IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
ITA No.648 of 2008
Date of decision: 9.12.2008
The Commissioner of Income Tax II, Chandigarh
-----Appellant
Vs.
M/s Anand Affiliates, Chandigarh
--Respondent
CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL
HON'BLE MR JUSTICE L.N.MITTAL
Present: Ms. Urvashi Dhugga, Standing Counsel for the revenue.
Adarsh Kumar Goel,J.
1. This appeal has been preferred by the revenue under section
260A of the Income Tax Act, 1961 (in short, ‘the Act’) against the order of
the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’ in ITA
No.1033/Chandi/2004 dated 29.12.2006, in respect of assessment year
1997-98, proposing to raise following substantial question of law:-
“Whether on the facts and circumstances of the case and in law, the
ITAT was correct in holding that business carried out by the
assessee amounted to manufacturing of article or things for the
purposes of deduction under section 80IA of the IT Act, 1961?”
2. The assessee has a factory in backward area where the assessee
produces Automobile Filter elements for M/s Puralator India Limited, which
are further used for manufacture of Automobile Filters. The assessee
claimed deduction under section 80IA of the Act, which was disallowed by
the assessing authority on the ground that the process carried out by the
ITA No.648 of 2008 2
assessee did not yield commercially any new or different commodity and
thus, the assessee could not be held to be engaged in production or
manufacture. This view was upheld by the CIT(Appeals) but on further
appeal of the assessee, the Tribunal upheld the claim of the assessee.
Following finding has been recorded by the Tribunal:-
“8. We have considered the rival submission carefully.
The crux of the dispute i.e., presently before us is to establish as
to whether or not the assessee is engaged in the manufacture of
an article or thing so as to qualify for deduction under section
80IA of the Act. Before we proceed to dilate on the legal
position, it would be appropriate to understand the fact position
with regard to the process canvassed by the assessee. The
finished product of the assessee is automobile filter element. The
raw materials used are:-
1. Filter Paper
2. Steel Sheet components
a) Centre Tube/Outer Retainer
b) End Caps.
3. Adhesives.
The manufacturing process considered by the lower authorities
is detailed as below:-
Paper passes through the marathon machine for pleating.
After pleating of paper, paper passes through the procuring
oven so that the position of pleats has to be permanent.
Paper is being cut as per the specified length.
Both ends of the particular length of the paper are being sealed
with the help of a clip at side sealer machine.
After the sealing of ends, round shape (Vertical) has to be
given to paper and insert into the outer retainer along with a
centre true inside the paper pack. It is called sub assembling.
ITA No.648 of 2008 3
PVC adhesive to be filled in the end cap with the help of PVC
dispenser machine.
Place cap on one end of sub assembly and passes it through
jeller having a constant temperature for curing of adhesive.
Fill another cap with adhesive with the help of dispenser, place
on the other end and passes if through FCO at specified
temperature of curing of PVC adhesive and paper.
Find Product-Semi-finished Automotive filter.
9. The finished product of the assessee i.e. Automobile Filter
element is a semi-finished automotive filter, which is supplied to
the original equipment manufacturer in Automotive Filter industry
i.e. M/s Purolator India Limited.
10. Having noted the process which is involved, we have to
examine whether the activity carried out by the assessee amounts
to manufacture and if yes, then what does it manufacture. From the
process noted above that the assessee brings together the various
raw materials, components and by carrying intermittent processes,
assembles them together so that they can work as one equipment
which is termed as a semi-finished Automotive Filter. The semi-
finished Automotive Filter, which the assessee manufactures as a
result of various processes is a product, which is distinct by
character as also in its use than each of raw materials. This is for
the reason that none of the components or the raw material used
can partake the character of or be a substitute for the functions
performed by the finished product of the assessee.”
3. We have heard learned counsel for the revenue and perused the
impugned order.
4. Learned counsel for the revenue submits that the activity of the
assessee was merely assembling certain components, which did not give rise
to any new product, particularly when the assessee, on job work basis, did a
ITA No.648 of 2008 4
part of process and finishing was done by the principal for whom the
assessee was supplying. Activity resulting in production of semi-furnished
product could not be held to be manufacturing. The identity of the items
used in the manufacture did not undergo a complete change.
5. We are unable to accept the submission.
6. The Tribunal has discussed the nature of raw materials and the
process conducted by the assessee resulting in production of automobile
filter element, which is supplied to the automobile manufacturer. The
assessee brings together various raw materials and after carrying out
process, assembles the same leading to the equipment being produced. It is
well settled that every change or process cannot be termed as manufacture
or production. Well known tests applied for determining whether a process
amounted to manufacture or production are that a new and distinct
commercial product is produced. In each case, it may be a question of fact
whether a particular process involves manufacture or not. The question may
be of degree and extent of change and though, the issue may at times be
debatable, by applying the relevant tests, the Tribunal has recorded a
finding and such finding cannot be held to be perverse, it cannot be held
that a substantial question of law arises.The Tribunal has applied the correct
test and recorded a finding that the process undertaken by the assessee
involved manufacture. Merely because a different view can be taken will
not be a ground to hold that a substantial question of law arises.
8. In a recent order of this Court dated 31.10.2008 in ITA No.505
of 2007 (The Commissioner of Income Tax, Faridabad v. Shri Mahesh
Chandra Sharma), dealing with an identical issue, it was observed:-
ITA No.648 of 2008 5
“9.The question whether an activity involves
manufacture, has been gone into in several judgments of
the Hon’ble Supreme Court including Union of India v.
Delhi Cloth and General Mills, AIR 1963 SC 791, para
14, Deputy Commissioner of Sales Tax (Law), Board
of Revenue (Taxes) v. M/s. PIO Food Packers, AIR
1980 SC 1227, Empire Industries Limited v.Union of
India, AIR 1986 SC 662 and M/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
ordinary meaning.
11. In N.C.Budhiraja (supra), the Hon’ble
Supreme Court considered earlier judgment in M/s PIO
Food Packers (supra), particularly the observation that
where commodity retained substantial identity, no
manufacturing was involved. In the said judgment, the
question involved was whether manufacturing was
involved in construction of a dam so as to avail of benefit
under section 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 various
articles, it was observed that end product could not be
held to be an article 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 Supreme Court is when a new and different
article emerges having distinctive name, character or use.
In the present case, the Tribunal applying the tests laid
down in the judgments of the Hon’ble Supreme Court,
ITA No.648 of 2008 6held that distinct article with distinctive name, 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.”
9. Thus, the question raised cannot be held to be a substantial
question of law.
8. Dismissed.
(Adarsh Kumar Goel)
Judge
December 9, 2008 (L.N.Mittal)
'gs' Judge