Commissioner of Income Tax vs Jamal Photo Industries (I) (P) Ltd.

P.D. Dinakaran, J.—The appeal is directed against the order dt. 23rd Aug., 200b made in ITA No. 2202/Mad/2003 allowing deduction u/s

80-IA of the IT Act (in short the ""Act"") holding that the assessee is entitled for deduction u/s 80-IA (sic-80-I) of the Act.

The brief facts of the case are stated as under:

The assessee is engaged in the business of developing photographs snapped in film rolls and printing them. The AO rejected the assessee''s claim

for deduction u/s 80-I of the Act. However, on appeal, the CIT(A) set aside the order of the AO, which, on appeal before the Tribunal at the

instance of the Revenue, was confirmed.

Aggrieved by the said order, the Revenue has preferred the above appeal, raising the following substantial question of law:

Whether, in the facts and circumstances of the case, the Tribunal was right in holding that processing of the film and printing photographs from the

negatives amounts to a manufacturing activity and is an industrial undertaking eligible for the benefit of Section 80-I ?

It is a settled law that there cannot be any dispute that the expression ""manufacture"" involves the concept of changes effected to a basic raw

material resulting in the emergence of, or transformation into, a new commercial commodity. But, it is not necessary that the original article or

material should have lost its identity completely. All that is required is to find out whether as a result of operation in question, a totally different

commodity had been produced.

In the instant case, a negative film roll fitted had been exposed and produced as a distinct article, viz., photograph and such photograph cannot

be called as a negative film and thus negative film loses its identity completely, after the same had been developed and had also become a totally

different commercial commodity having its own identity/character and a product of end use. As a result, such process amounts to a manufacture.

Hence, the assessee, having engaged themselves in manufacturing process, is entitled to claim investment allowance (sic).

This Court in Commissioner of Income Tax Vs. Prasad Productions P. Ltd., , has already held as follows :

The assessee''s business consisted of producing feature films. It had a processing and drying plant, where exposed films in various stages were

processed into positive films used for projection in cinema theatres. The assessee was entitled to investment allowance in respect of its plant and

machinery.

The Andhra Pradesh High Court in Commissioner of Income Tax Vs. Prasad Film Laboratories P. Ltd., has held as follows :

that by the process carried out by the assessee, the raw film without images and sound were converted into films with images and sounds, which

was a new and distinct commodity well known in the trade as positive prints quite different from raw film. Therefore, the process of obtaining

positive prints would be manufacture....

that the production of a negative by exposing the raw film and recording the pictures and sound track thereon would amount to production of a

cinematograph film. That process should also include developing the exposed film to have the negative or the master film. But when positive prints

are made from the master negative, the cinematograph film which was already produced is the raw material, and therefore, it cannot be said that

there is a production of cinematograph film inasmuch as such cinematograph film was already produced with reference to the negative, and making

of the positive film is only a process of duplication. The process of making positive prints from the negative so made is an independent activity

which cannot be called production of a cinematograph film, but rather falls in the category of a duplication process. Therefore, since the main

business of the assessee was to make the positive prints from negative prints, the fact that occasionally exposed films were also developed would

not disqualify the assessee from claiming the allowance.

The Rajasthan High Court in Commissioner of Income Tax Vs. Laxmi Art Studio, has held that :

it is not the requirement that in order to fulfil the conditions of Section 32A, the plant and machinery should have been installed in an industrial

undertaking for the purpose of manufacture or production of any article or thing and must be related to the production of such article or thing which

is saleable in the open market only. Any plant and machinery specified in Section 32A manufacturing or producing any article or thing not in the

prohibitory list in the Eleventh Schedule is a plant and machinery through which the article or thing is produced notwithstanding that such

production of article or thing only satisfied the personal needs of the individual for whom it is manufactured or produced. A custom-made article or

thing manufactured or produced does not cease to be an article or thing manufactured or produced because it is produced on order with particular

specifications by the customer...the colour photo processing machine installed by the assessee, which accepted negatives of photo films and after

applying chemicals and other things, delivered colour photographs in different sizes, was used in the manufacturing and production of article or

thing known as coloured photographs and was entitled for deduction u/s 32A of the IT Act, 1961.

This Court, by order dt. 16th Feb., 2006 in Tax Case No. 168 of 2006, following the above decisions, held that the Tribunal was right in

holding that the assessee is entitled to investment allowance.

In view of the above, we find no error or infirmity in the order of the Tribunal and the same requires no interference. Finding no substantial

question of law arising for consideration, the appeal stands dismissed.