1996 (9) TMI 64 - HC - Income Tax

Assessee's Coffee Curing Not Manufacturing: Impact on Tax Relief

Commissioner Of Income-Tax Versus Aspinwall And Company Limited

The court determined that the assessee's activity of curing coffee did not constitute manufacturing or production. As a result, the assessee was deemed ... Investment Allowance, Manufacture Or Production Issues Involved:1. Whether the assessee's activity of curing coffee amounts to manufacturing.2. Whether the assessee is entitled to relief under section 32A of the Income-tax Act.Issue-Wise Detailed Analysis:1. Whether the assessee's activity of curing coffee amounts to manufacturing:The court examined the factual matrix of the assessee's activities, which included nine distinct processes in curing coffee: receipt, storage, drying, hulling/pealing/polishing, mechanical grading, color sorting, garbling/manual grading, out-turning, and bulking. The Tribunal's inspection confirmed that these processes did not result in a commercially distinct product. The court referenced the Encyclopaedia Britannica to define coffee as a beverage made from roasted seeds and noted that the aroma and taste associated with coffee only emerge after roasting, which was not part of the assessee's activities.The court relied heavily on precedents from the Supreme Court, including CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, Delhi Cold Storage P. Ltd. v. CIT [1991] 191 ITR 656, Sterling Foods v. State of Karnataka [1986] 63 STC 239, and Deputy CST v. Pio Food Packers [1980] 46 STC 63. These cases established that for an activity to be considered manufacturing, the original commodity must undergo a transformation resulting in a new and distinct commercial product. The court found that the processes involved in curing coffee did not meet this criterion, as the final product was still commercially recognized as coffee cherry, not a new product.2. Whether the assessee is entitled to relief under section 32A of the Income-tax Act:Section 32A of the Income-tax Act pertains to investment allowance for machinery or plant used in manufacturing or production. The court noted that for the assessee to qualify for this allowance, the machinery or plant must be used in a small-scale industrial undertaking for manufacturing or producing any article or thing. Given the court's finding that the curing of coffee did not amount to manufacturing or production, the assessee did not meet the criteria for relief under section 32A.The court emphasized that the statutory provision requires the machinery or plant to be used for manufacturing or producing a new article, which was not the case here. The processes involved in curing coffee did not result in a new and distinct commercial product, thus failing to satisfy the requirements for investment allowance under section 32A.Conclusion:The court concluded that the assessee's activity of curing coffee did not amount to manufacturing or production. Consequently, the assessee was not entitled to relief under section 32A of the Income-tax Act. The court answered the question in favor of the Revenue and against the assessee in both references.