2013 (12) TMI 1210 - HC - Income Tax

Interpretation of 'manufacture' under Income Tax Act for granite cutting & polishing company

The Madras High Court interpreted the term 'manufacture' under Section 10B of the Income Tax Act in a case involving a private limited company engaged in ... Whether polishing of rough granites amount to manufacture u/s 10B - Held that:- The definition of 'manufacture' was omitted from Section 10B of the Income Tax Act with effect from 01.04.2001 - Following M/s.Gem Granites vs. CIT [2004 (11) TMI 13 - SUPREME Court] - The polished granite is different from rough granites and that rough granites under the process as amounting to manufacture. Thus, when the resultant article no longer retained its original character, but has a different name and character - The plea of the Revenue cannot be accepted solely by the reason of the absence of definition of 'manufacture' under Section 10B of the Income Tax Act, during the relevant assessment years - Decided against Revenue. Issues:1. Interpretation of the term 'manufacture' under Section 10B of the Income Tax Act.2. Claim of exemption under Section 10B for a private limited company engaged in the business of cutting and polishing granite slabs.3. Rejection of the assessee's claim by the Assessing Officer.4. Appeal before the Commissioner of Income Tax (Appeals) and subsequent decisions.5. Decision of the Income Tax Appellate Tribunal based on Supreme Court judgments.6. Arguments presented by the Revenue regarding the definition of 'manufacture'.7. Analysis of the definition of 'manufacture' under Section 2(29BA) of the Income Tax Act.8. Application of the Supreme Court decision in M/s. Gem Granites vs. CIT to the present case.9. Conclusion and dismissal of the Revenue's appeals.Analysis:The judgment by the Madras High Court involved the interpretation of the term 'manufacture' under Section 10B of the Income Tax Act concerning the claim of exemption by a private limited company engaged in cutting and polishing granite slabs for export. The Assessing Officer initially rejected the assessee's claim, stating that cutting and polishing did not constitute manufacture. However, the Commissioner of Income Tax (Appeals) accepted the assessee's plea, emphasizing that cutting and polishing qualified as manufacturing based on relevant decisions and the insertion of Explanation 4 under Section 10B. The Income Tax Appellate Tribunal also ruled in favor of the assessee, citing Supreme Court judgments that supported the manufacturing status of cutting and polishing granite.The Revenue contended that the absence of a specific definition of 'manufacture' post-2001 precluded the assessee's processing activities from being classified as manufacturing for tax deduction purposes. However, the High Court disagreed with this argument, highlighting the definition of 'manufacture' under Section 2(29BA) introduced in 2009 and the precedent set by the Supreme Court in M/s. Gem Granites vs. CIT. The court emphasized that the processing leading to the creation of a new article with distinct characteristics qualified as manufacturing, even in the absence of a specific statutory definition during the relevant assessment years.Ultimately, the High Court upheld the decision of the Income Tax Appellate Tribunal, dismissing the Revenue's appeals and confirming that cutting and polishing granite slabs constituted manufacturing for the purposes of tax exemption under Section 10B of the Income Tax Act. The court reiterated the broader interpretation of 'manufacture' based on common understanding and precedent, emphasizing the transformative nature of the processing activities undertaken by the assessee.