Income Tax Appellate Tribunal - Hyderabad
Aditya Minerals (P.) Ltd. vs Income-Tax Officer on 24 August, 1987
Equivalent citations: [1988]26ITD221(HYD)
ORDER
T. Venkatappa, Judicial Member
1. This is an appeal against the order of the Commissioner of Income-tax, A.P. I, Hyderabad made under Section 263 of the I.T. Act, 1961.
2. The assessee carried on the business of mining of manganese ore. The assessee claimed investment allowance of Rs. 28,912 in respect of new machinery of the value of Rs. 1,15,648 used in the mining of manganese ore. The Income-tax Officer allowed the investment allowance. The Commissioner of Income-tax was of the view that the assessee did not manufacture or produce any article or thing and so it is not entitled to investment allowance under Section 32A. As he was of the view that the assessment order is prejudicial to the interests of the revenue he invoked the provisions of Section 263 of the Act. After considering the explanation of the assessee he passed the order dated 20-11-1985. He held that the assessee excavates rocks containing the natural ore, crush the rocks and by sieving obtain the manganese ore, which is later washed to remove impurities. He held that this does not amount to manufacture or production of an article. Thus, he enhanced the assessment by Rs. 28,912 and directed the Income-tax Officer to modify the assessment. Against the said order the assessee has preferred this appeal.
3. Learned counsel for the assessee strongly urged that the mining of manganese ore amounts to production or manufacture of an article or thing. Thus, the assessee is entitled to investment allowance under Section 32A. The Commissioner of Income-tax was wrong in invoking the provisions of Section 263. He placed reliance on few decisions. The learned departmental representative submitted that the extraction by mining of manganese ore from earth does not amount to manufacture or production of any article or thing and so the assessee is not entitled to investment allowance. Thus, he supported the order of the Commissioner of Income-tax.
4. We have considered the rival submissions. The assessee carries on the business of mining of manganese ore. In the Note dated 2-5-1985 of Shri S.V. Gokhale, Geologist of the Company it is explained that after drilling about 3 to 5 feet the rocks found are blasted and the rocks and material containing manganese ore are brought to the surface which are crushed by machines to sizes. Thereafter these crushed materials are screened mechanically by machines which help in separating various sizes of manganese ore as well as other country rocks and impurities found. After this the manganese ore are sorted out into different grades and the ore is finally washed to remove any invisible impurities from the ore. It is clear from the above note that the manganese ore which is finally graded into various sizes is a different commodity from the rock which was under the surface. The end product is the manganese ore which is different from rock. Thus, by mining operations, the manganese ore is produced which is an article or thing. Thus, the assessee is entitled to investment allowance under Section 32A on the machinery which is used in the mining operations for producing manganese ore. In Chres-tien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC) ; the assessee-company was carrying on mica mining operations by which crude mica is taken out of the mine and processed into split mica which is a commercial product. On those facts, the question arose whether there was production of mica. The Supreme Court held that what was sold was mica produced by the assessee and the process of mining mica is a process of production within the meaning of Section 2(g) of the Bihar Sales Tax Act, 1947. In Idandas v. Anant Ramchandra Phadke AIR 1982 SC 127 wheat was transformed into flour. On those facts the Supreme Court held that flour is different from wheat. Following tests were laid down at page 129 :
(1) That it must be proved that a certain commodity was produced ;
(2) That the process of production must involve either labour or machinery ;
(3) That the end product which comes into existence after the manufacturing process is complete, should have a different name and should be put to a different use. In other words, the commodity should be so transformed so as to lose its original character.
In CIT v. M.R. Gopal [1965] 58 ITR 598, the Madras High Court held that the process employed in converting boulders into small stones with the aid of machinery is a manufacturing process. In Harihar Quarry v. ITO [1986] 17 ITD 353 (Ahd.), the assessee carried on the business of crushing rubble into stone grits (kapchis). The assessee claimed investment allowance on the machinery installed for that purpose. The Ahmedabad Bench 'B' of the Tribunal held that the assessee is entitled to investment allowance under Section 32A. In our view the ratio laid down in the above cases would squarely apply to the instant case. The decision of the Supreme Court in Chowgule and Co. (P.) Ltd. v. Union of India 1981 Tax LR 2929 referred to by the Commissioner of Income-tax in his order is clearly distinguishable as that is a case where after mining operations the blending of ore was done in the course of loading through mechanical ore handling plant. The question arose whether it amounted to manufacture or process of ore. It is on those facts it was held that it amounted to processing of ore. The facts of that case are entirely different from the facts of the instant case and that decision has no application. We hold that the assessee in the instant case is entitled to investment allowance under Section 32A of the Act. We cancel the order of the Commissioner of Income-tax.
5. In the result, the appeal is allowed.