TaxTMI 
TaxTMI 
2005 (4) TMI 247
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....he appellant is a manufacturing concern exclusively deriving profits and gains from manufacturing of bread by transforming maida along with other materials through a mechanized process with the aid of labour and power and marketing the end product as a commodity different from raw material. The appellant is covered by the definition of industrial undertaking given in Explanation to s. 33B of the IT Act, 1961, and thus very much eligible for claiming deduction under s. 80-IB." It is stay granted appeal. 2. The facts of the case are that the assessee is engaged in preparation of bread at Gangyal, Jammu, under the name and style of M/s Aagam Food Industries. The assessee has shown profit of Rs. 16,06,870 from this unit which has been claimed as a deduction under s. 80-IB of the IT Act. The AO found that the assessee is simply converting raw food items like Maida, sugar, oil and yeast into bread. According to the AO, in this way, no new product is manufactured or produced. The foodstuff prepared by way of cooking or by any other process including baking, etc. from raw material such as cereal, pulses, vegetables, meat and the like cannot be regarded as a commercially distinct commodit....
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....consider the submissions of the assessee favourably and relying upon the decision of the Hon'ble Supreme Court in the matter of Indian Hotels Co. Ltd. and decision of the Hon'ble Madras High Court in the matter of CWT vs. P. Devasahayam, held that the preparation of the bread from items as done by the assessee is in no way manufacture or processing and hence the profit is in noway qualified for deduction under s. 80-IB of the IT Act. According to the AO, the assessee does not qualify for deduction under s. 80-IB of the Act as it is neither a manufacturer or producing any article which is prerequisite for any assessee to claim deduction. Accordingly, deduction claimed by the assessee to the extent of Rs. 16,06,870 was withdrawn and added back to the income of the assessee. 3. The addition was challenged before the CIT(A) and it was submitted that the AO is not justified in withdrawing the deduction claimed by the assessee rightly and correctly under s. 80-IA as the assessee is registered with the Directorate of Industries holding power licence of 104 HP as an industry, which has been further increased by 10 HP. It was also explained that the assessee is registered under the Factori....
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....ing fermentation, then transferred to oven plant for baking. VIII. Thereafter, depaning is done manually and the bread so manufactured is taken to cooling tunnel in the trolleys. IX. Finally, after slicing the beads which is done through high speed slicer plant, the breads are packed through semi-mechanised process. Thereafter, put into crates for distribution in the market. 4. The assessee also filed photocopies of the plant to show the manufacturing process. It was also explained that all the processes which are totally mechanised with the aid of power and with the involvement of labour, raw material, viz., maida, sugar, yeast, oil/fat, salt, preservatives with improver/cake mix is transformed through process of mixing, dividing, founding, prooving, moulding, fermenting, baking, cooling, slicing, packing into bread loaf having distinct name, character and use. It was further explained that the test which is required to apply is "Does the processing of the original commodity bring into existence a commercially different and distinct article." 5. The assessee explained that through the aforesaid process mentioned above, the end-product as a commodity is different from the raw m....
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..... Ltd. & Ors. as well as the decision of the Hon'ble Madras High Court in the case of P. Devasahayam. I have also taken note of the various arguments put forward by the AO in the assessment order in order to substantiate his finding that the appellant cannot be said to be engaged in the business of manufacture of bread. It is noticed that the AO while doing so has extensively relied on decision of the Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd. & Ors. as well as, decision of the Hon'ble Madras High Court in the case of P. Devasahayam. After considering the rival submissions, I am of the opinion that the issue that requires to be decided here is whether the appellant's case can be said to be covered in cl. (iii) of sub-s. (2) of s. 80-IB which requires that one of the conditions for availing the said deduction is that the assessee should be engaged in the manufacture or production of any article or thing not being an article or thing specified in the list in XIth Schedule. The word 'manufacture' or 'production' has received extensive judicial interpretation both under the IT Act as well as Central Excise Act and also under various sales-tax laws. It is well-settled l....
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....refore, the Hon'ble Supreme Court in the above case held that the flight kitchen operated by the assessee-Indian Hotels Co. Ltd. & Ors. is not entitled to get the benefit of deduction under s. 80-J. In view of the finding referred to above of the Hon'ble Supreme Court in the above case law, it is seen that the facts of this case are similar to the facts involved in that case. It is true that in the case of Indian Hotels Co. Ltd. & Ors., the main business of the appellant was running of a hotel and the appellant was in addition to the business of running of hotel and involved in operating a flight kitchen, i.e., providing food to the air passengers in the aircraft. Incidentally in that case, the Hon'ble Supreme Court in that case also considered the use of machinery, which has been emphasised by the appellant in this case and even after considering the same, it was held that the preparation of food does not amount to manufacture of any article or thing. Further, it is seen that the decision of Hon'ble Madras High Court in the case of CWT vs. P. Devasahayam is also applicable to the facts of the case because in that case, the appellant was engaged in the making of biscuits/sweets and....
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....re the authorities below and submitted that it was third year of manufacturing and in earlier years, the claim was not disputed as a return was processed under s. 143(1)(a). He has further submitted that the assessee started production on 18th Oct., 1998, and registered with the District Industries Centre, Jammu, and has sanction of H.P. power load for industrial purpose. He has further submitted that the assessee also registered with the Chief Inspectors of Factories. He has filed copy of process of manufacturing of bread in the unit, which is reproduced above and he has also filed photocopies of various processes done in the unit of the assessee to manufacture and produce the bread. The learned counsel for the assessee referred to the definition of industrial undertaking as was referred to in s. 80-IA(12) prior to the year 2000 and submitted that the definition of "Industrial undertaking" as defined in Explanation to s. 33B is applicable in this case which defined 'Industrial undertaking' means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or pro....
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.... to a new business of machinery or plant previously used for any purpose: (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power. 11. There is no dispute as regards facts of the case and we also do not find any serious dispute as regards to the above conditions fulfilled by the assessee as the assessee has specifically submitted that the assessee was registered with the Directorate of Industries holding power licence of 140 H.P. as an industry and unit is installed in industrial area and was not formed by splitting up, or the reconstruction of the business already in existence. It was also not formed by transfer to a new business of machinery or plant previously used for any purpose. It did not manufacture or produce the article or thin....
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....ndertaking which shall have the meaning assigned in Explanation to s. 33B. There is no amendment to such definition. The Explanation to s. 33B provides, "industrial undertaking" means "any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining." Therefore, the industrial undertaking for the purpose of this appeal would include the undertakings manufacturing or processing of goods. The word 'manufacture' has not been defined in the IT Act. The Income-tax Law by Chaturvedi & Pithisaria defines it (manufacture) as "the production of articles for use from raw or prepared materials by giving these materials new forms, qualities, properties or combinations, whether by hand labour or machinery, also anything made for use from raw or prepared materials". The expression "manufacture" has in ordinary acceptance a wide connotation; it means making of articles or material commercially different from the basic components, by physical labour or mechanical process, and a manufacturer is a person by whom, or under whose direction or control ....
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....tanding trees into logs, labour was required as something is converted into something else, viz., logs. He was of the view that the logs could be said to be a new product emerging out of manufacturing process. He accordingly held that the assessee was entitled to deduction under s. 80J of the IT Act. The Tribunal confirmed the order of the AAC and also referred to Board's circular. The matter was then considered by the jurisdictional High Court on these facts. The Hon'ble High Court, considering the above facts and submissions of the parties, was of the view that in order to claim relief the industrial undertaking must manufacture or produce articles and these conditions ate precedent. The Hon'ble High Court observed that admittedly, the assessee cut trees in the forest, converted them not only into logs but also into planks and other articles for the purpose of sale. The production of planks and other articles during the year constituted 60 per cent of the total production of the assessee. There can be no dispute about the fact that logs and planks are articles. The Hon'ble High Court further observed that the uncontroverted factual position is that the assessee did not purchase l....
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....facture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity." 15. The Hon'ble Supreme Court in the matter of Kores India Ltd. vs. CCE Chennai 2004 (174) ELT 7 (SC) held that the cutting of jumbo rolls of typewriter/telex paper into smaller rolls amounts to manufacture since distinct identifiable article, having distinct name, function and use has arisen. 16. Considering the explanation of the assessee and various manufacturing processes explained and reproduced above, we are of the opinion that the bread manufactured/produced by manufacturing unit of the assessee falls within the definition of manufacture for claiming deduction under s. 80-IB. We, on consideration of the principles decided by the jurisdictional High Court in the matter of Abdul Ahad Najai, decisions of the Hon'ble Supreme Court in the matters of N.C. Budharaja & Co. and Kores India Ltd. are of the view that the bread so manufactured or produced can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity. The assessee has explained nine steps of manufacturing reproduced in para 3 of this order thro....
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....essee was having chain of hotels and operation of flight kitchen was ancillary to its business of hotel and not an industrial undertaking. In this case, the business of the assessee is that of hotel, which was found to be a trading activity. Therefore, the foodstuff sold by the assessee hotel was not considered to be an industrial undertaking. However, in the present appeal, the assessee is running an industrial undertaking registered with the Director of Industries. Therefore, the facts are clearly distinguished. The authorities below also relied upon the decision of the Hon'ble Madras High Court in the matter of CWT vs. P. Devasahayam in which the case under WT Act was considered and assessee's activity consists of preparing sweetmeats and biscuits out of raw material, which was mainly intended in trading in a stall and the preparation of foodstuffs was incidental to trading and, therefore, it was not considered to be an industrial undertaking. However, in the preserve appeal, the assessee is dealing with the manufacturing activity having installed a proper plant and machinery with complete manufacturing process, registered with the Industries Department in which bread is supplie....