COMMISSIONER OF INCOME TAX vs. SIDRAL FOOD PVT LTD.

ITR/200/1994HC GujaratGJHC24020276199413 October 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI12 pages
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What were the facts?

The assessee, Sidral Food Pvt Ltd., is engaged in the business of manufacturing breads, biscuits, and cakes. For Assessment Year 1988-89, the assessee claimed investment allowance of Rs. 1,30,037/- on plant and machinery installed and used for this purpose. The Assessing Officer disallowed the claim, stating that running a bakery does not constitute manufacture or production and that a statutory reserve was not created. The CIT(Appeals) confirmed the disallowance on the ground of non-creation of the statutory reserve. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's claim, finding that the assessee operated a semi-automatic plant, employed workers, and used raw materials like flour, ghee, and sugar to produce distinct commercial commodities. The ITAT also held that creating the statutory reserve in the succeeding year constituted sufficient compliance.

What did the High Court hold?

The High Court held that the assessee is entitled to the grant of investment allowance. Regarding the issue of manufacture or production, the Court applied the tests laid down in M/s. Pio Food Packers, finding that the assessee uses raw materials like flour, ghee, and sugar, and the end products (breads, biscuits, cakes) are regarded in the trade as distinct in identity from the raw materials. The processing undertaken results in a new and distinct commercial commodity where the inputs are no longer identifiable. Therefore, the activity constitutes manufacture. Concerning the statutory reserve, the Court noted the Tribunal's finding that the reserve was created in the immediately succeeding Assessment Year 1989-90, which was considered sufficient compliance with the relevant provisions and CBDT clarifications, especially with the retrospective amendment to Section 32A(4)(ii). The Court answered the reference in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to grant of investment allowance in respect of plant and machinery installed and put to use for the manufacture of various products like breads, biscuits and cakes? (Question of law turning on Section 32A of the Income Tax Act, 1961). Assessee's Contentions: Not explicitly recorded as the assessee did not appear. However, the Tribunal's findings suggest the assessee argued that its activities constituted manufacture or production, and that the creation of the statutory reserve in the succeeding year was sufficient compliance. Revenue's Contentions: The revenue argued that the assessee's activity of running a bakery and preparing food articles does not constitute manufacture or production. It contended that the raw materials remained edible items after processing, thus not fulfilling the test laid down in M/s. Pio Food Packers. The revenue also pointed out the non-creation of the statutory reserve in the relevant year.

Which sections of the Income-tax Act were involved?

Section 32A,Section 32A(1),Section 32A(4)(ii)

AI-generated summary — verify with the full judgment below

ITR/200/1994 1/12 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 200 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================= COMMISSIONER OF INCOME TAX - Applicant(s) Versus SIDRAL FOOD PVT LTD. - Respondent(s) ================================================ Appearance : MR TANVISH U.BHATT FOR MR BB NAIK for Applicant(s) : 1, NOTICE SERVED for Respondent(s) : 1, ===============================================

ITR/200/1994 2/12 JUDGMENT CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 13/10/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appe

The order continues below.

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