The Commissioner Of Income Tax, Chennai v. M/S.cauvery Stone Impex Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR. JUSTICE T.S. SIVAGNANAMAND THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP The Commissioner of Income Tax,Chennai. ...Appellant/AppellantVs. M/s.Cauvery Stone Impex Pvt. Ltd.,No.8, 2[nd] Street, Ganapathy Colony,Gopalapuram, Chennai - 600 086. ...Respondent/Respondent Tax Case Appeal preferred under Section 260A of the IncomeTax Act, 1961, against the order, dated 31.03.2016, passed bythe Income Tax Appellate Tribunal, Chennai "A" Bench, inI.T.A.No.2098/Mds/2015, for the Assessment Year 2010-11 andagainst the order of Commissioner of Income Tax, Chennai, in ITANo.427/13-14/A1 dated 14/08/2015 and against the order ofAssistant Commissioner of Income Tax, Company Circle (3),Chennai, PAN/GIR.No. , dated 25/03/2013. For Respondent : Mr.M.P.Senthil Kumar (Judgment was delivered by T.S. SIVAGNANAM, J.) This Tax Case Appeal filed by the Revenue under Section 260-A of the Income Tax Act, 1961 ("the Act" for brevity), isdirected against the order, dated 31.03.2016, passed by theIncome Tax Appellate Tribunal, Chennai "A" Bench, inI.T.A.No.2098/Mds/2015, for the Assessment Year 2010-11. 2.The appeal has been admitted on 26.08.2020 on thefollowing substantial questions of law :“1.Whether on the facts and circumstances of the case, theTribunal was right in holding that the assessee was eligible forclaiming deduction u/s.10B? https://hcservices.ecourts.gov.in/hcservices/ 2.Whether the finding of the Tribunal is correctby holding that sculpturing and carving of dimensionalblock of granites and monument amounted to manufactureoverlooking the conditions specified in Sec.2(29BA)wherein the manufacture has been defined?” 3.We have heard Mrs.R.Hemalatha, learned Senior StandingCounsel for the appellant/Revenue and Mr.M.P.Senthil Kumar,learned counsel appearing for the respondent/assessee. 4.It is not in dispute that the substantial questions of lawraised in this appeal have been answered against the Revenue andin favour of the assessee in T.C.A. Nos.230 of 2010, 279 of 2011& 563 of 2014, dated 04.08.2021. The said judgment reads asfollows : “These Tax Case Appeals filed by the Revenueunder Section 260-A of the Income Tax Act, 1961 (“theAct” for brevity) are directed against the orders inI.T.A.Nos.632/Mds/2009,1094/Mds/2010and1442/Mds/2013, passed by the Income Tax AppellateTribunal, Chennai, “B”, “A” and “A” Benches,respectively. 2.The appeals were entertained to decide thefollowing substantial questions of law :“T.C.A.No.230 of 2010 : 1.Whether on the facts and circumstances of thecase, the Tribunal is right in deciding that theAssessee is entitled to the benefit of deduction underSection 10-B of the Act? 2.Whether on the facts and circumstances of thecase, the Tribunal is right in not considering theamendment of Sec.10B by omitting cl(iii) ofexplanation to sub section 7 of the Act? 3.Whether on the facts and circumstances of thecase, the order of the Tribunal passed contrary to thecase law 251 ITR 323 (SC) is valid?” T.C.A.No.279 of 2011 : Whether on the facts and circumstances of thecase, the Tribunal was right in dismissing the appealwithout considering provisions of sec.10B and theeligibility of the assessee to claim exemption? T.C.A.No.563 of 2014 :Whether on the facts and in the circumstances ofthe case, the Tribunal is right in holding thatassessee had dimensionally cut and polished the blockof granites and same were exported and the assessee isentitled for exemption u/s.10B when the sale invoicesclearly mentioned that the assessee had exported'processed dimensional rough or crude granite' to meanthat the granite has been processed into rough/crudeblocks merely making them fit for transportation?” T.C.A.No.279 of 2011 : Whether on the facts and circumstances of thecase, the Tribunal was right in dismissing the appealwithout considering provisions of sec.10B and theeligibility of the assessee to claim exemption? T.C.A.No.563 of 2014 :Whether on the facts and in the circumstances ofthe case, the Tribunal is right in holding thatassessee had dimensionally cut and polished the blockof granites and same were exported and the assessee isentitled for exemption u/s.10B when the sale invoicesclearly mentioned that the assessee had exported'processed dimensional rough or crude granite' to meanthat the granite has been processed into rough/crudeblocks merely making them fit for transportation?” 3.We have elaborately heard Mrs.R.Hemalatha,learnedSeniorStandingCounselfortheappellant/Revenue and Ms.Sri Niranjani Srinivasan,learned counsel appearing for the respondent/assessee. 4.There are three appeals arising out of threeAssessment Years and we will take T.C.A.No.230 of 2010as the lead case. 5.The assessee is engaged in the granite businessand for the Assessment Year under consideration, AY2005-06, they filed their return claiming 100%deduction under Section 10-B of the Act. The returnwas selected for scrutiny and the case was discussedwith the assessee. The claim of the assessee was thatthey are in the business of manufacture of granitesand they are a 100% export oriented unit and they areentitled to claim deduction under Section 10-B ofthe Act. The relevant records were also placed beforethe Assessing Officer to justify the said claim. TheAssessing Officer proceeded to consider the matter byobserving that, what is required to be decided iswhether the assessee is engaged in the manufacture orproduction of an article or thing. After taking noteof various factors, the Assessing Officer held thatthe assessee is not engaged in manufacture of anyarticle or thing, within the meaning of Section 10-Bof the Act, as is applicable in respect of theAssessment Year under consideration. Accordingly, theclaim for deduction was rejected. 6.The assessee preferred an appeal before theCommissioner of Income Tax (Appeals)-XII, Chennai(“CIT(A)” for brevity). The appeal was allowed byorder dated 31.12.2008. Aggrieved by the same, theRevenue preferred an appeal before the Tribunal, whichconfirmed the order of the CIT(A) by the order, dated13.08.2009, impugned before us. 7.The law on subject is no longer res integra andin this regard, we refer to the decision of theHon'ble Supreme Court in Income-Tax Officer, Udaipurv. Arihant Tiles & Marbles (P) Ltd. reported in (2010)320 ITR 79 (SC) and the decision of the Division Benchof this Court in the case of Commissioner of Income-Tax, Chennai v. Pallava Granite Industries (I) (P)Ltd. reported in (2014) 221 Taxman 107 (Madras). Boththe above mentioned decisions deal with granite andmarble blocks. 8.The argument of Mrs.R.Hemalatha, learned SeniorStanding Counsel, appearing for the appellant/Revenue,is by submitting that, during the Assessment Yearunder consideration, the content in Section 2(29BA) ofthe Act was not available, and similarly, thedefinition of “manufacture” under Section 10-B(7)(iii)was not there in the Statute book and therefore, theAssessing Officer was right in holding that there wasno process of manufacture and at the best, it can beconstrued as an exercise of processing and not that ofmanufacture. In fact, this very argument wasconsidered in the case of Pallava Granite Industries(I) (P) Ltd. (supra) and the decision was taken infavour of the assessee on the following terms : 8.The argument of Mrs.R.Hemalatha, learned SeniorStanding Counsel, appearing for the appellant/Revenue,is by submitting that, during the Assessment Yearunder consideration, the content in Section 2(29BA) ofthe Act was not available, and similarly, thedefinition of “manufacture” under Section 10-B(7)(iii)was not there in the Statute book and therefore, theAssessing Officer was right in holding that there wasno process of manufacture and at the best, it can beconstrued as an exercise of processing and not that ofmanufacture. In fact, this very argument wasconsidered in the case of Pallava Granite Industries(I) (P) Ltd. (supra) and the decision was taken infavour of the assessee on the following terms : “8.We are conscious of the fact thatduring the assessment years under consideration2003-04, 2004-05. 2005-06, the definition ofSection 2 (29BA) of the Income Tax Act, was notthere. So too, sub-section (7) sub-clause (iii)of Section 10B of the Income Tax Act, defining'manufacture' was not there. Nevertheless, wemay note that in the case of Gem Granites v.CIT [2004] 271 ITR 322/141 Taxman 528 (SC), theSupreme Court considered the issue of polishinggranites and held the same is different fromrough granites and that rough granites underthe process as amounting to manufacture. Thus,when the resultant article no longer retainedits original character, but has a differentname and character, we do not find anyjustifiable ground to accept the plea of theRevenue solely by the reason of the absence ofdefinition of 'manufacture' under Section 10Bof the Income Tax Act, during the relevantassessment years namely, 2003-04, 2004-05 and2005-06, that the terms 'manufacture' has to beread in a restricted way that the processingcould not be included within the meaning of'manufacture'. 9.Thus, going by the decision of theSupreme Court in the case of Gem Granites(supra), on the scope of the expression'manufacture', in the absence of any specificdefinition, we have no hesitation in givingcommon man's understanding as to the scope oftheexpressionthattheexpression'manufacture' would include every process,which would ultimately result in the productionof new article having a different character inview.” 9.The decision in the case of Arihant Tiles &Marbles (P) Ltd. (supra) would also aid the case ofthe assessee, wherein, the Court pointed out that itwas not concerned only with cutting of marble blocksinto slabs, but also concerned with the activity ofpolishing and ultimate conversion of blocks intopolished slabs and tiles and the processes/activitiesundertaken by the assessee in various stages throughwhich the blocks had to go through before they becomepolished slabs and tiles, undoubtedly constitute theactivity of manufacture or production. 9.The decision in the case of Arihant Tiles &Marbles (P) Ltd. (supra) would also aid the case ofthe assessee, wherein, the Court pointed out that itwas not concerned only with cutting of marble blocksinto slabs, but also concerned with the activity ofpolishing and ultimate conversion of blocks intopolished slabs and tiles and the processes/activitiesundertaken by the assessee in various stages throughwhich the blocks had to go through before they becomepolished slabs and tiles, undoubtedly constitute theactivity of manufacture or production. 10.Mrs.R.Hemalatha, learned Senior StandingCounsel, appearing for the appellant/Revenue, placedreliance on the decision of the Hon'ble Supreme Courtin the case of Commissioner of Income-Tax v. Gem IndiaManufacturing Co. reported in (2001) 249 ITR 307 SC.On going through the said decision, we find that thequestion was whether cutting and polishing of diamondamounts to manufacture or production of goods. Takinginto consideration the factual position, the Courtheld that, raw and uncut diamond is subjected toprocess of cutting and polishing which yields polisheddiamond and the polished diamond cannot be treated tobe a new article, because in the said case, there wasno material on record upon which such a conclusion canbe arrived at and therefore, the case was decided infavour of the Revenue. In the case on hand, the CIT(A) had elaborately examined the process through whichthe quarried rough stone goes through before itbecomes a polished granite slab or tile or any otherarticle. This aspect was rightly taken note of by theTribunal in the impugned order, more particularly, inPara No.3 therein. Therefore, we find the decision inGem India Manufacturing Co. is distinguishable. 11.The learned Standing Counsel placed relianceon the decision of the Division Bench of the HighCourt of Kerala in Nishanth Exports v. AssistantCommissioner of Income-Tax, Circle-1, Mattancherryreported in (2018) 401 ITR 401 (Kerala). The saiddecision also would not help the case of the Revenue,because, whether garbling to make pepper edible wouldamount to giving rise to a different commoditydistinct from the raw pepper purchased, was the issuetherein. Admittedly, in the said case, the pepperboth in raw form or in edible form, continued toremain as pepper. 12.The learned counsel referred to the decisionof the Hon'ble Supreme Court in Lucky Minmat Pvt. Ltd.v. Commissioner of Income-Tax, Jaipur, reported in(2000) 245 ITR 830 (SC) to support her submissionsthat, mining of limestones and marble blocks andthereafter cutting and sizing the same, would notamount to process of manufacture. 13.As pointed out by Ms.Sri Niranjani Srinivasan,learned counsel appearing for the respondent/assessee,the decision in the case of Lucky Minmat Pvt. Ltd. wasconsidered by the Hon'ble Supreme Court in ArihantTiles & Marbles (P) Ltd. (supra) and it was pointedout as to how the important distinction was not notedby the Department. The operative portion reads asfollows : “11.The main judgment on which theDepartment has placed reliance is thejudgment of this Court in Lucky Minmat (P)Ltd. v. CIT [2000] 245 ITR 830. In that case,the following question came up forconsideration before the Tribunal: "Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in holding that business activityof the assessee was in the nature ofmanufacturing or production so as to beentitled for relief under section 80HH of theIncome-tax Act, 1961." The assessee in that case had the business ofmining of limestones and marble blocks whichthereafter were cut and sized before beingsold in the market. It was held by this Court “11.The main judgment on which theDepartment has placed reliance is thejudgment of this Court in Lucky Minmat (P)Ltd. v. CIT [2000] 245 ITR 830. In that case,the following question came up forconsideration before the Tribunal: "Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in holding that business activityof the assessee was in the nature ofmanufacturing or production so as to beentitled for relief under section 80HH of theIncome-tax Act, 1961." The assessee in that case had the business ofmining of limestones and marble blocks whichthereafter were cut and sized before beingsold in the market. It was held by this Court that the assessee was essentially in thebusiness of mining of limestone. It was heldthat the activity of excavation will notconstitute manufacture or production. It wasfurther held that even the activity ofcutting and sizing of marble blocks afterexcavation would not come within the ambit ofexpression 'manufacture' or 'production'. Inthe circumstances, this Court held that theassessee was not entitled to the benefit ofsection 80HH of the Income-tax Act. However,this Court distinguished the judgment of theRajasthan High Court in the case of CIT v.Best Chemical & Lime Stone Industries (P.)Ltd. [1994] 210 ITR 883. In that case, BestChemical & Lime Stone Industries (P.) Ltd.(supra) was engaged in the business ofextracting limestone and its sale thereafterconverting it into lime and limedust orconcrete which was held to be an activity ofmanufacture or production. The activity ofconversion into lime and limedust, accordingto this Court, in the case of Lucky Minmat(P.) Ltd (supra) certainly constituted amanufacturing process. It was clarified inthe said case that mere mining of limestoneand marble and cutting the same before it wassold will not constitute 'manufacture' or'production' but conversion into lime andlimedust could constitute the activity ofmanufacturing or production. This distinctionhas not been taken into account by theDepartment while rejecting the claim of theassessee(s) for deduction under section 80-IAof the Income-tax Act, 1961.” 14.In the light of the above, we are of theconsidered view that the Tribunal was right inconfirming the order passed by the CIT(A). For allthe above reasons, these Tax Case Appeals aredismissed and the substantial questions of law areanswered against the Revenue. No costs.” 5.The above decision has also been followed by this Court inT.C.A.No.484 of 2011, dated 05.08.2021. 6.Thus, following the said decision in T.C.A. Nos.230 of2010, 279 of 2011 & 563 of 2014, dated 04.08.2021 (supra), this https://hcservices.ecourts.gov.in/hcservices/ Tax Case Appeal is dismissed and the substantial questions oflaw are answered against the Revenue. No costs. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrar mkn To1. The Income Tax Appellate Tribunal, Chennai, “A” Bench.2. The Commissioner of Income Tax(Appeals), 121, Mahatma Gandhi Road, Chennai 600 034.3. The Assistant Commissioner of Income Tax, Company Circle 1(3), Chennai.4.The Commissioner of Income Tax, Chennai.+1 CC to M/s.T.RaviKumar, Advocate, Sr.No. 41930.+1 CC to M/s.M.P.SenthilKumar, Advocate, Sr.No. 41861. T.C.A. No.726 of 2016 SJ(CO)LS(21/09/2021) https://hcservices.ecourts.gov.in/hcservices/