1979 (5) TMI 100 - AT - Income Tax

Appeal allowed for manufacturing operations, clarifying eligibility for statutory reliefs and allowances.

The Tribunal allowed the appeal, ruling in favor of the assessee based on the manufacturing nature of the operations performed on the rough castings. The ... Manufacture or production - manufacturing process - relief under section 80J - allowance under section 32(1)(vi) - ownership of raw materials not necessaryManufacture or production - manufacturing process - relief under section 80J - ownership of raw materials not necessary - Whether the operations performed on rough castings by the assessee constitute manufacturing for the purpose of claiming relief under section 80J. - HELD THAT: - The Tribunal examined the detailed machining operations by which rough castings were converted into finished bearing shells and held that those operations effect a conversion resulting in a new product fit for market use. The Bench rejected the Department's contention that mere machining, polishing and finishing amounted only to job-work; it noted that the same conversion done by another party would be accepted as manufacture. The Tribunal further held that statutory language does not require ownership of raw materials for an undertaking to be treated as carrying on manufacturing; the requirement in s. 80J turns on whether a manufacturing process is carried on, not on ownership of the articles. Applying these principles to the material before it, the Tribunal found the activities to be manufacturing operations and therefore within the scope of relief under s. 80J. [Paras 5, 6]The assessee's operations are manufacturing for the purposes of s. 80J and the claim for relief under s. 80J succeeds.Allowance under section 32(1)(vi) - manufacturing process - Whether the assessee is entitled to allowance under section 32(1)(vi) (initial depreciation) in respect of machinery used in the manufacturing operations. - HELD THAT: - The Tribunal construed the provision relating to allowance for new machinery as operative where machinery is installed in an industrial undertaking for the purpose of manufacture or production. It held that 'for the purpose of business or manufacture' covers undertaking's manufacturing activities even when raw materials are supplied by others. Having concluded that the processes carried on by the assessee amount to manufacture, the Tribunal held that the condition for allowance of initial depreciation is satisfied. The decision of the Madras High Court in a similar factual situation was noted in support of this conclusion. [Paras 5, 7]The assessee is entitled to the allowance under section 32(1)(vi) in respect of machinery used in the manufacturing operations.Final Conclusion: Appeal allowed: the Tribunal held that the conversion of rough castings into finished bearing shells constitutes manufacturing; the assessee is entitled to relief under s. 80J and to the allowance under s. 32(1)(vi) for asst. yr. 1974-75. Issues:1. Rejection of claim under section 80J and initial depreciation by the ITO.2. Conflicting decisions in previous years' assessments.3. Determining whether the operations constitute manufacturing activities for claiming relief under section 80J and allowance under section 32(1)(vi).Detailed Analysis:1. The ITO rejected the claim of relief under section 80J and initial depreciation for specific sums. The matter was then taken to the AAC, who dismissed the appeal based on previous decisions against the assessee by the Madras Bench B of the Tribunal. The Full Bench was referred to due to conflicting decisions in previous years (1974-75 and 1975-76) and a decision in favor of the assessee in a different case. The issue revolved around the interpretation and application of these sections.2. The appellant's representative enumerated the various operations carried out on rough castings to manufacture bearing shells, arguing that these operations constituted production or manufacture. The representative presented a detailed list of operations and cited various legal precedents to support the claim. The Departmental Representative contended that the activities were akin to a machine job and did not amount to manufacturing. The crux of the issue was whether the operations qualified as manufacturing under the relevant provisions.3. The Tribunal analyzed the nature of the operations performed by the assessee to transform rough castings into finished products. After examining the details and exhibits, the Tribunal concluded that the activities indeed constituted manufacturing. The Tribunal rejected the Department's argument that the service charges received by the assessee negated its status as a manufacturing undertaking. Citing a recent decision by the Madras High Court, the Tribunal affirmed that the assessee was entitled to relief under section 80J and the allowance under section 32(1)(vi) based on the manufacturing activities conducted.In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee based on the manufacturing nature of the operations performed on the rough castings. The judgment clarified the interpretation of relevant sections and emphasized that the transformation of raw materials into finished products qualified as manufacturing for the purpose of claiming statutory reliefs and allowances.