Commissioner Of Income-Tax, Patiala v. M/S Mount Shivalik Breweries Ltd

ITR No. 22 of 1997 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income-tax, Patiala Versus M/s Mount Shivalik Breweries Ltd. ITR No. 22 of 1997 Date of Decision: 23.9.2010 ....Petitioner. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Tajender K. Joshi, Advocate for the revenue. Mr. S.K. Mukhi, Advocate for the assessee. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITR Nos. 22 and 128 of 1997and ITA No. 86 of 2000 as common questions of law and facts areinvolved therein. Being identical matters, the facts are being extractedfrom ITR No. 22 of 1997. 2.On the directions of this Court vide orders dated 15.5.1996in ITC Nos. 61 to 63 of 1995, the Income Tax Appellate Tribunal,Chandigarh Bench (in short “the Tribunal”) has referred the followingquestion of law arising out of its order dated 29.3.1994 in ITA Nos. 463to 465/Chandi/88, for the assessment years 1983-84 to 1985-86 for itsopinion:- “Whether on the facts and in the circumstances ofthe case, the Tribunal was right in law in holding thatthe assessee was eligible for investment allowance under section 32A and to the deduction under section80-I of the Act in regard to its new industrial unit setup at Chandigarh?” 3.Facts as narrated in the statement of case may be noticedrelating to assessment year 1983-84. The assessee filed its return forassessment year 1983-84 on 29.9.1983 declaring net income ofRs.49,61,320/-. The said return was filed late by two months. Theassessee is manufacturing country liquor and beer. The AssessingOfficer passed assessment order on 30.8.1985 allowing investmentallowance at Rs.2,11,867/-. The claim of the assessee for deductionunder Section 80-I was disallowed. The assessee filed an applicationbefore the Assessing Officer under Section 154 and made three claims,i.e. with regard to the disallowance of interest under Section 40A(5);disallowance on account of rest-house expenses; and deduction underSection 80-I of the Act. The Assessing Officer vide order dated10.12.1985 allowed the said application and deleted the disallowanceon account of rest-house expenses to the tune of Rs.67,250/- besidesallowing deduction of Rs.27,824/- under Section 80-I of the Act.Accordingly, the revised income was computed at Rs.50,32,830/-. 4.The Commissioner of Income Tax [in short “the CIT”] inexercise of power under Section 263 of the Act issued a notice dated30.12.1986 seeking to withdraw investment allowance of Rs.2,11,067/-and deduction under Section 80-I amounting to Rs.27,824/- which wasallowed in the assessment order. The CIT held that the undertaking ofthe assessee was not engaged in the manufacturing process and,therefore, assessee was not entitled to investment allowance under Section 32A and deduction under Section 80-I of the Act. 5.On appeal by the assessee, the Tribunal set aside theorder of the CIT and upheld that of the Assessing Officer. Hence, thereference at the instance of the revenue. 6.We have heard learned counsel for the parties and haveperused the record. 7.Learned counsel for the revenue submitted that theTribunal had erred in allowing the claim of the assessee for investmentallowance under Section 32A and deduction under Section 80-I of theAct by holding it to be a new industrial unit within the meaning of theaforesaid provision. According to the learned counsel, there was nomanufacturing or production in the spirit bottling plant and India madeforeign liquor and, therefore, no allowance/deduction under Section 32Aand 80-I could be allowed to the assessee. It was further submitted thatthe item fell under Schedule XI of the Act and on that account also theaforesaid deductions were not admissible to the assessee. 8.Controverting the aforesaid submissions, learned counselfor the assessee relied upon the judgment of Madras High Court in 7.Learned counsel for the revenue submitted that theTribunal had erred in allowing the claim of the assessee for investmentallowance under Section 32A and deduction under Section 80-I of theAct by holding it to be a new industrial unit within the meaning of theaforesaid provision. According to the learned counsel, there was nomanufacturing or production in the spirit bottling plant and India madeforeign liquor and, therefore, no allowance/deduction under Section 32Aand 80-I could be allowed to the assessee. It was further submitted thatthe item fell under Schedule XI of the Act and on that account also theaforesaid deductions were not admissible to the assessee. 8.Controverting the aforesaid submissions, learned counselfor the assessee relied upon the judgment of Madras High Court in Commissioner of Income Tax v. Vinbros & Co. (2008) 6 DTR (Mad)25 and argued that the assessee was engaged in the manufacture ofIndia made foreign liquor and was blending and preparing rectified spiritbefore it could be fit for human consumption. It was, thus, contendedthat the assessee was manufacturing or producing India made foreignliquor on which allowance/deduction under Section 32A and 80-I couldnot be denied. Learned counsel laid emphasis on the finding recordedby the Tribunal that the assessee was a small scale industry and, therefore, the exclusion clause under Schedule XI could not be appliedeven if the item manufactured by the assessee was included inSchedule XI as the said schedule did not apply in the case of smallscale industry. 9.We have given our thoughtful consideration to the rivalcontentions and find merit in the submission made by learned counselfor the assessee. 10.The Tribunal while allowing the appeal of the assessee hadin para 18 of its judgment concluded that the assessee was engaged inthe manufacturing activity entitling assessee deduction under Section80-I and allowance under Section 32A of the Act. The relevantobservations read thus:- “18.Now we come to the contention as to whether theassessee was engaged in a manufacturing activity or not.This question has to be decided on the facts of each case.The basic, test, however, is the one laid down by JusticePathak in Deputy C & T v. Pio Food Packers (46 STC 63),a relevant extract from which has been reproduced by theSupreme Court in the case of CIT V. N.C. Budharaja & Co;at page 423 of 204 ITR, which is to the following effect:- “.......Commonly, manufacture is the end result of oneor more processes through which the originalcommodity is made to pass. The nature and extentof processing may vary from one case to another,and indeed there may be several stages ofprocessing and perhaps a different kind of processing at each stage. With each processsuffered, the original commodity experiences achange. But it is only when the change, or a seriesof changes, take the commodity to the point wherecommercially it can no longer be regarded as theoriginal commodity but instead is recognized as anew and distinct article that a manufacture can besaid to take place.” The test really is whether after applying certain processesthe commodity which is ultimately produced is in marketparlance a different commodity from the original commodityor not. The original commodity in the present case isrectified spirit. Certain processes are done by theassessee at Chandigarh and that rectified spirit isconverted into rum, whisky and brandy. In the marketparlance, rectified spirit is not the same thing as rum,brandy or whisky. A customer going to the market anddemanding rectified spirit will not be given rum, whisky orbrandy and vice versa. We have, therefore, no hesitationto hold that the assessee company was engaged in themanufacturing activity to relief u/s 32A and 80-I of the Act.The case law relied on by the ld. counsel for the assesseesupports its case.” 11.Similar issue arose before Madras High Court in Vinbros &Co's case (supra). The Court dealing with a case of assessee whowas blending and bottling India made foreign liquor (IMFL) had held the same to be engaged in 'manufacture' for the purpose of claimingdeduction under Section 80-IB of the Act. It was observed that theassessee had engaged itself in the manufacturing or producing of anarticle or thing by the act of blending and it just does not add water andsells the final product. The assessee had to add several items to makeit fit for human consumption. 12.The High Court while concluding it to be manufactureupheld the findings of the Tribunal in paras 10 and 11 which read thus:- “10.The Tribunal referred to the decision of the SupremeCourt in the case of Aspinwall & Co. Ltd. vs. CIT(2001) 170 CTR (SC) 68: (2001) 251 ITR 323 (SC),with regard to the concept of what would amount tomanufacture. It referred to the decision in the case ofDy. CST vs. Pio Food Packers (1980) 46 STC 63(SC) wherein it was observed that the test fordetermination whether manufacture can be said tohave taken place is whether the commodity which issubject to the process of manufacture can no longerbe regarded as the original commodity, but it isrecognized in the trade as a new and distinctcommodity. It was observed at p.65 in Dy. CST vs.PIO Food Packers (supra) as follows: “.......Commonly, manufacture is the end resultof one or more processes through which theoriginal commodity is made to pass. Thenature and extent of processing may vary from one case to another, and indeed there may beseveral stages of processing and perhaps adifferent kind of processing at each stage.With each process suffered, the originalcommodity experiences a change. But it isonly when the change, or a series of changes,take the commodity to the point wherecommercially it can no longer be regarded asthe original commodity but instead isrecognized as a new and distinct article that amanufacture can be said to take place.” 11.Following the same, the Tribunal held that what waspurchased by the assessee was not a potable oneand but for the blending, the commodity could nothave become a saleable commodity. Consequently,the raw materials, even though are not manufacturedby the assessee, yet there is nexus of the process byblending to make it a saleable commodity totallydifferent from that of the original obtained. TheTribunal also referred to the decision of this Court inCIT vs. Premier Tobacco Packers (P) Ltd. (2006)203 CTR (Mad) 201: (2006) 284 ITR 222 (Mad) andthe decision of the Supreme Court in the case of CITvs. N.C. Budharaja & Co. (1993) 114 CTR (SC) 420:(1993) 204 ITR 412 (SC) and held that the assesseewas entitled to the relief under s. 80-IB being small scale industry engaged in the production of IMFLfrom rectified spirit. The Tribunal also pointed outthat the end product is totally different and iscommercially different commodity than the majorinput rectified spirit, which is not fit for humanconsumption. Hence, the changes made to theoriginal product result in a new different commodity,which is recognized as to in the trade.” In view of the above, it is held that the Tribunal had rightlyconcluded that the assessee was engaged in the manufacturing activity. 13.Further, adverting to the issue relating to inclusion of theproduct of the assessee in Schedule XI of the Act, suffice it to noticethat it could not be controverted by the learned counsel for the revenuethat the assessee was determined to be Small Scale IndustrialUndertaking as has been recorded by the CIT. In the light of theaforesaid finding, keeping in view second proviso to Clause (iii) of sub-section (2) of Section 80-I and sub clause (ii) of clause (b) of sub-section (2) of Section 32A of the Act, the benefit of 80-I and 32A couldnot be denied to the assessee 14.Accordingly, the question of law is answered against therevenue and in favour of the assessee. In view of the above, it is held that the Tribunal had rightlyconcluded that the assessee was engaged in the manufacturing activity. 13.Further, adverting to the issue relating to inclusion of theproduct of the assessee in Schedule XI of the Act, suffice it to noticethat it could not be controverted by the learned counsel for the revenuethat the assessee was determined to be Small Scale IndustrialUndertaking as has been recorded by the CIT. In the light of theaforesaid finding, keeping in view second proviso to Clause (iii) of sub-section (2) of Section 80-I and sub clause (ii) of clause (b) of sub-section (2) of Section 32A of the Act, the benefit of 80-I and 32A couldnot be denied to the assessee 14.Accordingly, the question of law is answered against therevenue and in favour of the assessee. 15.The reference stands disposed of. (AJAY KUMAR MITTAL) JUDGE September 23, 2010gbs (ADARSH KUMAR GOEL)JUDGE ITR No. 22 of 1997 -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income-tax, Patiala Versus M/s Mount Shivalik Breweries Ltd. ITR No. 128 of 1997 Date of Decision: 23.9.2010 ....Petitioner. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Tajender K. Joshi, Advocate for the revenue.Mr. S.K. Mukhi, Advocate for the assessee. AJAY KUMAR MITTAL, J. For orders, see ITR No. 22 of 1997 (Commissioner ofIncome-Tax, Patiala v. M/s Mount Shiwalik Breweries Ltd). (AJAY KUMAR MITTAL) JUDGE September 23, 2010gbs (ADARSH KUMAR GOEL)JUDGE ITR No. 22 of 1997 -10- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income-tax, Patiala Versus M/s Mount Shivalik Breweries Ltd. ITA No. 86 of 2000 Date of Decision: 23.9.2010 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Tajender K. Joshi, Advocate for the revenue.Mr. S.K. Mukhi, Advocate for the assessee. AJAY KUMAR MITTAL, J. For orders, see ITR No. 22 of 1997 (Commissioner ofIncome-Tax, Patiala v. M/s Mount Shiwalik Breweries Ltd). (AJAY KUMAR MITTAL) JUDGE September 23, 2010gbs (ADARSH KUMAR GOEL)JUDGE