Commissioner of Income Tax vs Premier General Traders P. Ltd.

By this reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law to this court for opinion :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal had rightly held that the assessee is an ''industrial company'' and is, therefore, entitled to relief u/s 80J(1) of the Income Tax Act, 1961 ?"

The material facts giving rise to this reference are as follows : The assessee is a company engaged in the business of purchase and sale of chloride powder. It also undertakes grinding of soap-stones and minerals on behalf of one Podar Trading Company Private Limited. The assessee claimed deduction u/s 80J of the Income Tax Act (the "Act"), in respect of the activity of grinding undertaken by it. The Income Tax Officer denied the claim of the assessee on the ground that as a result of the grinding, the assessee had not produced or manufactured any article. The order of the Income Tax Officer was confirmed by the Commissioner of Income Tax (Appeals). However, on further appeal by the assessee, the Income Tax Appellate Tribunal (the "Tribunal"), accepted the contention of the assessee and held that the assessee was entitled to deduction u/s 80J(1) of the Act. The Tribunal observed that though there may be no manufacture of an article, the end product, i.e., the powder is different from the original product. The Tribunal, therefore, reversed the order of the Income Tax Officer and allowed the appeal of the assessee. Hence, this reference at the instance of the Revenue.

We have heard Mr. Desai, learned counsel for the Revenue, who submits that as a result of grinding of the soap-stones or the chemicals, no new article or thing has emerged. According to him, for the purpose of deduction u/s 80J of the Act, it is necessary that the industrial undertaking manufactures or produces articles. According to him, in the instant case, there is no manufacture or production of any article. He relies, in support of his contention, on the decision in Commissioner of Sales Tax v. Mahalaxmi Stores [1995] 97 STC 601 (Bom), wherein it was held that stones do not cease to be stones, merely by reason of the fact that they have been reduced in size by the process of crushing or breaking. We have carefully considered the above decision. In that case, the question before this court was whether the process of crushing boulders to obtain stones of smaller sizes termed as "gritty" can be regarded as a process of manufacture. This court answered the question in the negative and held that the process of crushing boulders to obtain stones of smaller sizes cannot be regarded as a process of manufacture. Our attention was also drawn by learned counsel to the decisions of the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 and in Sterling Foods v. State of Karnataka [1986] 63 STC 239. We have carefully considered the submissions of learned counsel. We find that the process undertaken by the assessee in this case cannot be regarded as a process of manufacture of articles or things.

In the light of the above, we answer the question in the negative, i.e., in favour of the Revenue and against the assessee.