1983 (7) TMI 102 - AT - Income Tax

Court classifies bottling Horlicks as manufacturing, grants investment allowance.

The court determined that the assessee's activity of bottling Horlicks powder constituted manufacturing rather than mere packing. The process of bottling ... Investment Allowance Issues Involved:1. Whether the assessee is engaged in manufacturing or merely packing.2. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961.Detailed Analysis:1. Whether the assessee is engaged in manufacturing or merely packing:The primary issue is whether the activity of the assessee, which involves bottling Horlicks powder supplied in bulk, constitutes manufacturing or merely packing. The assessee argued that their activity goes beyond simple packing, involving sophisticated machinery and processes to ensure quality and hygiene, making it akin to manufacturing. They cited various authorities to support their claim that even finishing processes can amount to manufacturing.The revenue countered that the assessee's activity is merely packing, which does not change the physical or chemical nature of the Horlicks powder. They emphasized that 'manufacture' involves creating a new commodity, which is not the case here since the Horlicks powder remains the same before and after packing.The judgment noted that the term 'manufacture' is not defined in the statute but has been interpreted by courts to involve the application of labor resulting in a final product that is commercially distinct from the original. The court referred to the Supreme Court's decision in Idandas v. Anant Ramchandra Phadke, which outlined three tests for manufacturing: production of a commodity, involvement of labor or machinery, and a distinct character, name, and use of the end product.The judgment concluded that Horlicks powder in drums is not commercially available and can only be sold in bottles under the license held by HMM Ltd. Therefore, the process of bottling transforms the powder into a commercially different product, meeting the criteria for manufacturing. The sophisticated techniques and machinery used by the assessee further support this conclusion.2. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961:The second issue is whether the assessee qualifies for investment allowance under section 32A, which requires the machinery to be used in the manufacture or production of any article or thing. The assessee contended that they are an industrial undertaking engaged in manufacturing under section 32A, supported by the fact that they own the machinery and employ laborers for the packing process.The revenue argued that since the assessee is merely packing for another party and not manufacturing on its own account, they are not eligible for the allowance. They also pointed out that the value added by packing is minimal compared to the overall value of the product.The judgment found that the assessee's activity constitutes manufacturing, as the bottling process results in a commercially different product. It also noted that the investment allowance is granted on machinery used for manufacturing, regardless of whether the manufacturing is done on behalf of another party. The judgment cited the Madras Tribunal's decision in First Leasing Co. of India Ltd., which supported the view that ownership and use of machinery for manufacturing are sufficient for eligibility.The judgment concluded that the assessee is entitled to the investment allowance, subject to verification of the claim details.Conclusion:The appeal was allowed, recognizing the assessee's activity as manufacturing and granting eligibility for investment allowance under section 32A.