The Cit(Appeals) Allowed The Appeal Of The v. Learned Standing Counsel Representing The Revenue Took Us

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE MONDAY, THE 20TH DAY OF JANUARY 2014/30TH POUSHA, 1935 ITA.No. 576 of 2009 ---------------------AGAINST THE ORDER IN ITA 495/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH, DATED 04-08-2005 ........... APPELLANT/APPELLANT : ---------------------------- THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT : --------------------------------- M/S.POABSON GRANITE PRODUCTS PVT.LTD., WEST OTHERA, THIRUVALLA. BY ADV. SRI.N.JAMES KOSHY THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20-01-2014, ALONG WITH ITA Nos. 784, 788 & 1210 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Manjula Chellur, C.J. & A.M. Shaffique, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A. Nos. 576, 784, 788 & 1210 OF 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 20[th] day of January, 2014 Manjula Chellur, C.J. JUDGMENT The Revenue is before us in all the appeals. The Following questions were raised for consideration at the time ofadmission. “1. Whether, on the facts and in the circumstances ofthe case, and also in the light of the decision of theSupreme Court reported in 249 ITR 307 and AssociatedStone (2003) 10 SCC 771 the Tribunal is right in law andfact in holding that the assessee is entitled to deductionunder section 80HH and 80I of the Income tax Act ? 2. Whether, on the facts and in the circumstances ofthe case, does conversion of granite boulders into smallpieces of different size amount to production ormanufacture ? 3. Whether, on the facts and in the circumstances ofthe case and if the answer to the above question is in theaffirmative does the assessee in view of sub section(9) ofSection 80HH is entitled to deduction both under Sections80HH and 80I ?” 2. The above appeals pertain to different assessment years of the respondent/assessee. The facts thatlead to the filing of these appeals in brief are as under: ITA No. 576, 784, 788 & 1210 of 2009 -:2:- The assessee is running metal crushing units. Whenthe case of assessee was taken up for scrutiny it was found thatthe assessee had claimed deductions under Section 80HH andSection 80I, in all the cases except ITA No.576 of 2009. So faras ITA No.576 of 2009, the deductions were claimed underSection 80IB. The crushing unit of the respondent/assesseeconducts operations in the following manner. The raw-material'granite boulders' are used for bringing out graded metal ofvarious sizes which are used in construction activities. Accordingto the Assessing Officer, though there is some manufacturingprocess carried on by the respondent/assessee, there was noproduct which could be termed as 'production' on account ofmanufacturing activity, therefore the claim of therespondent/assessee made under several Sections as statedabove are to be rejected. In other words, according to theAssessingOfficer,theprocessadoptedbytherespondent/crushing unit cannot be neither termed asmanufacturing process nor it produces any article or thingchanging the nature of the raw-material. The assessee, ITA No. 576, 784, 788 & 1210 of 2009 -:3:- aggrieved by the said opinion of the Assessing Officer, took upthe matter before the First Appellate Authority-Commissioner ofIncome Tax (Appeals). 3. The CIT(Appeals) allowed the appeal of the ITA No. 576, 784, 788 & 1210 of 2009 -:3:- aggrieved by the said opinion of the Assessing Officer, took upthe matter before the First Appellate Authority-Commissioner ofIncome Tax (Appeals). 3. The CIT(Appeals) allowed the appeal of the assessee following the decision of the Tribunal in PanchayilIndustries (ITA Nos. 336, 337 & 338/Coch/2002) and directedthe Assessing Officer to allow the deductions claimed by theassessee. Aggrieved by the said order of the First AppellateAuthority, the Revenue went before the Tribunal challenging theorder of the CIT(Appeals). The Tribunal following the law laiddown in the case of Dy. Commissioner of Income Tax v.Poabson Granite Products (P) Ltd. in ITA No.495/Coch/2004dated 04.08.2005 and Panchayil Industries(ITA Nos. 336, 337 &338/Coch/2002), confirmed the opinion of CIT(Appeals) rejectingthe claim of the Revenue. Aggrieved by the same, the Revenueis before this Court contending that the activity carried on in thecrushing units of the respondent/assessee can neither be calledas manufacturing activity or the outcome of the process can betermed as production. ITA No. 576, 784, 788 & 1210 of 2009 4. Learned Standing Counsel representing the Revenuetook us through the earlier decision of the Tribunal in PanchayilIndustries(ITA Nos. 336, 337 & 338/Coch/2002) wherein theTribunal after referring to several judgments opined that thecommercial activity is to be considered in the light respectivetrade practice or if no such trade practice is available it has to beconsidered in the common parlance in order to arrive at theconclusion whether it is a case of manufacturing activity, theinput and output would be commercially different or not. As amatter of fact, the learned Standing Counsel tried to convince usby submitting that whether the product is used as a boulder orcrushed granite piece, it is used in the construction activity,therefore there is no process of manufacturing involved. In otherwords, according to him, boulders being crushed into smallerpieces of granite will change the nature of product being calledas granite stone, therefore, there is no manufacturing processinvolved and there is no product which can be commerciallytermed as a different product in the trade practice concerned. ITA No. 576, 784, 788 & 1210 of 2009 -:5:- 5. As against this learned counsel appearing for therespondent/assessee took us through [(2010) 320 ITR 79 (SC)]in the case of Income Tax Officer v. Arihant Tiles andMarbles P. Ltd. We have gone through the said judgment. Thequestion that arose before the Apex Court in the said case waswhether sawing marble blocks into slabs and tiles includingpolishing, amounts to manufacture or production. TheirLordships after referring to several judgments of different HighCourts and also earlier judgments of the Apex Court dismissedthe appeal. The cases which are relevant for the purpose ofconsidering the case on hand would beCIT v. N.C. Budharajaand Co.[(1993) 204 ITR 412 (SC)] and CIT v. Sesa Goa Ltd.[(2004) 271 ITR 331 (SC)] which reads as under: “In the case of CIT v. Sesa Goa Ltd. reported in [2004]271 ITR 331 (SC), the meaning of the word “production”came up for consideration. The question which camebefore this court was whether the Income-tax Appellatetribunal was justified in holding that the assessee wasentitled to deduction under section 32A of the Income-taxAct, 1961, in respect of machinery used in mining activityignoring the fact that the assessee was engaged in “In the case of CIT v. Sesa Goa Ltd. reported in [2004]271 ITR 331 (SC), the meaning of the word “production”came up for consideration. The question which camebefore this court was whether the Income-tax Appellatetribunal was justified in holding that the assessee wasentitled to deduction under section 32A of the Income-taxAct, 1961, in respect of machinery used in mining activityignoring the fact that the assessee was engaged in extraction and processing of iron ore, not amounting tomanufacture or production of any article or thing. TheHigh Court in that case, while dismissing the appealpreferred by the revenue, held that extraction andprocessing of iron ore did not amount to “manufacture”.However, it came to the conclusion that extraction of ironore and the various processes would involve “production”within the meaning of section 32A(2)(b)(iii) of theIncome-tax Act, 1961, and consequently, the assesseewas entitled to the benefit of investment allowance undersection 32A of the Income-tax Act. In that matter, it wasargued on behalf of the Revenue that extraction andprocessing of iron ore did not produce any new productwhereas it was argued on behalf of the assessee that itdid produce a distinct new product. The view expressedby the High court that the activity in question constituted“production” has been affirmed by this court in SeasGoa's case [2004] 271 ITR 331 saying that the HighCourt's opinion was unimpeachable. It was held by thiscourt that the word “production” is wider in ambit and ithas a wider connotation than the word “manufacture”. Itwas held that while every manufacture can constituteproduction, every production did not amount tomanufacture.” 6. Learned counsel for the respondent/assessee also relies upon another judgment of the Apex Court in Lucky ITA No. 576, 784, 788 & 1210 of 2009 Minmat Pvt. Ltd. v. Commissioner of Income Tax[(2000)830 ITR 245 (SC)]. As a matter of fact, Lucky Minmat Pvt.Ltd. (supra)and Arihant Tiles (supra), both are by Benchesconsisting of three judges of the Apex Court. In Arihant Tiles(supra) case they referred to the principle laid down in LuckyMinmat Pvt. Ltd. (supra). In Lucky Minmat Pvt. Ltd. (supra),the issue that came up for consideration was whether mining oflimestone and marble blocks, and cutting and sizing them,amounts to manufacture or production of article in order toconsider deduction under Section 80HH of the Act. The ApexCourt held that the assessee had business of mining of limestoneand marble blocks and thereafter cutting and sizing before beingsold in the market amounts to conversion into lime and lime dustor concrete by stone crushers could legitimately be considered tobe a manufacturing process while the mere mining of limestoneand marble and cutting the same before it was sold in the marketcould not be so considered. So far as Sesa Goa Ltd.(supra)case, the facts of that case was similar to the case on handbefore us. ITA No. 576, 784, 788 & 1210 of 2009 -:8:- 7. While considering the meaning of the word'production', the High Court of Karnataka in the case of CIT v.Mysore Minerals Ltd.[(2001) 250 ITR 725] held that extractionand processing of iron ore did not amount to manufacture. But,however, the High Court concluded that after extraction of ironore, various processes involve production within the meaning ofSection 32A(2)(b)(iii) of the Income Tax Act, therefore, squarelyallowed the assessee to have the benefit of investment allowanceunder Section 32A. The view expressed by the High Court thatactivity involved in Sesa Goa Ltd.(supra) case constitutedproduction and it was upheld by the Apex Court opining that theword production is wider in ambit and it has a wider connotationthan the word manufacture. Ultimately it opined that while everymanufacture can constitute production, every production neednot amount to manufacture. 8. So far as N.C. Budharaja and Co.(supra) the 8. So far as N.C. Budharaja and Co.(supra) the question was whether construction of a Dam to store water(reservoir) can be categorised as amounting to manufacturing orproducing an article. In that context their Lordships opined that whether manufacture can be stated to have taken place or not,has to be seen from the test whether the commodity which issubjected to a process can no longer be demanded as originalcommodity but is a new and distinct commodity. They furtheropined that the word manufacture would ultimately mean thereis existence of new goods by the process which may or may notinvolve manufacture. When the above is the settled position asof now one has to see the actual process that is undertaken sofar as the respondent unit is concerned. The activity normallycarried on by the respondent unit has the following process: “1. Digging holes using jackhammers and Air compressors and blasting for producing boulders. 2. Breaking of boulders using mechanical rock breakers to produce rubbles. to produce rubbles. 3. Loading the rubbles to the tipper lorries using excavator loader. excavator loader. 4. Feeding the rubbles from the tipper lorries to the primary crushers for producing soilings. primary crushers for producing soilings. 5. The soilings produced at the primary crushers are fed to the different secondary crushers through conveyor belts to produce granite aggregates of different sizes vi.,1-1/2", 1",1'2",1/4" sand and dust. to the different secondary crushers through conveyor belts to produce granite aggregates of different sizes vi.,1-1/2", 1",1'2",1/4" sand and dust. ITA No. 576, 784, 788 & 1210 of 2009 -:10:- 6. The above products are fed to the vibrating screens through conveyor belts for segregation and the segregated different granite aggregates are collected in different bunkers. in different bunkers. 7. The products stored at the bunkers are loaded to the trucks for sending to the customers.” 9. From the above process carried on in different units of the respondent/assessee clearly indicates, the commercialidentity of the boulder which is used as raw-material to bring intoexistence altogether a different product, i.e. rubbles (crushedmetal granite) and also 'M Sand' of different sizes. In otherwords, in the commercial world products are quite different interms of trade though both the materials could be used in theconstruction activity. The products manufactured by therespondent/assessee have distinct and different utility.Therefore, the identity is also different. If boulder could be usedfor the purpose of foundation, M Sand and crushed metalgranite, cannot be used for the same purpose for which bouldersare used. In that sense all the products are different thoughcome from same raw-material. In the light of the above process ITA No. 576, 784, 788 & 1210 of 2009 -:11:- being undertaken which ultimately results in a differentmarketing product, in the units of the respondent/assessee, bothprocesses are present, i.e. manufacture and also production. Inthe light of the above judgments and the reasoning, we are of theopinion, the Tribunal was justified in confirming the orders of CIT(Appeals). 10. So far as the benefits claimed under Sections ITA No. 576, 784, 788 & 1210 of 2009 -:11:- being undertaken which ultimately results in a differentmarketing product, in the units of the respondent/assessee, bothprocesses are present, i.e. manufacture and also production. Inthe light of the above judgments and the reasoning, we are of theopinion, the Tribunal was justified in confirming the orders of CIT(Appeals). 10. So far as the benefits claimed under Sections 80HH, 80I and 80 IB as held by the Apex Court in the case ofJoint Commissioner of Income Tax v. MandideepEngineering and PKG. Industries P. Ltd.[(2007) 292 ITR 1(SC)], if various deductions are independent in nature availableto an assessee under different circumstances, they all have to beallowed if they come within the application of a particularprovision of law. In other words, in terms of Sections 80HH, 80Iand 80IB, if claims are made for deductions byrespondent/assessee in the same year at the same time, if it isfound relevant for the purpose of giving deductions, all are to beextended. It does not depend upon existence of other provision.In other words, if the benefit is extended under one provision, ITA No. 576, 784, 788 & 1210 of 2009 -:12:- the assessee cannot be denied the benefit of other provisionwhich is altogether for a different purpose. Simultaneously theassessee can have all the benefits at a time depending upon thefacts and circumstances of each case. In the light of the above observations, we are of theopinion the substantial questions raised are all answered against the appellant/revenue confirming the orders of the Tribunal. Manjula Chellur, Chief Justice. A.M. Shaffique, Judge. ttb/21/01