Business activities in mining and processing not considered manufacturing for tax relief

The court held that the business activities of the assessee, involving mining and processing marble and limestone, did not qualify as manufacturing or production under the Income-tax Act. As the activities did not result in a transformation leading to a new and distinct article, the assessee was not entitled to relief under section 80HH. The court emphasized that for an activity to be considered manufacturing, it must result in a product with a different name, character, or use. Therefore, the assessee's claim was denied, and the matter was referred back to the Tribunal for further action in accordance with the court's decision.

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Issues Involved:
1. Whether the business activity of the assessee qualifies as manufacturing or production.
2. Entitlement of the assessee to relief u/s 80HH of the Income-tax Act, 1961.

Summary:

Issue 1: Whether the business activity of the assessee qualifies as manufacturing or production.

The court examined whether the activities of the assessee, which involved mining limestone and marble blocks and then cutting and sizing them before selling, constituted manufacturing or production. The Income-tax Officer had rejected the assessee's claim, but the Commissioner of Income-tax (Appeals) and the Appellate Tribunal had accepted it. The court referred to various precedents, including the Supreme Court's decisions in CIT v. N. C. Budharaja and Co. and Deputy CST v. Pio Food Packers, to determine the meaning of "manufacture." The court concluded that "manufacture" implies a transformation resulting in a new and distinct article with a different name, character, or use. The court found that the assessee's activities did not meet this criterion, as the marble slabs retained their original identity after cutting.

Issue 2: Entitlement of the assessee to relief u/s 80HH of the Income-tax Act, 1961.

Section 80HH provides deductions for profits and gains derived from an industrial undertaking in backward areas. The court noted that the section aims to encourage industrial development in such areas. However, it emphasized that the interpretation of "manufacture" should be based on the plain language of the statute. The court held that the assessee's activities did not amount to manufacturing and, therefore, did not qualify for relief u/s 80HH. The court distinguished the facts of the present case from other cases cited by the assessee's counsel, where different activities were considered manufacturing.

Conclusion:

The court answered the referred question in the negative, holding that the Tribunal was not justified in considering the assessee's business activity as manufacturing or production. Consequently, the assessee was not entitled to relief u/s 80HH of the Income-tax Act, 1961. The record of the Tribunal was returned with the court's opinion for necessary action according to law.

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