Tribunal Rules Activities Not "Manufacture" Under IT Act, Upholds Disallowance of Deduction; Majority Opinion Prevails.

The ITAT, by majority decision, concluded that the assessee's activities did not qualify as "manufacture" or "production" under Section 80-IA of the IT Act, 1961, despite the processes involved. The Tribunal upheld the disallowance of the deduction claimed by the assessee, aligning with the Supreme Court's precedent in Lucky Minmat (P) Ltd. vs. CIT. One dissenting member argued that the activities constituted manufacturing, but the majority opinion prevailed, resulting in the dismissal of the assessee's appeals and the maintenance of the AO's decision.

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Issues Involved:
1. Whether the activities of the assessee amount to "manufacture" or "production" under Section 80-IA of the IT Act, 1961.
2. Applicability of the Supreme Court decision in the case of Lucky Minmat (P) Ltd. vs. CIT to the assessee's case.
3. Interpretation of "manufacture" and "production" for the purpose of tax benefits under Section 80-IA.
4. Consistency of the assessee being recognized as a manufacturer/producer by various government departments.

Issue-wise Detailed Analysis:

1. Whether the activities of the assessee amount to "manufacture" or "production" under Section 80-IA of the IT Act, 1961:
The assessee, a private limited company, engaged in sawing marble blocks into slabs and tiles, claimed deductions under Section 80HHC and 80-IA of the IT Act, 1961. The Assessing Officer (AO) disallowed the claim under Section 80-IA, stating that the activities did not qualify as "manufacture" or "production" as per the Supreme Court's decision in Lucky Minmat (P) Ltd. vs. CIT. The CIT(A) upheld the AO's decision, leading to the assessee's appeal to the ITAT.

The ITAT examined the processes involved in converting marble blocks into slabs and tiles, which included sorting, processing on saw machines, sawing, reinforcing, polishing, edge cutting, and buffing. The assessee argued that these processes constituted manufacturing or production, supported by various government registrations and benefits recognizing the company as a manufacturer.

2. Applicability of the Supreme Court decision in the case of Lucky Minmat (P) Ltd. vs. CIT to the assessee's case:
The AO relied on the Supreme Court's decision in Lucky Minmat (P) Ltd. vs. CIT, where it was held that mere mining and cutting of marble blocks did not amount to manufacturing or production. The assessee contended that the facts of their case were distinguishable, as their activities involved comprehensive processes beyond mere cutting, transforming the marble blocks into commercially different products.

The ITAT agreed with the assessee that the processes undertaken resulted in new products with distinct names, characters, and uses, differentiating the case from Lucky Minmat. The Tribunal noted that the assessee's activities were consistently recognized as manufacturing by various government departments, including the Central Excise and Sales-tax Departments.

3. Interpretation of "manufacture" and "production" for the purpose of tax benefits under Section 80-IA:
The ITAT discussed various legal definitions and judicial interpretations of "manufacture" and "production." It emphasized that manufacturing involves transforming raw materials into new products with distinct identities, while production encompasses broader activities, including manufacturing. The Tribunal cited multiple cases supporting the view that significant processing and transformation qualify as manufacturing or production.

The Tribunal concluded that the assessee's activities met the criteria for manufacturing and production, as they resulted in new and distinct products. It distinguished the assessee's case from Lucky Minmat, where the activities were limited to mining and basic cutting.

4. Consistency of the assessee being recognized as a manufacturer/producer by various government departments:
The ITAT highlighted that the assessee was registered as a manufacturer with the Ministry of Commerce and Industries, received sales-tax exemptions, and was recognized by the Central Excise Department. These recognitions supported the assessee's claim of being engaged in manufacturing activities.

The Tribunal noted that the AO and CIT(A) had not disputed the processes involved but had only questioned whether they constituted manufacturing or production. Given the comprehensive processes and consistent recognition by government authorities, the ITAT held that the assessee's activities qualified as manufacturing or production under Section 80-IA.

Separate Judgments Delivered by the Judges:

Majority Opinion:
The majority of the Tribunal members, including the Vice President, concluded that the assessee's activities amounted to manufacturing or production. They directed the AO to allow the deduction under Section 80-IA for both assessment years.

Dissenting Opinion:
One member disagreed, arguing that the activities did not constitute manufacturing or production, relying on the Supreme Court's decision in Lucky Minmat. This member emphasized that the processes involved were primarily cutting and polishing, which did not transform the marble blocks into new products.

Final Decision:
In conformity with the majority opinion, the Tribunal adjudicated the issue against the assessee, dismissing the appeals and upholding the disallowance of the deduction under Section 80-IA.

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