ITA No.505 of 2007 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
ITA No.505 of 2007
Date of decision: 31.10.2008
The Commissioner of Income Tax, Faridabad
-----Appellant
Vs.
Shri Mahesh Chandra Sharma
-----Respondent
CORAM:- HON’BLE MR JUSTICE ADARSH KUMAR GOEL
HON’BLE MR JUSTICE L.N.MITTAL
Present: Mr. Yogesh Putney, Sr. Standing Counsel for the
revenue.
Respondent-assessee in person.
Adarsh Kumar Goel, J
1. The revenue has preferred this appeal under Section
260-A of the Income Tax Act, 1961 (in short, ‘the Act’), against
the order dated 16.3.2007 passed by the Income Tax Appellate
Tribunal, Delhi Bench ‘I’, New Delhi in ITA No.83/DEL/2005 for
the assessment year 2001-02, proposing to raise following
substantial questions of law:-
“a) Whether, on the facts and circumstances of the
case, the Hon’ble ITAT was right in law in
ITA No.505 of 2007 2directing the AO to allow deduction under section
80IA whereas the question before ITAT was related
to deduction under section 80-IB?
b) Whether, on the facts and circumstances of the
case, the Hon’ble ITAT was right in law in holding
that process of assembling carried out by the
assessee is to be understood as amounting to
‘manufacture’ or production of an article?”
2. The assessee claimed deduction under section 80IB
which was disallowed by the Assessing Officer on the ground that
assembling/job work done by the assessee did not amount to
manufacturing activity, which was a condition for claiming
deduction under section 80IB of the Act. The CIT(A) upheld the
claim of the assessee, which has been affirmed by the ITAT.
3. We have heard learned counsel for the parties and
perused the record.
4. In para 2 of the appeal itself, it has been stated that the
claim of the assessee was under section 80-IB of the Act. If claim
falls under section 80-IB of the Act, the same cannot be disallowed
on the ground that Tribunal erroneously made reference to section
80-IA. Question (a) cannot, thus, held to be substantial question of
law.
ITA No.505 of 2007 3
5. With regard to Question (b), the finding recorded by the
Tribunal is as under:-
“6. We have considered the rival submission
carefully. The crux of the dispute before us is
to establish whether or not the assessee is
engaged in the manufacture or production of
an article or thing so as to qualify for
deduction under section 80IA of the Act with
respect to unit-I. Before we proceed to dilate
on the legal position, it would be appropriate
to understand the fact position with regard to
the process being carried out in Unit-I by the
assessee. The finished product of the
assessee is motorcycle wheel. The raw
materials/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 and
that considered by the lower authorities is
detailed as shown in the paper book on
record:-
1. Drum Assembly
In this process the Collar & Bearing are
pressed in the Drum with the help of
pneumatic press.
2. Drum & Spoke Assembly
ITA No.505 of 2007 418 No. each of outer & inner spokes are
assembled with the drum on Assembly
stands.
3. Rim & Drum assembly
In this process the drums assembled as per
process No.2 is assembled with the Rim by
tightening Nipples with Spokes and Rim with
the help of Pneumatic Gun.
4. Tightening Operation
The Rim & Drum assembled as per operation
No.3 are put on the tightening machine for
tightening the Nipples with spokes with the
help of Pneumatic Guns.
5. Balancing Operation
The Rim & drum assembly after tightening
operation as per process No.4 is put on
Balancing Fixture for Balancing Rims with
the help of Dial Gauges.
6. Tyre Mounting Operation
The balanced Rim assembled as per operation
No.6 is mounted with Tyre & tube with the
help of tyre Mountin Machine. After
mounting tyre & tube air is filled to the
required pressure. Air pressure is checked
with the help of Air Pressure Gauge.
7. Final inspection
The wheels assembled are finally checked on
fixtures with regard to their Balancing and
Air pressure with the help of Gauges.”
7. The finished product of the assessee is
motorcycle wheel which is supplied to the
motorcycle manufacturer Bajaj Auto Limited.
8. 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
ITA No.505 of 2007 5manufacture. From the process noted above,
it is seen 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 motorcycle
wheel. The final product which is achieved is
a result of an assembling process. The final
product is distinct in character and use than
each of the components used. 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 functioning or the
commercial value attributable to the final
product.
9. The moot question is whether assembling
of different components, which gives rise to
an article which is totally different from the
parts, amounts to ‘manufacture’ or not? This
proposition has been directly answered by the
Hon’ble Bombay High Court in the case of
Tata Locomotices & Enggg. Co.Limited,
68ITR 325. The following extract of the head
note of the judgment is worthy of notice.
“The word “manufacture” has a wider and
also a narrower connotation. In the wider
sense it simply means to make, or fabricate
or bring into existence an article or a product
either by physical labour or by power, and
the word “manufacturer” in ordinary
ITA No.505 of 2007 6parlance would mean a person who makes
fabricates or brings into existence a product
or an article by physical labour or power.
The other shade of meaning, which is the
narrower meaning, implies transforming raw
materials into a commercial commodity or a
finished product which has an entity by
itself, but this does not necessarily mean that
the materials with which the commodity is
so manufactured must lose their identity.
Thus, both the words “manufacture” and
“produce” apply to the bringing into
existence of something which is different
from its components. Whether one takes into
account the wider or narrower meaning of
the word “manufacture”, assembling of
automotive bus or truck chassis from
imported parts in a ‘knocked down’
condition, would give rise to an article
which is totally different from the parts and
would amount to manufacture. This is so
even though the component parts from
which the automotive chassis is made, retain
their individual identity in the whole article
which is thus manufactured or produced.”
10. We may also gainfully refer to the
decisions of the Apex Court in the case of
Gramophone company (I) Limited v.
Collector of Customs, (2000) 1 SCC 549 and
ITA No.505 of 2007 7UOI v. Delhi Cloth & General Mils
Co.Limited, (1963) (SUPP) SCR 586 wherein
the expression ‘manufacture’ has been
understood to mean transformation of the
goods into a new commodity commercially
distinct and separate having its own
character, use and name whether it be the
result of one or several processes.
11. Considered in this light, factually
speaking in the instant case the various parts
assembled by the assessee using its
machinery results in achieving of a final
product. The parts or components utilized by
the assessee in its assembling process
undergo a transformation and result into a
product namely motorcycle wheel, which is
distinct and separate commodity in character,
name and use than each of the parts or
components. Therefore, on the basis of the
principles referred to above, in the instant
case, it is safe to deduce that the process of
assembling carried out by the assessee is to
be understood as amounting to ‘manufacture’
or production of an article. Therefore, the
profits derived from each activity is eligible
for the claim of benefit under section 80IA of
the Act.”
ITA No.505 of 2007 8
6. It is clear that the assessee assembles wheel from the
raw material/components which are Rim, Tyre, Tube, Bearing,
Drum, Spoke, Nipple and Coller, by the process which has been
discussed in the extracted part of judgment of the Tribunal.
‘Wheel’ is certainly a different item from the components which
are used in the process.
7. Learned counsel for the revenue relied upon judgment
of the Hon’ble Supreme Court in Commr. of Income-tax, Orissa
v. M/s. N. C. Budharaja and Company, (1993) 204 ITR 412,
para 7, to submit that unless the commodity subjected to process of
manufacture can be regarded as new and distinct commodity and
can no longer be regarded as original commodity, no manufacture
was involved. In the present case, the product in question was
‘wheel’ and continued to be wheel and the original commodity
continued to be as it was and thus, no manufacture was involved.
8. We are unable to accept the submission made on behalf
of the revenue.
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
ITA No.505 of 2007 9
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, held that distinct article with distinctive name,
ITA No.505 of 2007 10
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
(L.N.Mittal)
October 31, 2008 Judge
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