Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 174 / 2011 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 123 / 2012 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur ----Respondent D.B. Income Tax Appeal No. 125 / 2012 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur For Respondent(s) : Mr. Sanjay Jhanwar Ms. Archana _____________________________________________________ HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE GOVERDHAN BARDHAR Judgment 28/03/2017 Applications (15048/2016, 15049/2016 & 15047/2016) forframing additional substantial question of law are allowed and thefollowing question is framed in all these appeals: “Whether in the fact and circumstances ofthe case the ITAT was justified in law indirecting to allow deduction under section10BA despite of the fact that the assesseewas not fulfilling the conditions laid down inthe Act for claiming the said deduction?” By way of these appeals, the appellants have challenged the order of Income Tax Appellate Tribunal whereby the appealpreferred by the Department was dismissed. The appeal was admitted on following substantial question of law:- "whether in the facts and circumstances ofthe case, the ITAT was justified in law indeleting addition for depositing the EST & PFbeyond the prescribed time despite the factthat as per Section 36(1)(va) employeescontribution should have been deposited intime as prescribed in the relevant law.Section 43B permits delayed payment if paidbefore filing of ROI as per Section 139(1) incase of employer's contribution not in thecase of employee's contribution." The issue is squarely covered by decision of this Court inD.B. Income Tax Appeal No.25/2009( Commissioner of IncomeTax, Jaipur-II, Jaipur Vs. M/s Manglam Arts,) dated 14.02.2017wherein this Court in para 4, 6, 7,12 & 13 has held as under:- 4. He has contended that the word which hasbeen used in the section ‘manufacturing or process’ is to be construed very strictly andsince it is an exemption, it should be equatedwith the provisions of Section 80I which hasbeen interpreted by the Supreme Court in thecase of Commissioner of Income-Tax Vs.Gem India Manufacturing Co.- (2001)249 ITR 307, wherein it has been held asunder:- 4. The Tribunal took the view that it did because in "common parlanceandcommercialsenserawdiamonds are not the same thing aspolished and cut diamonds. The twoare different entities in thecommercial world. Though thechemical composition remains thesame the physical characteristics ofshape and class, etc., aresubstantially different". It wouldappear that no material had beenplaced on the record before theTribunal upon which it could havereached the conclusions that, eitherin common or in commercialparlance, raw diamonds were notthe same thing as polished and cutdiamonds, and that they weredifferent entities in the commercialworld. An ipse dixit of the Tribunal isnot the best foundation for adecision. “5. The High Court, as aforestated,concluded that the case was coveredby its decision in the case of CIT v.London Star Diamond Co. (I.) Ltd.:[1995]213ITR517(Bom) . It was notpointed out to the High Court thatthe question in that case waswhether the assessee was anindustrial company within themeaning of Section 2(8) of theFinance Act, 1975, and that, inanswering that question, the HighCourt had held that raw diamondsand cut and polished diamonds weredifferent and distinct marketablecommodities having different uses; “5. The High Court, as aforestated,concluded that the case was coveredby its decision in the case of CIT v.London Star Diamond Co. (I.) Ltd.:[1995]213ITR517(Bom) . It was notpointed out to the High Court thatthe question in that case waswhether the assessee was anindustrial company within themeaning of Section 2(8) of theFinance Act, 1975, and that, inanswering that question, the HighCourt had held that raw diamondsand cut and polished diamonds weredifferent and distinct marketablecommodities having different uses; therefore, a company engaged incutting and polishing raw diamondsfor the purpose of export wasengaged in the "processing ofgoods" to convert them intomarketable form. The question thatthe High Court and we are hereconcerned with is whether, in cuttingand polishing diamonds, theassessee manufactures or producesarticles or things. 6. There can be little difficulty inholding that the raw and uncutdiamond is subjected to a process ofcutting and polishing which yieldsthe polished diamond, but that isnot to say that the polisheddiamond is a new article or thingwhich is the result of manufactureor production. There is no materialon the record upon which such aconclusion can be reached. 7. The appeal is, therefore, allowed.The order under challenge is sotaside. The question quoted above isanswered in the negative and infavour of the Revenue. The assesseeshall pay to the Revenue the costsof the appeal.” 6. Mr. Jhanwar, counsel for the respondenthas taken us to the judgment of the Tribunaland contended that while considering theprocess which has been undertaken by theassessee, the Tribunal has observed asunder: “The various activities carried outby the appellant, are as under:- (i) Firstly, the appellant purchaseswood, semi finished material whichrequires further wood and otherwork of beautification and of artisticvalue. There apart, the other rawmaterial, the wooden out of whichis the main, and others i.e. grass,nails etc. are purchased. (ii) Thereafter various other itemsare added depending upon the designs, size, quality of thesubjected item to be exported, (iii) After purchasing the semifinished goods and raw material, asstated above, the very first step isto assemble the same, if sorequired. Some time the semifinished furniture is required to begiven further shape as per thedesired exportable designs. (iv) Thereafter, punching is done byhammering nails by hand. It is purelabour work which can be done byexperts only. It may be noted thatthe nails are of special type havingartistic and antique look. (v) Fitting of brass and iron itemsagain with a view to give artisticand antique look. (vi) Filling and filing with a view tosmoothen the surface. (vii) Sanding (viii) Carving with a view to bringthe artistic value and to show thatthese are antique items. (ix) And lastly polishing (x) Thereafter, various woodenitems are fitted according to theneed and design of the exportablewooden article, i.e. woodenmoulding is fitted Inlay is done.” 7.He contended that taking intoconsideration the observations made by theSupreme Court in the case of Income TaxOfficer, Udaipur Vs. Arihant Tiles andMarbles (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 arosefor consideration was whether (vi) Filling and filing with a view tosmoothen the surface. (vii) Sanding (viii) Carving with a view to bringthe artistic value and to show thatthese are antique items. (ix) And lastly polishing (x) Thereafter, various woodenitems are fitted according to theneed and design of the exportablewooden article, i.e. woodenmoulding is fitted Inlay is done.” 7.He contended that taking intoconsideration the observations made by theSupreme Court in the case of Income TaxOfficer, Udaipur Vs. Arihant Tiles andMarbles (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 arosefor consideration was whether cutting of marble blocks intomarbleslabsamountedtomanufacture for the purposes ofCentral Excise Act. At the outset,we may point out that in thepresent case, we are not onlyconcernedwiththeword"manufacture", but we are alsoconcerned with the connotation oftheword"production"inSection80IAof the Income Tax Act,1961, which, as stated herein-above, has a wider meaning ascomparedtotheword"manufacture". Further, when onerefers to the word "production", itmeans manufacture plus somethingin addition thereto. The word"production" was not underconsideration before this Court inthe case of Aman Marble IndustriesPvt. Ltd. (supra). Be that as it may,in that case, it was held that"cutting" of marble blocks into slabsper se did not amount to"manufacture". This conclusion wasbased on the observations made bythis Court in the case of RajasthanState Electricity Board (supra). Inour view, the judgment of thisCourt in Aman Marble IndustriesPvt. Ltd. (supra) also has noapplication to the facts of thepresent case. One of the mostimportant reasons for saying so isthat in all such cases, particularlyunder the Excise law, the Court hasto go by the facts of each case. Ineach case one has to examine thenature of the activity undertaken byan assessee. Mere extraction ofstonesmaynotconstitutemanufacture.Similarly,afterextraction, if marble blocks are cutinto slabs per se will not amount tothe activity of manufacture. 17. In the present case, we haveextracted in detail the processundertaken by each of therespondents before us. In thepresent case, we are not concernedonly with cutting of marble blocks 17. In the present case, we haveextracted in detail the processundertaken by each of therespondents before us. In thepresent case, we are not concernedonly with cutting of marble blocks into slabs. In the present case weare also concerned with the activityofpolishingandultimateconversion of blocks into polishedslabs and tiles. What we find fromthe process indicated herein-aboveis that there are various stagesthrough which the blocks have togo through before they becomepolished slabs and tiles. In thecircumstances, we are of the viewthat on the facts of the cases inhand, there is certainly an activitywhich will come in the category of"manufacture" or "production"under Section80IAof the IncomeTax Act. As stated herein- above,the judgment of this Court in AmanMarble Industries Pvt. Ltd. was notrequired to construe the word"production" in addition to the word"manufacture". One has to examinethe scheme of the Act also whiledeciding the question as to whetherthe activity constitutes manufactureor production. Therefore, looking tothe nature of the activity stepwise,we are of the view that the subjectactivitycertainlyconstitutes"manufacture or production" interms of Section 80IA. In thisconnection, our view is also fortifiedby the following judgments of thisCourt which have been fairlypointed out to us by learnedCounselappearingfortheDepartment.18. In the case of Commissioner ofIncomeTaxv. SesaGoaLtd.reportedinMANU/SC/1123/2004: 271 ITR331 (SC), the meaning of the word"production"cameupforconsideration. The question whichcame before this Court waswhether the ITAT was justified inholding that the assessee wasentitled to deduction underSection32Aof the Income Tax Act,1961, in respect of machinery usedin mining activity ignoring the factthat the assessee was engaged in extraction and processing of ironore, not amounting to manufactureor production of any article orthing. The High Court in that case,while dismissing the appealpreferred by the Revenue, held thatextraction and processing of ironoredidnotamountto"manufacture". However, it came tothe conclusion that extraction ofiron ore and the various processeswould involve "production" withinthe meaning of Section32A(2)(b)(iii)of the Income Tax Act, 1961and consequently, the assessee wasentitled to the benefit of investmentallowance under Section32Aof theIncome Tax Act. In that matter, itwas argued on behalf of theRevenue that extraction andprocessing of iron ore did notproduce any new product whereasit was argued on behalf of theassessee that it did produce adistinct new product. The viewexpressed by the High Court thatthe activity in question constituted"production" has been affirmed bythis Court in Sesa Goa's casesaying that the High Court's opinionwas unimpeachable. It was held bythis Court that the word"production" is wider in ambit and ithas a wider connotation than theword "manufacture". It was heldthat while every manufacture canconstituteproduction,everyproduction did not amount tomanufacture.” 12. In view of the observations made bythe Supreme court in the case of IncomeTax Officer, Udaipur Vs. Arihant Tilesand Marbles (P) Ltd. (supra), we are of theopinion that the process which has beenprescribed by the Tribunal in para 10 clearlycovers the process and will cover undersection 10BA. Therefore, in our view, the view taken by the Tribunal is just and properand no interference in the judgment of theTribunal is called for. The issue is answered infavour of the assessee and against thedepartment. 13.The second issue is subject todecision of the SLP. However, for the timebeing the same is answered in favour of theassessee and against the department." In that view of the matter, all the issues are decided in favour of the assessee and against the Department. Theappeals are dismissed. A copy of this judgment be placed in each file. view taken by the Tribunal is just and properand no interference in the judgment of theTribunal is called for. The issue is answered infavour of the assessee and against thedepartment. 13.The second issue is subject todecision of the SLP. However, for the timebeing the same is answered in favour of theassessee and against the department." In that view of the matter, all the issues are decided in favour of the assessee and against the Department. Theappeals are dismissed. A copy of this judgment be placed in each file. (GOVERDHAN BARDHAR),J. (K.S. JHAVERI)ACTING C.J. bijsh/124/126