Gauhati High Court
Commissioner Of Income-Tax vs R.C. Construction on 5 August, 1996
Equivalent citations: [1996]222ITR659(GAUHATI)
JUDGMENT D.N. Baruah, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), the Income-tax Appellate Tribunal has referred the following question, at the instance of the Revenue, for opinion of this court :
"Whether the Tribunal did not err in facts as well as in law in holding that the assessee-firm the business of which involved crushing of stone boulders to get stone quartz and chip with the help of machines is an industrial undertaking and in that view of the matter in granting it investment allowance under Section 32A."
2. The assessee is a firm registered under the Indian Partnership Act. The firm carried on business of converting big boulders into quartz and small chips with the help of plant and machinery particularly, the crusher. During the relevant assessment year 1983-84, the assessee-firm claimed investment allowance for Rs. 45,358 under Section 32A of the Act on stone crusher claiming to be an industrial undertaking. But the Assessing Officer under the provisions of Sections 32A(1) and 32A(2) of the Act held that the stone crusher would not come in the category of machinery or plant and also, it was further held by the Assessing Officer that the firm was not an industrial undertaking, inasmuch as converting the big boulders of stone, into stone quartz or small chips could not be said to be production or manufacture of any article or thing. While coming to that finding, the Assessing Officer relied on a decision of the apex court in Union of India v. Delhi Cloth and General Mills Co, Ltd., AIR 1963 SC 791 and in Mahabirprasad Birhiwala v. State of West Bengal [1973J 31 STC 628 (Cal). Accordingly, the Assessing Officer disallowed the claim of investment allowance of Rs. 45,358.
3. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) also relying on the said decisions dismissed the appeal by affirming the order passed by the Assessing Officer.
4. The assessee preferred yet another appeal before the Income-tax Appellate Tribunal. The learned Tribunal after considering all the aspects of the matter held that the crushing of stone boulders into stone chips with the help of a crushing machine was in fact a manufacturing process and the business was an industrial undertaking and in that view of the matter, the Tribunal allowed the claim of investment allowance under Section 32A for Rs. 45,359 as aforesaid to the assessee by setting aside the orders passed by the authorities below. The Revenue requested the Tribunal to refer the aforesaid question for opinion of this court. Hence, the present reference.
5. We have heard Mr. U. Bhuyan, learned junior standing counsel appearing on behalf of the Revenue, and Mr. R.K. Joshi, learned counsel appearing on behalf of the assessee. Mr. Bhuyan has strenuously argued before us that the Tribunal under misconception of law gave an erroneous finding while holding that the crushing of stone boulders into stone chips with the help of a machine was in fact a manufacturing process and the business of the assessee was an industrial undertaking. According to Mr. Bhuyan, this finding is absolutely erroneous, and the allowance granted by the Tribunal under Section 32A for Rs. 45,358 was also erroneous. In this connection, Mr. Bhuyan has submitted that in order to get benefit of Section 32A(1) and (2) of the Act, there must be a manufacturing process as it is generally understood. He submits that making chips from big boulders cannot be said to be a manufacturing process, it only makes pieces of chips from the big boulders. In this connection, Mr. Bhuyan has drawn our attention to a decision of the apex court in Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791. Relying on the said decision Mr. Bhuyan submits that as per the said decision making small chips out of big boulders cannot be said to be a manufacturing process, nor can it be said that the assessee was producing something in order to get the benefit under Section 32A. We have gone through the decision. In para. 14 of the said decision, the apex court after considering the submission and the argument advanced observed that the word "manufacture" used as a verb is generally understood to mean bringing into existence a "new substance" and does not mean merely "to produce some change in a substance", however minor in consequence the change may be. The distinction is well brought out in a passage thus quoted in Permanent Edition of Words and Phrases, Volume 26, from an American judgment. The passage runs thus (at page 795) :
"'Manufacture ' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation ; a new and different article must emerge having a distinctive name, character or use."
6. From the above decision of the court, the change is not sufficient, it must become a new substance known to the market, as in the present case.
7. While dealing with the question of manufacturing process, the Madras High Court in CIT v. M.R. Gopal [1965] 58 ITR 598 observed thus (at page 599) :
"'Manufacture', as we find from Webster's Dictionary, means: 'Anything made from raw materials by the hand, by machinery, or by art, as clothes, iron utensils, shoes, machinery, etc- ; a manual occupation or trade; to produce by labour especially now, according to an organised plan and with division of labour and usually with machinery'. It seems to us to be unarguable having regard to the meaning of manufacture that the process employed in converting boulders into small chips of stones with the aid of labour and machinery is not a manufacturing process. Surely labour is employed and something is converted into something else, a product which is of value and is used, and in that sense the chips are a new production as a result of a manufacturing process."
8. A similar view is also taken by the Rajasthan High Court in CIT v. Best Chem and Limestone Industries Pvt. Ltd. [1994] 210 ITR 883. In the said decision, it was held that upon the conversion of the mineral into the form of rodi and powder, it does not retain the physical shape which the raw material has and is understood as a different commercial commodity by the business community. In these circumstances, the Income-tax Appellate Tribunal was justified in coming to the conclusion that conversion of limestone by crushing into rodi or lime dust is a process of manufacture and that the assessee was entitled to investment allowance.
9. We are also in respectful agreement with the decision of the Madras High Court and the facts are more or less similar inasmuch as making chips out of big boulders will amount to a manufacturing process and, therefore, the assessee is entitled to the investment allowance as envisaged under Section 32A of the Income-tax Act, 1961.
10. In view of the above, we answer the question in the negative and in favour of the assessee and against the Revenue.