The Commissioner Of Income Tax, Faridabad v. Shri Mahesh Chandra Sharma

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. ITA No.505 of 2007Date of decision: 31.10.2008 The Commissioner of Income Tax, Faridabad Vs. Shri Mahesh Chandra Sharma -----Appellant -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON'BLE MR JUSTICE L.N.MITTALHON'BLE MR JUSTICE L.N.MITTAL Present:Mr. Yogesh Putney, Sr. Standing Counsel for therevenue.revenue. Respondent-assessee in person. Adarsh Kumar Goel, J 1.The revenue has preferred this appeal under Section260-A of the Income Tax Act, 1961 (in short, ‘the Act’), againstthe order dated 16.3.2007 passed by the Income Tax AppellateTribunal, Delhi Bench ‘I’, New Delhi in ITA No.83/DEL/2005 forthe assessment year 2001-02, proposing to raise followingsubstantial questions of law:- “a) Whether, on the facts and circumstances of thecase, the Hon’ble ITAT was right in law in directing the AO to allow deduction under section80IA whereas the question before ITAT was relatedto deduction under section 80-IB? b) Whether, on the facts and circumstances of thecase, the Hon’ble ITAT was right in law in holdingthat process of assembling carried out by theassessee is to be understood as amounting to‘manufacture’ or production of an article?” 2.The assessee claimed deduction under section 80IBwhich was disallowed by the Assessing Officer on the ground thatassembling/job work done by the assessee did not amount tomanufacturing activity, which was a condition for claimingdeduction under section 80IB of the Act. The CIT(A) upheld theclaim of the assessee, which has been affirmed by the ITAT. 3.perused the record. We have heard learned counsel for the parties and 4.In para 2 of the appeal itself, it has been stated that theclaim of the assessee was under section 80-IB of the Act. If claimfalls under section 80-IB of the Act, the same cannot be disallowedon the ground that Tribunal erroneously made reference to section80-IA. Question (a) cannot, thus, held to be substantial question oflaw. 5.With regard to Question (b), the finding recorded by the Tribunal is as under:- “6. We have considered the rival submissioncarefully. The crux of the dispute before us isto establish whether or not the assessee isengaged in the manufacture or production ofan article or thing so as to qualify fordeduction under section 80IA of the Act withrespect to unit-I. Before we proceed to dilateon the legal position, it would be appropriateto understand the fact position with regard tothe process being carried out in Unit-I by theassessee. The finished product of theassessee is motorcycle wheel. The rawmaterials/components used are:- 1. Rim 2. Tyre 3. Tube 4. Bearing 5. Drum 6. Spoke 7. Nipple 8. Coller The process as outlined by the assessee andthat considered by the lower authorities isdetailed as shown in the paper book onrecord:- 1. Drum Assembly In this process the Collar & Bearing arepressed in the Drum with the help ofpneumatic press. 2. Drum & Spoke Assembly 18 No. each of outer & inner spokes areassembled with the drum on Assemblystands. 3. Rim & Drum assembly In this process the drums assembled as perprocess No.2 is assembled with the Rim bytightening Nipples with Spokes and Rim withthe help of Pneumatic Gun. 4. Tightening Operation The Rim & Drum assembled as per operationNo.3 are put on the tightening machine fortightening the Nipples with spokes with thehelp of Pneumatic Guns. 5. Balancing Operation The Rim & drum assembly after tighteningoperation as per process No.4 is put onBalancing Fixture for Balancing Rims withthe help of Dial Gauges. 6. Tyre Mounting Operation The balanced Rim assembled as per operationNo.6 is mounted with Tyre & tube with thehelp of tyre Mountin Machine. Aftermounting tyre & tube air is filled to therequired pressure. Air pressure is checkedwith the help of Air Pressure Gauge. 4. Tightening Operation The Rim & Drum assembled as per operationNo.3 are put on the tightening machine fortightening the Nipples with spokes with thehelp of Pneumatic Guns. 5. Balancing Operation The Rim & drum assembly after tighteningoperation as per process No.4 is put onBalancing Fixture for Balancing Rims withthe help of Dial Gauges. 6. Tyre Mounting Operation The balanced Rim assembled as per operationNo.6 is mounted with Tyre & tube with thehelp of tyre Mountin Machine. Aftermounting tyre & tube air is filled to therequired pressure. Air pressure is checkedwith the help of Air Pressure Gauge. 7. Final inspection The wheels assembled are finally checked onfixtures with regard to their Balancing andAir pressure with the help of Gauges.” 7. The finished product of the assessee ismotorcycle wheel which is supplied to themotorcycle manufacturer Bajaj Auto Limited.8. Having noted the process which isinvolved we have to examine whether theactivity carried out by the assessee amountsto manufacture and if yes, then what does it manufacture. From the process noted above,it is seen that the assessee brings together thevarious raw materials, components and bycarrying intermittent processes, assemblesthem together so that they can work as oneequipment which is termed as a motorcyclewheel. The final product which is achieved isa result of an assembling process. The finalproduct is distinct in character and use thaneach of the components used. This is for thereason that none of the components or theraw material used can partake the character ofor be a substitute for the functioning or thecommercial value attributable to the finalproduct. 9. The moot question is whether assemblingof different components, which gives rise toan article which is totally different from theparts, amounts to ‘manufacture’ or not? Thisproposition has been directly answered by theHon’ble Bombay High Court in the case ofTata Locomotices & Enggg. Co.Limited,68ITR 325. The following extract of the headnote of the judgment is worthy of notice. “The word “manufacture” has a wider andalso a narrower connotation. In the widersense it simply means to make, or fabricateor bring into existence an article or a producteither by physical labour or by power, andthe word “manufacturer” in ordinary parlance would mean a person who makesfabricates or brings into existence a productor an article by physical labour or power.The other shade of meaning, which is thenarrower meaning, implies transforming rawmaterials into a commercial commodity or afinished product which has an entity byitself, but this does not necessarily mean thatthe materials with which the commodity isso manufactured must lose their identity.Thus, both the words “manufacture” and“produce” apply to the bringing intoexistence of something which is differentfrom its components. Whether one takes intoaccount the wider or narrower meaning ofthe word “manufacture”, assembling ofautomotive bus or truck chassis fromimported parts in a ‘knocked down’condition, would give rise to an articlewhich is totally different from the parts andwould amount to manufacture. This is soeven though the component parts fromwhich the automotive chassis is made, retaintheir individual identity in the whole articlewhich is thus manufactured or produced.” 10. We may also gainfully refer to thedecisions of the Apex Court in the case ofGramophone company (I) Limited v.Collector of Customs, (2000) 1 SCC 549 and UOI v. Delhi Cloth & General MilsCo.Limited, (1963) (SUPP) SCR 586 whereinthe expression ‘manufacture’ has beenunderstood to mean transformation of thegoods into a new commodity commerciallydistinct and separate having its owncharacter, use and name whether it be theresult of one or several processes. 10. We may also gainfully refer to thedecisions of the Apex Court in the case ofGramophone company (I) Limited v.Collector of Customs, (2000) 1 SCC 549 and UOI v. Delhi Cloth & General MilsCo.Limited, (1963) (SUPP) SCR 586 whereinthe expression ‘manufacture’ has beenunderstood to mean transformation of thegoods into a new commodity commerciallydistinct and separate having its owncharacter, use and name whether it be theresult of one or several processes. 11. Considered in this light, factuallyspeaking in the instant case the various partsassembled by the assessee using itsmachinery results in achieving of a finalproduct. The parts or components utilized bythe assessee in its assembling processundergo a transformation and result into aproduct namely motorcycle wheel, which isdistinct and separate commodity in character,name and use than each of the parts orcomponents. Therefore, on the basis of theprinciples referred to above, in the instantcase, it is safe to deduce that the process ofassembling carried out by the assessee is tobe understood as amounting to ‘manufacture’or production of an article. Therefore, theprofits derived from each activity is eligiblefor the claim of benefit under section 80IA ofthe Act.” 6.It is clear that the assessee assembles wheel from theraw material/components which are Rim, Tyre, Tube, Bearing,Drum, Spoke, Nipple and Coller, by the process which has beendiscussed in the extracted part of judgment of the Tribunal.‘Wheel’ is certainly a different item from the components whichare used in the process. 7.Learned counsel for the revenue relied upon judgment-of the Hon’ble Supreme Court inCommr. of Incometax, Orissa v. M/s. N. C. Budharaja and Company,(1993) 204 ITR 412,para 7, to submit that unless the commodity subjected to process ofmanufacture can be regarded as new and distinct commodity andcan no longer be regarded as original commodity, no manufacturewas involved. In the present case, the product in question was‘wheel’ and continued to be wheel and the original commoditycontinued to be as it was and thus, no manufacture was involved.8. We are unable to accept the submission made on behalfof the revenue. 9.The question whether an activity involves manufacture,has been gone into in several judgments of the Hon’ble SupremeCourt including Union of India v. Delhi Cloth and GeneralMills, AIR 1963 SC 791, para 14,Deputy Commissioner of SalesTax (Law), Board of Revenue (Taxes) v. M/s. PIO FoodPackers, AIR 1980 SC 1227, Empire Industries Limited v.Union of India, AIR 1986 SC 662 andM/s Ujagar Prints etc.v. Union of India and others ,AIR 1989 SC 516. 10. In absence of any definition in the Act, the word‘manufacture’ used in section 80-IB has to be given ordinarymeaning. 11.InN.C.Budhiraja(supra), the Hon’ble Supreme Courtconsidered earlier judgment in M/s PIO Food Packers(supra),particularly the observation that where commodity retainedsubstantial identity, no manufacturing was involved. In the saidjudgment, the question involved was whether manufacturing wasinvolved in construction of a dam so as to avail of benefit undersection 80HH(1) of the Act. It was held that the word ‘article’ or‘thing’ mentioned in section 80HH could not cover dam, bridge,building, road, canal and so on. Construction of dam was, thus,held not to be manufacture. Though the dam comprised of variousarticles, it was observed that end product could not be held to be anarticle or thing. Dam was constructed and not manufactured. 12. Commonly accepted meaning given to the word‘manufacture’ as held in the judgments of the Hon’ble SupremeCourt is when a new and different article emerges havingdistinctive name, character or use. In the present case, the Tribunalapplying the tests laid down in the judgments of the Hon’bleSupreme Court, held that distinct article with distinctive name, character and use emerged. The tests laid down in the judgments of character and use emerged. The tests laid down in the judgments of the Hon’ble Supreme Court have to be applied from case to case. The Tribunal has arrived at a finding of fact in the present case.13. Question raised by the revenue cannot, thus, be held to be substantial question of law. 14.The appeal is dismissed. (Adarsh Kumar Goel) Judge October 31, 2008‘gs’ (L.N.Mittal)Judge