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 or production of an article or thing" within the meaning of section 32A(2) of the Income-tax Act, 1961. While excavation of mineral alone does not constitute manufacture, the subsequent crushing process through plant and machinery results in commercially distinct products, different in physical form and recognized as separate commodities in trade. Accordingly, the activity amounts to manufacture, and the assessee is entitled to investment allowance under section 32A. The reference was answered in favour of the assessee and against the Revenue.

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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.

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