High Court of Rajasthan

Arihant Tiles & Marbles (P.) Ltd.

v.

Income-tax Officer

Rajesh Balia and Gopal Krishan Vyas, JJ.

IT Appeal Nos. 82 and 83 of 2006

May 30, 2007

Section 80-IB, read with section 80-IA, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertaking - Whether process of cutting and sawing or sizing or polishing of marble blocks into slabs and tiles which results in making raw marble usable, amounts to manufacture of thing or article within meaning of section 80-IA/80-IB and assessee engaged in said process is entitled to deduction under section 80-IA/80-IB - Held, yes

Circulars and Notification : Circular No. 729, dated 1-11-1995

Facts

The assessee was engaged in activity of sawing of marble blocks into slabs and tiles and marketing them in indigenous as well as foreign market. In relation to profit derived from the export of marble slabs and tiles to foreign market, the assessee claimed deduction under section 80HHC, which was allowed by the Assessing Officer. The assessee also claimed deduction under section 80-IA/80-IB on the ground that sawing of marble blocks and bringing out marble slabs and tiles amounted to manufacture of marble slabs and tiles and fulfilled condition of claiming deduction as an industrial undertaking. The Assessing Officer as well as the Commissioner (Appeals) disallowed claim on the ground that the assessee was not an industrial undertaking which was engaged in manufacture or production of any article or thing inasmuch as there was no qualitative change in the marble slabs or marble tiles to be distinguished or different or independent article, as no change was effected. The Tribunal by majority view also held that the activity of assessee in converting marble blocks into marble slabs or tiles did not amount to manufacture or production of any new article or thing for purpose of claiming deduction under section 80-IA/80-IB.

On appeal:

Held

It is well-settled that interpretation of any expression used in the context of any statute is not automatically to be imported while interpreting the like expression of other statutes. The expression used in any statute has to be interpreted in light of its own context and object. [Para 9]

There was substance in the contention of the respondents that expression ‘production’ has a wider connotation than the expression ‘manufacture’ and, therefore, for the question whether any activity falls within the ambit of section 80-IA/80-IB, the examination from the point of view of only manufacturer is not the final test. The essential distinction between expressions ‘manufacture’ and ‘production’ had received attention of the judicial pronouncement from time to time. [Para 10]

The distinction between ‘manufacture’ and ‘production’ was noticed and explained by the Supreme Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312. The Apex Court clearly opined that all activities falling within the ambit of manufacture result in production, but converse is not true. [Para 11]

The Karnataka High Court in CIT v. Mysore Minerals Ltd. (No. 1) [2001] 250 ITR 725/118 Taxman 632 had held that the Tribunal was right in law in holding that extracting granite from quarry and cutting it to various sizes and polishing should be considered as manufacture or production of any article or thing and the assessee’s business activity must be considered as an industrial undertaking for the purpose of granting reliefs under sections 32A and 80-I. [Para 14]

This decision of the Karnataka High Court was affirmed by the Supreme Court in CIT v. Sesa Goa Ltd. [2004] 271 ITR 331/[2005] 142 Taxman 16. [Para 15]

Even under section 44AB, read with rule 6G, of the Income-tax Rules, 1962, the assessee is required to furnish report of audit of his accounts and also required to furnish statement of particulars in Form No. 3CD provided under the rules which include furnishing information about the nature of business carried on by the assessee in Part B of the Annexure to be appended to the statement of particulars in which the ‘marble and granite’ has been classified under the manufacturing industry sector. Thus, for the purpose of income-tax, under the rules, marble and granite industry has been considered to be manufacturing industry.

Under the rules governing the compulsory audit in respect of various businesses also, marble and granite industry has been included in the sector of manufacturing industry. This goes to show that the authorities under the income-tax entrusted with the task of its implementation are and the framers of the rules have considered the cutting of marble and granite blocks into slabs and polishing them for bringing them to the stage of usability as an activity of industrial undertaking engaged in manufacture and production of articles or things. Rules framed under the Act are statutory and became part of statute. Thus, under the scheme of Income-tax Act and rules framed thereunder for the purpose of said Act cutting and polishing of marble and granite blocks have been held to be an industrial activity of manufacture. As a block, it is not of any use and has been held to be a manufacturing industry for the purpose of Act. [Para 16]

Even as per its Circular, the CBDT [vide Circular No. 729, dated 1-11-1995] has considered granite as a mineral, and any process applied makes it valuable marketable commodity. [Para 17]

The decision of Karnataka High Court as affirmed by the Supreme Court was in consonance with the aforesaid view emerging from rules and expressed by the CBDT. The authority entrusted for smooth implementation of the enactment had issued directions to the authorities discharging functions under the Act. The same binds the authorities under the Act. [Para 18]

Thus, legislative intent emanating from Act and rules framed thereunder and the judgment of the Karnataka High Court as affirmed by Supreme Court makes it clear that for the purpose of sections 80-IA and 80-1B, process of cutting and sawing or sizing or polishing of marble blocks into slabs and tiles which results in making raw marble usable amounts to manufacture. Apart from that, winning of marble block from mines itself amounts to production. [Para 22]

Marble blocks as a mineral produced from earth by itself is not usable for any purpose, therefore, to make it usable, various processes which could be applied to bring it to that stage would amount to manufacturing. After it has been brought to that stage, further processing it merely for the purpose of making its marketability easy or smooth would not amount to manufacturing process. [Para 26]

The decision of Supreme Court affirming the decision of Karnataka High Court in Mysore Minerals Ltd. (No. 1)’s case (supra), upholding cutting of granite/marble block into usable slabs or tiles is a manufacturing activity, governed the facts of instant case, and, hence, appeals deserved to be allowed. [Para 27]

Accordingly, the appeals were allowed and it was held that in the facts and circumstances of the case, conversion of marble blocks into slabs and tiles amounted to manufacture of thing or article within the meaning of section 80-IA/80-IB and the assessee was entitled to claim deduction thereunder. [Para 28]