The Commissioner Of Income Tax Coimbtore v. M/S. Vijay Granites Pvt. Ltd., 3 Ttp Staff Quarters, Tiruppur

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 28.01.2013 Coram The Honourable Mr.JUSTICE N.PAUL VASANTHAKUMARandThe Honourable Mrs.JUSTICE S.VIMALA Tax Case (Appeal) Nos.2667 to 2670 of 2006 The Commissioner of Income TaxCoimbtore... Appellant in all the T.Cs.Vs. M/s. Vijay Granites Pvt. Ltd.,3 TTP Staff Quarters,Tiruppur... Respondent in all the T.Cs. APPEALS under Section 260-A of the Income Tax Act, 1961 againstthe orders of the Income Tax Appellate Tribunal, Chennai 'C' Bench,dated 28.02.2001, in ITA Nos.2022, 2023, 2024 and 2025/Mds/1992,respectively against the order of the Commissioner of Income tax(Appeals) Coimbaore dated 15.6.1992, 18.6.1992, 12.7.1990 and11.7.1989 respectively passed in I.T.Nos.233-6/92-93, 316 to 318-C/92-93, 352 & 353-C/90-91 and 257-C/89-90 respectively against theorder of the Assistant Commissioner of Income tax department Companycircle I, Coimbatore dated 27.3.1992, 13.1.1992, 13.1.1992 &13.1.1992 respectively passed in PAN/GIR Nos- CT-2378 of theassessemnt year 1989-90, 1988-89, 1987-88, 1986-1987 respectively. The Revenue has preferred the above appeals against the ordersof the Income Tax Appellate Tribunal, dated 28.02.2001, in ITANos.2022, 2023, 2024 and 2025/Mds/1992, covering the assessmentyears 1986-1987, 1987-1988, 1988-1989 and 1989-1990, respectively. https://hcservices.ecourts.gov.in/hcservices/ 2. In all these cases, as common question of law arises forconsideration and also as the common order has been passed by theIncome Tax Appellate Tribunal, common judgment is pronounced. 3. The assessee is the company engaged in the business ofgranites in the name of 'M/s. Vijay Granites Pvt. Ltd'. Theassessee / company filed its returns for the years 1986-1987, 1987-1988, 1988-1989 and 1989-1990. In respect of the assessment years1986-1987 to 1988-1989, assessment was reopened under Section 147 ofthe Income Tax Act, 1961 (hereinafter will be referred to as "theAct") and in respect of the assessment year 1989-1990, there wasregular assessment under Section 143(3) of the Act. 4. In the original assessment, in respect of the assessmentyears 1986-1987 to 1988-1989, the assessee's claim for investmentallowance under Sections 32A and 32AB of the Act was rejected by theassessing officer on the ground that assessee is not engaged in anyindustrial activity. On the very same ground, the assessee's claimfor deduction under Section 80I was also rejected. However, theassessee was granted deduction under Section 80HHC for the years1986-1987 to 1988-1989. 5. On appeal, the Commissioner of Income Tax (Appeals) directedthe assessing officer to grant investment allowance and alsodeduction under Section 80I for all these years. Aggrieved overthat, the Revenue preferred appeals to the Income Tax AppellateTribunal. The Tribunal sustained the orders of the Commissioner ofIncome Tax. 6. Though deduction under Section 80HHC was allowed, by theAssessing Officer, for all the three years, the assessments werereopened under Section 148 of the Act to withdraw the deductionunder Section 80 HHC pursuant to the decision rendered by the ApexCourt in the case of M/s. Stone Craft Enterprise's case reported in237 ITR 131. The original assessment in respect of the year 1989-1990 was also completed without giving deduction under Section80HHC. 6. Though deduction under Section 80HHC was allowed, by theAssessing Officer, for all the three years, the assessments werereopened under Section 148 of the Act to withdraw the deductionunder Section 80 HHC pursuant to the decision rendered by the ApexCourt in the case of M/s. Stone Craft Enterprise's case reported in237 ITR 131. The original assessment in respect of the year 1989-1990 was also completed without giving deduction under Section80HHC. 7. The assessee went on appeal to the Commissioner of IncomeTax. The Commissioner directed granting of deduction under Section80HHC for all the four years. On appeal by the Department, theTribunal also held that assessee is eligible for investmentallowance i.e., deduction under Section 80I and also deduction underSection 80HHC of the Act. The Tribunal distinguished the decisionof the Apex Court in the case of M/s. Stone Craft Enterprises,since in that case, details regarding activity carried on by theassessee were not produced before the Apex Court. The Tribunal alsorelied upon the circular No.729, dated 01.11.1995, wherein it has been clarified that once mechanical process is carried on thegranite, deduction under Section 80HHC can be allowed. Thecontention of the Revenue that the amendment made by Finance ActNo.2 of 1991 introducing schedule XII is effective only from theassessment year 1991-1992 and in respect of the earlier years, thegranite is covered only by the provisions of Section 80HHC (2) (b)(ii) of the Act, was rejected. The Tribunal came to the conclusionthat the amendment made through Finance Act No.2 of 1991 and thecircular dated 01.11.1995 was retrospective in effect. 8. Aggrieved over that, the Revenue has preferred the appealraising the following substantial questions of law:-"(i) Whether on the facts and in the circumstances ofthis case, the Tribunal was correct in holding that thededuction under Section 80 HHC granted to the assessee,even though the amendment made by the Finance Act 2 of1991 introducing schedule XII is effective from theassessment year 1991-1992 only is valid in law? (ii) Whether on the facts and in the circumstancesof the case, the Tribunal was right in holding that theassessee is entitled to the allowance claimed underSection 80 HHC retrospectively is valid in law?(iii) Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was right in holding,even though the assessee is not engaged in the industrialactivity, the claim for deduction under Section 80I of theIncome-Tax Act, is valid in law?" 9. The main contention of the learned counsel for the Revenue /appellant is that the Tribunal was incorrect in holding that thededuction granted to assessee under Section 80HHC is valid in law,even though the amendment made by the Finance Act No.2 of 1991,introducing Schedule II is effective only from the assessment year1991-1992 and that the amendment is retrospective in nature. 8.1. Section 80HHC of the Act provides that where an assessee,being an Indian Company or a person (other than a company) residentin India, is engaged in the business of export out of India of anygoods or merchandise, to which this Section applies, there shall, inaccordance with and subject to provisions of this Section, beallowed, in computing the total income of the assessee, a deductionequal to the aggregate of 4% of the net foreign exchange realisationand 50% of so much of the profit derived by the assessee from theexport of such goods or merchandise as exceed 4% of the net foreignexchange realised. Sub-section 2(b) of Section 80HHC of the Actprovides that this section does not apply to the following goods ormerchandise, namely, (i) mineral oil and (ii) minerals and ores. 8.1. Section 80HHC of the Act provides that where an assessee,being an Indian Company or a person (other than a company) residentin India, is engaged in the business of export out of India of anygoods or merchandise, to which this Section applies, there shall, inaccordance with and subject to provisions of this Section, beallowed, in computing the total income of the assessee, a deductionequal to the aggregate of 4% of the net foreign exchange realisationand 50% of so much of the profit derived by the assessee from theexport of such goods or merchandise as exceed 4% of the net foreignexchange realised. Sub-section 2(b) of Section 80HHC of the Actprovides that this section does not apply to the following goods ormerchandise, namely, (i) mineral oil and (ii) minerals and ores. 8.2. The contention of the Revenue is governed by the decisionreported in [2004] (271 ITR 322) (Gem Granites vs. Commissioner ofIncome Tax) wherein it was held that the cut and polished granitewould also be a mineral and export thereof would not qualify for thespecial deduction under the un-amended Section 80HHC (2)(b) of theAct. It was further held by the Supreme Court that every statute isprima facie prospective, unless it is expressly or by necessaryimplication made to have retrospective operation. 8.3. Therefore, in view of the Apex Court decision, issue Nos.1and 2 is answered in favour of the Revenue and as against theassessee. 9. The second contention of the Revenue is that the assessee isnot at all engaged in the industrial activity and therefore, theclaim for deduction under Section 80I of the Act granted by theappellate Tribunal is not valid in law. 9.1. To claim deduction under Section 80I of the Act, it isnecessary that the industrial undertaking should manufacture orproduce any article or thing. 9.2. Learned counsel for the Revenue relied upon the followingdecisions in order to support the contention that the assessee isnot engaged in any industrial activity manufacturing or producingany article or thing and therefore, not entitled to deduction underSection 80I of the Act:- (i) [2004] 267 ITR 606 (CIT vs. Vijay Granites Pvt. Ltd.,). Inthe facts and circumstances of the case, it was held that the act ofcutting and polishing granite slabs before exporting them did notinvolve any process of manufacture or production to entitle theassessee to the benefit under Section 32A or 80I of the Act. (ii) Contending that when it is not established that theactivity of the assessee would amount to manufacturing activity, theassessee is not entitled to deduction under Section 80I of the Act,the decision reported in [2003] 262 ITR 417 (CIT v. Pooshya ExportsPvt. Ltd.,) is relied upon, where-under it has been observed asfollows:- " ... There is absolutely no materials on record toindicate as to how the rough granite block become valueadded granite, which were exported by the assessee. In thestatement of case, it is stated that the assessee doingthe business of quarrying and mining of granite andexporting them as finished goods. In the assessment orderit is stated that the business of the assessee is exportof raw granite blocks and no processing and manufacturingactivities involved. The Commissioner(Appeals) has statedthat the assessee has given a long note as to how the workof the assessee involved manufacture. But thoroughlyfailed to discuss any of the processes as given in thenote. The Tribunal in its turn simply jumped to the conclusion on the premise that cutting the rough edgesprocessing in different sizes, shapes colour would amountto manufacture, without discussing the processes involved.In the absence of any particulars on record to construethat the exported granites are value added, even assumingthat the Circular is explanatory and as such the benefitu/s. 80HHC is available for the assessment year underconsideration, the benefits cannot be granted to theassessee." conclusion on the premise that cutting the rough edgesprocessing in different sizes, shapes colour would amountto manufacture, without discussing the processes involved.In the absence of any particulars on record to construethat the exported granites are value added, even assumingthat the Circular is explanatory and as such the benefitu/s. 80HHC is available for the assessment year underconsideration, the benefits cannot be granted to theassessee." 9.3. Relying upon the very same decision, the learned counselfor the assessee contended that the mistake of the CIT / Tribunalshall not cause prejudice to the rights of the assessee and it is afit case to remand with liberty to both sides to adduce evidencewith regard to details regarding the type of activity carried on bythe assessee. 9.4. A perusal of the order passed by the Tribunal only goes toshow that there is a passing reference about the assessee exportingthe granite stones cut and processed to foreign countries. How theprocessing is done is not explained. Whether the act of cutting andpolishing granite slabs would amount to manufacture or production,in the facts and circumstances of these four cases, entitling theassessee to claim benefit under Section 32A or Section 80I of theAct would depend upon the facts and evidence, available/to beproduced, by the assessee / Revenue. 9.5. It is relevant to quote the decision of the Supreme Courtreported in Aspinwall and Co. Ltd., v. CIT [2001] 251 ITR 323,wherein the word 'manufacture' has been extensively dealt with. Theimportant observations reads thus:- "The word manufacture has not been defined in theAct. In the absence of a definition of the wordmanufacture it has to be given a meaning as is understoodin common parlance. It is to be understood as meaning theproduction of articles for use from raw or preparedmaterials by giving such materials new forms, qualities orcombinations whether by hand labour or machines. If thechange made in the article results in a new and differentarticle then it would amount to a manufacturing activity." 9.6. Considering the ratio of the decision referred above andconsidering the order passed by the Income Tax Appellate Tribunal,this Court is of the view that there is no evidence to come to adefinite conclusion as to whether the assessee is doingmanufacturing activity or not and it is appropriate to remand thematter to the Assessing Officer for the purpose of eliciting and https://hcservices.ecourts.gov.in/hcservices/ proving the same. Therefore, issue No.3 needs to be remanded to theAssessing Officer. 10. In the result, the appeal is disposed of, answering IssueNos.1 and 2 against the assessee and remitting issue No.3 back tothe Assessing Officer. The Assessing Officer is directed to disposeof the Tax Case within a period of three months from the date of thereceipt of the copy of this order. No costs. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar.srkTo1.The Assistant Commissioner of Income Tax, Department (Company circle I) Coimbatore.2.The Commissioner of Income Tax (Appeals), Coimbatore3.The Income Tax Appellate Tribunal, Bench C, Chennai4. The Assistant RegistrarIncome Tax Appellate Tribunal A BenchRajaji Bhavan, III Floor, Besant Nagar, Chennai4 ccs to Mr.P.J. Rishikesh, Advocate, Sr. 4941T.C.(A) Nos.2667 to 2670 of 2006 BKY (CO)kk 5/2