Tax Tribunal: Blending & Bottling of Spirits Not Manufacturing Under Income Tax Act

The Tribunal held that the blending and bottling of spirit into different brands of IMFL products did not amount to manufacturing under section 80HH of the Income Tax Act, 1961. They concluded that the process involved processing rather than manufacturing, as the original commodity (alcohol) retained its identity without producing a new distinct article. Therefore, the assessee was not entitled to the deduction u/s 80HH. The appeals were dismissed based on this determination.

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Issues Involved:
1. Whether blending and bottling of spirit amount to manufacture or production process for deduction u/s 80HH of the Income Tax Act, 1961.

Summary:

Issue 1: Whether blending and bottling of spirit amount to manufacture or production process for deduction u/s 80HH of the Income Tax Act, 1961.
The assessee-company claimed deduction u/s 80HH for the assessment years 1985-86 and 1986-87, asserting that the blending and bottling of spirit into different brands of IMFL (Indian Made Foreign Liquor) products constituted a manufacturing process, thus qualifying for the deduction. The Calcutta Bench of ITAT had previously ruled against the assessee for the assessment year 1983-84, but the Madras Bench of ITAT had ruled in favor of the assessee in a similar case (ITO v. A. Joseph Louis).

The assessee argued that the process involved significant changes, including dilution with demineralized water and the addition of essence and coloring, resulting in a new commercial commodity. They cited several legal precedents, including CIT v. N.C. Budharaja & Co., CIT v. Baraka Overseas Traders, and CIT v. Yavatmal Co-operative Ginning & Pressing Factory Ltd., to support their claim that these activities constituted manufacturing.

The Revenue, represented by the learned Standing Counsel, contended that the blending and bottling process did not amount to manufacturing as there was no substantial change in the original commodity. They argued that the process merely involved the addition of water and essence to potable spirit, which remained fundamentally the same as the original alcohol. They relied on the decision in CIT v. Sterling Foods (Goa) and other cases to argue that the process was merely processing, not manufacturing.

The Tribunal reviewed the submissions and case laws, including the Supreme Court's decisions in CIT v. N.C. Budharaja & Co. and Pio Food Packers. The Tribunal concluded that the assessee's activities involved only processing and not manufacturing. They emphasized that the original commodity (alcohol) retained its identity throughout the process, and no new distinct article was produced. Therefore, the assessee was not entitled to the deduction u/s 80HH.

Conclusion:
The Tribunal dismissed the appeals, holding that the blending and bottling of spirit did not constitute manufacturing and thus did not qualify for the deduction u/s 80HH of the Income Tax Act, 1961.

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