2013 (11) TMI 733 - HC - Income Tax

Rubber tire recycling qualifies as 'manufacture' under Income Tax Act

COMMISSIONER OF INCOME TAX Versus M/s DOON VALLEY RUBBER INDUSTRIES

The High Court upheld the decision of the Income Tax Appellate Tribunal, ruling that the process of converting old rubber tires and scrap into rubber ... Deduction u/s 80IB of the Income tax act - Whether cutting, grinding and sieving of old rubber tyres and rubber scrap and converting the same into rubber crumbs is “manufacture” and hence entitled to the deduction under Section 80IB of that Act – Held that:- Product (Rubber crumb) produced by the assessee was commercially different from its raw material and further, it is commercially known to be different in the market. In other words, the assessee was engaged in manufacturing of the said product. Therefore, the assessee was entitled to deduction claimed under Section 80IB of the Act – Decided against the Revenue. Issues:1. Whether the process of cutting, grinding, and sieving old rubber tires and scrap into rubber crumbs constitutes 'manufacture' for the purpose of claiming deduction under Section 80IB of the Income Tax ActRs.Analysis:The judgment revolves around the central issue of whether the process of converting old rubber tires and scrap into rubber crumbs qualifies as 'manufacture' under Section 80IB of the Income Tax Act. The appellant contended that the process involved in producing rubber crumbs should be considered as manufacturing, thus entitling them to the deduction under the said section. The Income Tax Officer initially disallowed the deduction claimed by the respondent-firm for the assessment year 2004-2005. However, the Income Tax Appellate Tribunal reversed the decision, emphasizing the manufacturing process involved in creating rubber crumbs. The Tribunal highlighted the detailed steps of the manufacturing process, including cutting, grinding, and sieving old tires and scrap to produce rubber crumbs, which were then sold to a tire manufacturing company.The judgment delves into the definition of 'manufacture' as interpreted by the Apex Court in previous cases. It references the case of Aspinwall and Co. Ltd. v. Commissioner of Income Tax, where the Court defined 'manufacture' as the production of articles for use from raw materials by giving them new forms, qualities, or combinations. The judgment also cites the case of Income Tax Officer vrs. Arihant Tiles and Marbles P. Ltd., which elaborates on the broader meaning of the terms 'manufacture' and 'production.' The Court emphasized that the word 'production' encompasses manufacture and something additional, and not every production amounts to manufacture. It further explained that the test for determining if manufacture occurred is whether the commodity subjected to a process can no longer be considered the original commodity but is recognized as a new distinct commodity in trade.Based on the legal principles established in the aforementioned cases, the High Court agreed with the Appellate Tribunal's decision that the process of converting old tires and scrap into rubber crumbs constituted manufacturing. The Court affirmed that the end product, rubber crumb, was commercially different from its raw materials and was recognized as such in the market. Consequently, the assessee was deemed entitled to the deduction claimed under Section 80IB of the Act. The judgment concluded by dismissing the appeal, upholding the Tribunal's decision, and highlighting the reliance on the Apex Court's decisions to address the legal issue at hand.