SHAKUNTALA DEVI vs. C I T KOTA

Facts

The assessee, Smt. Shakuntala Devi, engaged in the business of producing gitti from sandstone blocks, claimed a deduction under Section 80IA of the Income Tax Act, 1961 for assessment year 2003-04. The Assessing Officer rejected this claim, holding that the activity did not constitute 'manufacturing' or 'production'. The assessee appealed to the Commissioner of Income Tax (Appeals) and succeeded. The Department then appealed to the Income Tax Appellate Tribunal, which allowed the Department's appeal, leading to the present appeal before the High Court. The dispute centers on whether the assessee's activity qualifies for the deduction.

Held

The High Court held that the substantial question of law was no longer res integra and had been decided by the Supreme Court in Income Tax Officer Vs. Arihant Tiles & Marbles P. Limited (supra). The Supreme Court, in that case, observed that blocks converted into polished slabs and tiles after undergoing a process result in the emergence of a new and distinct commodity. The original block ceases to be a marble block and becomes a slab or tile. The Court found that this constituted not only manufacture but also an activity beyond manufacture, bringing a new product into existence. Therefore, the activity undertaken by the assessees constituted manufacture or production in terms of Section 80-IA of the Income-tax Act, 1961. The Court also noted that accepting the Department's contention would have serious revenue consequences, as assessees might claim exemption from excise duty and sales tax. The appeal was allowed, and the substantial question of law was answered in favour of the assessee.

Key Issues

1. Whether the expression ‘production’ used under Section 80IB of the Income-tax Act, 1961, where both ‘manufacture’ and ‘production’ are used, are synonyms, or if ‘production’ has a wider meaning than ‘manufacture’ to include activities that may not be ‘manufacture’ but are still ‘production’, as held in Arihant Tiles & Marbles (P) Ltd. Vs. ITO, (2007) 211 CTR (Raj.) 169, following CIT Vs. Sesa Goa Ltd., (2004) 271 ITR 331 (SC)? (Question of law) Assessee's contention: Relied on the Supreme Court decision in Income Tax Officer Vs. Arihant Tiles & Marbles P. Limited [2010] 320 ITR 79 (SC). Revenue's contention: Relied on the decision of the High Court in CIT Vs. Lucky Mineral Pvt. Ltd. (supra).