. In view of the foregoing conclusion, we do not find anyerror or infirmity in the order of the Tribunal and no question oflaw much less a substantial question of law that arises forconsideration of this Court. Hence, the appeal is dismissed. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.mskTo1.The Assistant Registrar,Income Tax Appellate Tribunal, Madras Bench "A".Rajaji Bhavan III Floor, Besant Nagar,Chennai-90. 2.The Secretary, Central Board of Direct Taxes, New Delhi.Direct Taxes, New Delhi. 3.The Commissioner of Income Tax- VII(Appeals) V, 121, Mahatma Gandhi Road, Chennai-600 034. 4.The Deputy Commissioner of Income-tax, Spl. Range VII, Madras.34Spl. Range VII, Madras.34 5. The Commissioner of Income Tax IIIChennai -34 1 cc to Mr.S. Sridhar, Advocate, Sr. 6563 1 cc to Mr.Pushya Sitaraman, Advocate, SR. 6444 T.C.(A)No.201 of 2003 TEJ (CO)kk 6/3