Manufacturing activity arising from self-produced inputs prevents levy of additional income tax under section 104.

Whether an enterprise that produces bricks, roofing, flooring and timber for use in its construction contracts is predominantly a manufacturing undertaking was decided by applying the principle that production of significant inputs incorporated into the final product constitutes manufacturing; where such manufacturing is predominant, the levy of additional income-tax under section 104 cannot be sustained. The tribunal concluded the assessee's self-manufacture of those inputs and their incorporation into buildings amounted to predominant manufacturing activity and set aside the additional-tax orders.

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Issues: (i) Whether the assessee-company, which manufactures bricks, roofing, flooring and timber work for use in its construction contracts, was engaged predominantly in manufacturing activity such that additional income-tax under section 104 of the Income-tax Act, 1961 could not be levied.

Analysis: The Tribunal examined whether the activities of producing bricks, concrete work, roofing, flooring and timber work constituted manufacturing or production of articles and whether those self-manufactured materials were incorporated into the end product (buildings) so as to make the assessee predominantly a manufacturing undertaking. The Tribunal considered precedents on works contracts and production of end products, and contrasted cases where all raw materials were purchased with the present facts where the assessee manufactured its own inputs ultimately used in construction.

Conclusion: The Tribunal concluded that the assessee's manufacture of bricks, roofing, flooring and timber work amounted to manufacturing activity and that, taken with the use of those self-manufactured inputs in construction, the assessee was to be treated as predominantly engaged in manufacturing activity; consequently, additional income-tax under section 104 of the Income-tax Act, 1961 could not be levied. The appeals are allowed and the orders under section 104 passed by the Assessing Officer and confirmed by the CIT(A) are cancelled.

Ratio Decidendi: Where an assessee manufactures significant inputs (bricks, roofing, flooring, timber work) which are incorporated into the final product, those activities constitute manufacturing and, if predominant, preclude charging additional tax under section 104 of the Income-tax Act, 1961.

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