Gold ornaments production qualifies as manufacture under Income Tax Act; export profits upheld.

The court held that the conversion of standard gold into ornaments qualifies as manufacture/production under Sections 10A/10B of the Income Tax Act. It also determined that the assessee had indeed exported the jewelry, earning profits derived from the export of articles/things. The court dismissed the Revenue's appeals.

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Issues Involved:
1. Whether the assessee is an undertaking engaged in the manufacture or production of articles or things.
2. Whether the assessee has earned profits/gains as are derived by an undertaking from the export of articles/things.

Detailed Analysis:

Issue 1: Whether the assessee is an undertaking engaged in the manufacture or production of articles or things.
The court examined whether the conversion of standard gold into ornaments constitutes "manufacture" or "production" under Sections 10A and 10B of the Income Tax Act, 1961. The Revenue contended that the conversion did not amount to "manufacture" or "production" as the primary material remained gold, and no new product with different chemical composition or attributes came into existence.

The court clarified that the term "manufacture" can have both wider and narrower connotations. In a wider sense, it means to make or fabricate an article or product by physical labor or mechanical power. In a narrower sense, it involves transforming raw material into a commercial product, which has a new, separate entity. The Supreme Court's interpretations in various cases were cited, emphasizing that "manufacture" involves transformation into a new commodity with a distinct character, use, and name.

The court further referenced the Supreme Court's elucidation in Commissioner of Income Tax, Kerala v. Messrs Tara Agencies, which defined "manufacture" as a process resulting in a commercially new article. The term "production" was deemed broader than "manufacture" and includes bringing into existence new goods by a process that may or may not amount to manufacture.

The activity of converting gold bricks, biscuits, or bars into jewelry was held to be "production or manufacture" of a new article. The court noted that jewelry has a distinct identity, treated as a new article, and not the same as raw gold. Thus, the conversion process results in a commercially different saleable product, qualifying for deduction under Sections 10A/10B.

Issue 2: Whether the assessee has earned profits/gains as are derived by an undertaking from the export of articles/things.
The Revenue argued that the assessee did not export jewelry as they were not the owners of the imported gold or exported jewelry and were paid making charges. The term "export" was not defined in the Act, so the court referred to its ordinary dictionary meaning and interpretations in other enactments like the Customs Act, 1962, which defines "export" as taking out of India to a place outside India.

The court emphasized that the concept of ownership is not central to the definition of "export." The assessee was shown as the consignee and importer when the gold was imported and as the consignor when the jewelry was exported. The assessee complied with various formalities and had physical possession and control over the gold, making them liable in case of loss.

The court concluded that the assessee's activities amounted to exporting articles or things. The term "exporter" includes any owner or person holding themselves out to be the exporter. The court rejected the Revenue's reliance on Commissioner of Income Tax v. Ravindranathan Nair, distinguishing it based on the facts that the assessee in the present case had indeed exported the ornaments.

Conclusion:
The court held that the conversion of standard gold into ornaments amounts to manufacture/production, qualifying for deductions under Sections 10A/10B. It also held that the assessee had exported the jewelry, earning profits derived from the export of articles/things. The appeals by the Revenue were dismissed.

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