Construction of buildings is not manufacture or processing of goods unless a new and independent product emerges

Construction of buildings was treated as outside the expression "manufacture or processing of goods" for section 104(4)(a) of the Income-tax Act, 1961. The Bombay High Court noted that the phrase bears the same meaning as in the earlier industrial company context, and that construction or repair work, even with incidental fabrication of components, does not amount to manufacture or processing unless a new and independent product comes into existence. On that basis, a building-construction business was not considered one carried on mainly in manufacture or processing of goods, and section 104(4)(a) was not attracted.

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Issues: Whether an assessee engaged in constructing buildings could be treated as carrying on a business consisting mainly in the manufacture or processing of goods so as to escape liability under section 104(4)(a) of the Income-tax Act, 1961.

Analysis: The relevant assessment year was 1973-74 and the assessee-company's activity was construction of buildings. The expression "manufacture or processing of goods" in section 104(4)(a) was held to bear the same meaning as in the earlier decision concerning an industrial company. Construction and repair of buildings, even if some incidental fabrication of components occurs, does not amount to manufacture or processing of goods. The distinction drawn in the pressure piling case was confined to its facts, where a new and independent product came into existence.

Conclusion: The assessee's business did not consist mainly in the manufacture or processing of goods, and section 104(4)(a) was not attracted. The answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: Construction of buildings, without the emergence of a new and independent product, does not amount to manufacture or processing of goods for the purpose of section 104(4)(a) of the Income-tax Act, 1961.

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