2012 (9) TMI 847 - SC - Income Tax

Supreme Court directs re-examination on 'manufacture' eligibility under Income Tax Act

The Supreme Court remitted the case back to the Commissioner of Income Tax [Appeals] for re-examination to determine whether the operation conducted by a ... Entitlement to benefit of Section 80P(2)(a)(iii) - marketing of sugar - Held that:- As decided in CIT vs. Oracle Software India Limited [2010 (1) TMI 9 - SUPREME COURT OF INDIA] if an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word `manufacture'. As the above test has to be applied and adjudicated on case to case basis. It depends on the type of product which ultimately emerges from a given operation. As this aspect has not been examined by the Courts the case is to be remitted back to the CIT(A) to re-examine the matter. Issues involved:Interpretation of Section 80P(2)(a)(iii) of the Income Tax Act, 1961 in relation to the marketing of agricultural produce by a Cooperative Sugar Mill. Determination of whether the operation undertaken by the assessee constitutes 'manufacture'.Interpretation of Section 80P(2)(a)(iii):The primary issue in this judgment revolves around the interpretation of Section 80P(2)(a)(iii) of the Income Tax Act, 1961, concerning the entitlement of a Cooperative Sugar Mill to claim benefits in the marketing of agricultural produce grown by its members. The key question is whether the final product, sugar, retains the character of agricultural produce, i.e., sugarcane, for the purpose of availing the benefits under the said provision. The Court is tasked with determining whether the operation undertaken by the assessee falls within the scope of Section 80P(2)(a)(iii).Definition of 'Manufacture':A crucial aspect of the judgment pertains to the definition of 'manufacture' in the context of the activities carried out by the Cooperative Sugar Mill. The assessee argues that the process involved in producing sugar does not amount to 'manufacture,' emphasizing that the transformation from sugarcane to sugar does not alter the fundamental agricultural nature of the product. Conversely, the Department contends that the operation does constitute 'manufacture,' citing a precedent that outlines the test for determining 'manufacture' based on whether the process renders the commodity fit for use in a manner it was not previously. The Court notes the need for a case-specific analysis to ascertain whether the operation qualifies as 'manufacture.'Remittance for Re-examination:In light of the conflicting positions presented by the assessee and the Department regarding the classification of the operation as 'manufacture,' the Court decides to remit the cases back to the Commissioner of Income Tax [Appeals] for re-examination. The Commissioner is directed to allow the assessee to present the opinion of an independent expert, distinct from the Society or Federation, while also permitting the Department to engage its own expert for evaluation. The re-examination process is intended to delve deeper into whether the operation conducted by the assessee falls within the ambit of 'manufacture.'Panel of Experts and Test for 'Manufacture':The judgment underscores the importance of having a panel of experts readily available to assist in cases where the determination of 'manufacture' is pivotal. The Court emphasizes the need to apply a consistent test for 'manufacture' across cases and encourages the advocates to refer to relevant judgments that establish criteria for defining 'manufacture.' Notably, the Court refrains from expressing any opinion on the merits of the case, leaving it to the re-examination process by the Commissioner of Income Tax [Appeals].In conclusion, the Supreme Court's judgment in this matter delves into the nuanced interpretation of Section 80P(2)(a)(iii) of the Income Tax Act, 1961 concerning the eligibility of a Cooperative Sugar Mill to claim benefits related to the marketing of agricultural produce. The Court's decision to remit the cases for re-examination by the Commissioner of Income Tax [Appeals] underscores the need for a thorough assessment of whether the operation undertaken by the assessee amounts to 'manufacture.' By highlighting the differing perspectives of the parties and the requirement for expert opinions, the judgment aims to ensure a comprehensive evaluation of the classification of the operation in question.