2007 (7) TMI 4 - SC - Income Tax

Tea blending constitutes processing only, not manufacture or production under Section 35B(1A), weighted deduction denied

COMMISSIONER OF INCOME TAX, KERALA Versus TARA AGENCIES

SC held that tea blending activity constitutes processing only, not manufacture or production under Section 35B(1A) of Income Tax Act. Court distinguished ... Entitlement to Weighted deduction - Activity of blending tea qualifies as 'manufacture' or 'production' u/s 35B(1A) - Meaning of terms 'manufacture', 'production' and 'process' - HELD THAT:- Undoubtedly, the facts of Nilgiri's case [1959 (7) TMI 40 - BOMBAY HIGH COURT] are identical to the facts of the present case and the ratio of Nilgiri's case is fully applicable to this case. But we have to bear in mind a significant difference in the language employed in Section 8 of the Bombay Sales Tax Act, 1953 in Nilgiri's case and the language of Section 35(1)(B) of the Income-tax in the present case. The difference is that the term 'processing' which has been specifically incorporated in Nilgiri's case has been specifically omitted in the present case. Similarly, in Chowgule's case [1980 (11) TMI 61 - SUPREME COURT], the term 'processing' has been incorporated in the statute and the activities of the assessees both in Chowgule's and Nilgiri's cases were held to be processing and, in these respective cases, the assessees were held to be entitled to the benefit under the respective statutes. In the present case, same benefit cannot be extended to the respondent-assessee because the word 'processing' has been specifically omitted in the statute. The activities of the assessees both in Nilgiri's and Chowgule's cases amount to processing. The activity of the respondent-assessee in the present case also amounts to 'processing'. Section 35(1)(b) governing the instant case incorporated the terms 'manufacture' and 'production' and omitted the term 'processing'. Therefore, the respondent-assessee cannot be extended the benefit of Section 35(1)(B) of the Income-tax Act. The processing is only an intermediate stage of production and/or manufacture. The processing of tea of the respondent-assessee falls short of either manufacturing or production, therefore, because of the language of Section 35(1)(B) of the Income-tax Act, the respondent-assessee cannot be extended the benefit which has been extended to the assessees in Nilgiri's and Chowgule's cases. Since the legislature in its wisdom has not used the term 'processing' in Section 35(1)(B) of the Act, it would be erroneous to incorporate the word in the section and then interpret the Statute. In this view of the matter Chowgule's case and Nilgiri's case dealt with by this court in Chowgule's case are clearly distinguishable because of the language of the statutes. On clear construction and interpretation of Section 35B(1A) of the Act, we are clearly of the opinion that the respondent's activity amounts to 'processing' only and the activity does not amount to either 'production' or 'manufacture'. The term 'processing' has not been included in Section 35B(1A) of the Act, therefore, the respondent is not entitled for weighted deduction under Section 35B(1A) of the Act. Consequently, this appeal is allowed and the impugned judgment is set aside. Issues Involved:1. Whether the respondent-assessee's activity of blending tea qualifies as 'manufacture' or 'production' under Section 35B(1A) of the Income Tax Act, 1961.2. Whether the respondent-assessee is entitled to weighted deduction under Section 35B(1A) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Whether the respondent-assessee's activity of blending tea qualifies as 'manufacture' or 'production' under Section 35B(1A) of the Income Tax Act, 1961:The court examined the definitions and interpretations of 'manufacture,' 'production,' and 'process' in detail. It was noted that the term 'manufacture' has not been defined in the Income Tax Act, 1961, but has been defined in Section 2(f) of the Central Excise Act, 1944, as including any process incidental or ancillary to the completion of a manufactured product. The court referred to various dictionary definitions and judicial interpretations to understand these terms. For instance, 'manufacture' implies a change resulting in a new and different article with a distinctive name, character, or use. 'Production' includes the act of producing or making goods, encompassing activities that bring forth new goods by a process that may or may not amount to manufacture. 'Process' involves a series of actions leading to the accomplishment of a result, often transforming raw materials into marketable forms.The court analyzed the stages of tea production, manufacturing, and processing. It concluded that the respondent-assessee's activity of blending different qualities of tea falls under 'processing' rather than 'manufacture' or 'production.' The blending of tea results in a qualitative change but does not create a new and distinct article.2. Whether the respondent-assessee is entitled to weighted deduction under Section 35B(1A) of the Income Tax Act, 1961:Section 35B(1A) of the Act provides weighted deduction for expenditure incurred by small-scale exporters on goods manufactured or produced by them. The court emphasized that the benefit under this section is restricted to goods that are 'manufactured' or 'produced' and does not extend to goods that are merely 'processed.' The respondent-assessee's activity of blending tea, being classified as 'processing,' does not meet the criteria for 'manufacture' or 'production.'The court referred to previous judgments, including the Calcutta High Court's decision in G.A. Renderian Ltd. v. Commissioner of Income-Tax and the Supreme Court's decision in Chowgule & Co. (P) Ltd. v. Union of India, which dealt with similar issues. However, it distinguished these cases based on the specific language of the statutes involved. In those cases, the term 'processing' was included in the relevant statutes, allowing the assessees to claim benefits. In contrast, Section 35B(1A) of the Income Tax Act, 1961, explicitly omits the term 'processing.'The court concluded that since the legislature deliberately omitted the term 'processing' from Section 35B(1A), the respondent-assessee cannot be granted the benefit of weighted deduction under this section. The court emphasized the principle that it is not the role of the judiciary to rewrite or expand the scope of legislation beyond its clear language.Conclusion:The court allowed the appeal, set aside the impugned judgment, and ruled that the respondent-assessee's activity of blending tea does not qualify as 'manufacture' or 'production' under Section 35B(1A) of the Income Tax Act, 1961. Consequently, the respondent-assessee is not entitled to the weighted deduction under this section. The parties were directed to bear their own costs.