1992 (12) TMI 3 - HC - Income Tax

Crushing excavated limestone into rodi and powder qualifies as manufacture u/s 32A(2), earning investment allowance

HC held that the assessee, a small-scale industrial undertaking engaged in crushing excavated limestone into rodi and powder, is engaged in 'manufacture ... Investment Allowance - Whether, the Tribunal was justified in holding that the activity of the assessee is clearly in the nature of manufacturing and, therefore, it is entitled to investment allowance under section 32A(2) of the Income-tax Act, 1961? - HELD THAT:- In accordance with the provisions of section 32A, investment allowance is payable in respect of plant and machinery and in the present case the claim of the assessee was as a small-scale industrial undertaking which is engaged in the business of manufacture or production of any article or thing. Excavation of mineral is not a process of manufacture but if after excavation, the minerals so extracted are put in a crusher through plant or machinery which result in the business of manufacture or production of any article or thing then it will amount to manufacture and deduction under section 32A has to be allowed. The crushing of the mineral so extracted which results in production of rodi and powder is a process of manufacture. The word 'manufacture' has not been defined in the Act except under section 10A(8), Explanation (iii), which was added by Act No. 11 of 1987 with effect from April 1, 1981. Manufacture involves the bringing into existence of a new product which may have a different physical or chemical composition and is understood differently in common and commercial parlance. This court has held in CTO v. Bikaner Gypsum Ltd. [1985 (10) TMI 264 - RAJASTHAN HIGH COURT], that excavation of gypsum from the mine is not a process of manufacture. So far as the conversion of the mineral in the form of rodi and powder, it is evident that it does not retain the physical shape which the raw material has and is understood as a different commercial commodity by the business community. In these circumstances, the Income-tax Appellate Tribunal was justified in coming to the conclusion that conversion of limestone by crushing into rodi or lime dust is a process of manufacture. In these circumstances, the reference is answered in favour of the assessee and against the Revenue. Issues involved: Interpretation of eligibility for investment allowance u/s 32A(2) of the Income-tax Act, 1961 based on the nature of business activity - whether extraction and processing of minerals constitute manufacturing.Summary:The High Court of Rajasthan addressed a question of law referred by the Income-tax Appellate Tribunal regarding the eligibility of an assessee for investment allowance u/s 32A(2) of the Income-tax Act, 1961. The case involved the nature of the assessee's business activity, specifically focusing on the extraction and processing of minerals, particularly limestone.During the assessment proceedings, it was found that the assessee was involved in extracting limestone from mines and selling the same, including processing it into rodi. The Income-tax Officer initially denied the investment allowance, stating that the activity did not qualify as manufacturing under the Act.Upon appeal, the Commissioner of Income-tax (Appeals) upheld the decision, emphasizing that the business was primarily extracting and selling limestone, which did not amount to manufacturing. However, the Income-tax Appellate Tribunal disagreed, considering the conversion of limestone into rodi or lime dust as a manufacturing process.The High Court analyzed the definition of 'manufacture' under the Act and previous case law, highlighting that the process involves creating a new product with a different composition. It was noted that while excavation alone may not constitute manufacturing, the conversion of minerals into different commercial commodities, such as rodi and powder, qualifies as a manufacturing process.Ultimately, the High Court ruled in favor of the assessee, affirming that the conversion of limestone through crushing into rodi or lime dust indeed falls within the scope of manufacturing. The decision favored the assessee's eligibility for investment allowance u/s 32A(2) of the Income-tax Act, 1961.