High Court grants relief for quarry profits, denies third-party manufacture relief under section 80-I

The High Court affirmed the Tribunal's decision that the assessee was entitled to relief under section 80-I for profits from the manufacture and sale of limestone from its own quarries. The Court held that the production of lime from limestone was an extension of quarrying and granted relief for profits from the sale of lime. However, relief was denied for profits from the manufacture of lime and limestone through third parties due to lack of control or supervision by the assessee. The Court ruled in favor of the assessee regarding relief under section 80-I for the manufacture of lime from limestone produced in its quarries.

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Issues Involved:
1. Eligibility for relief u/s 80-I on profits from the manufacture and sale of limestone.
2. Eligibility for relief u/s 80-I on profits from the manufacture of lime.
3. Eligibility for relief u/s 80-I on profits from the manufacture of lime and limestone through third parties.

Summary:

1. Eligibility for relief u/s 80-I on profits from the manufacture and sale of limestone:
The Income Tax Officer (ITO) granted relief u/s 80-I to the assessee on profits derived from the manufacture and sale of limestone from its own quarries. This decision was upheld by the Appellate Assistant Commissioner (AAC), who agreed that the profits from the manufacture of limestone alone were entitled to the concession under s. 80-I.

2. Eligibility for relief u/s 80-I on profits from the manufacture of lime:
The AAC denied relief u/s 80-I on profits derived from the manufacture of lime, either quicklime or slaked lime, stating that these were not covered by item 3 of Sch. VI or any other item in that Schedule. However, the Tribunal found that lime is nothing but calcined limestone and that the production of lime is an extension of the quarrying of limestone. The Tribunal held that the production of lime and limestone are integrated, composite parts of one productive activity of the assessee and directed the ITO to grant relief u/s 80-I on the profits derived from the sale of lime manufactured by the assessee.

3. Eligibility for relief u/s 80-I on profits from the manufacture of lime and limestone through third parties:
The ITO and AAC denied relief u/s 80-I on profits derived from the manufacture of lime and limestone through Sanderson & Co. and Dewan Lime Co., as the assessee did not manufacture these items itself but got them manufactured through others. The Tribunal upheld this decision, noting the absence of written agreements or evidence of control or supervision by the assessee over the production by the third parties. Therefore, the basic conditions for relief u/s 80-I were not satisfied.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the manufacture of lime by the assessee out of limestone produced in its quarries was a priority industry within the meaning of section 80B(7) of the Income-tax Act, 1961, read with item 3 of the Sixth Schedule to the said Act. Consequently, the assessee was entitled to relief u/s 80-I in respect of the profits and gains derived from such manufacture of lime. The question was answered in the affirmative and in favor of the assessee.

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