Diamond cutting and polishing is not manufacture for section 80-I deduction where no new article emerges.

Cutting and polishing raw diamonds was held not to amount to manufacture or production of an article or thing for deduction under section 80-I of the Income-tax Act, 1961. Although the process alters raw diamonds and improves marketability, the decisive test is whether a new and distinct article or thing emerges. On the material noted, there was no support for treating polished diamonds as a different product produced by manufacture, and the earlier distinction was limited to processing for sale rather than manufacture. The issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether cutting and polishing of diamonds amounts to manufacture or production of an article or thing so as to entitle the assessee to deduction under section 80-I of the Income-tax Act, 1961.

Analysis: Section 80-I applies only where the industrial undertaking manufactures or produces an article or thing. Cutting and polishing raw diamonds certainly subjects them to a process, but the decisive question is whether the processed product becomes a new article or thing. The record contained no material to support a finding that polished diamonds were a different article or thing produced by manufacture, and the conclusion that raw and polished diamonds were distinct commercial entities was treated as unsupported. The distinction drawn in earlier proceedings related to processing for marketability and not to manufacture or production under section 80-I.

Conclusion: Cutting and polishing diamonds does not amount to manufacture or production of an article or thing for the purpose of section 80-I. The question was answered in the negative and in favour of the Revenue.

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