C.I.T. PATIALA vs. M/S MOUNT SHIVALIK BREWERIES LTD.

ITR/22/1997HC Punjab & HaryanaPHHC01035386199723 September 2010Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL10 pages
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What were the facts?

The assessee, M/s Mount Shivalik Breweries Ltd., filed its return for assessment year 1983-84 late. The Assessing Officer initially allowed investment allowance but disallowed deduction under Section 80-I. Subsequently, an application under Section 154 led to the allowance of deduction under Section 80-I and deletion of rest-house expense disallowance. The Commissioner of Income-Tax (CIT) invoked Section 263, seeking to withdraw the investment allowance and Section 80-I deduction, holding that the assessee's undertaking was not engaged in manufacturing. The Income Tax Appellate Tribunal (Tribunal) set aside the CIT's order and upheld the Assessing Officer's decision. The revenue filed a reference to the High Court. The High Court was considering three related matters: ITR Nos. 22 and 128 of 1997, and ITA No. 86 of 2000, all concerning the same assessee and assessment years 1983-84 to 1985-86.

What did the High Court hold?

The High Court held that the Tribunal was right in concluding that the assessee was engaged in manufacturing activity. The Court reasoned that the process of converting rectified spirit into rum, whisky, and brandy resulted in a commercially distinct commodity recognized in the market as different from the original rectified spirit, which is not fit for human consumption. This aligns with the test for manufacture laid down in various Supreme Court judgments, including CIT v. N.C. Budharaja & Co. and Dy. CST v. Pio Food Packers. Regarding the applicability of Schedule XI, the Court noted that the revenue could not controvert the finding that the assessee was a Small Scale Industrial Undertaking. Consequently, the second proviso to Clause (iii) of sub-section (2) of Section 80-I and sub-clause (ii) of clause (b) of sub-section (2) of Section 32A of the Act meant that the benefits of Section 80-I and Section 32A could not be denied to the assessee. The question of law was answered against the revenue and in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was eligible for investment allowance under Section 32A and deduction under Section 80-I of the Income Tax Act, 1961, in regard to its new industrial unit set up at Chandigarh? Assessee's Contention: The assessee argued that it was engaged in the manufacture of India-made foreign liquor (IMFL) by blending and preparing rectified spirit to make it fit for human consumption. It relied on the Madras High Court's decision in CIT v. Vinbros & Co. (2008) and emphasized that it was a small-scale industry, making the exclusion clause under Schedule XI inapplicable. Revenue's Contention: The revenue contended that the Tribunal erred in allowing investment allowance and Section 80-I deduction. It argued that there was no manufacturing or production in the spirit bottling plant and IMFL unit. The revenue further submitted that the product fell under Schedule XI of the Act, making the deductions inadmissible.

Which sections of the Income-tax Act were involved?

Section 32A,Section 80-I,Section 263,Section 154,Section 40A(5)

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 23.9.2010 Commissioner of Income-tax, Patiala ....Petitioner. Versus M/s Mount Shivalik Breweries Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Tajender K. Joshi, Advocate for the revenue. Mr. S.K. Mukhi, Advocate for the assessee. AJAY KUMAR MITTAL, J.

1.

This order shall dispose of ITR Nos. 22 and 128 of 1997 and ITA No. 86 of 2000 as common questions of law and facts are involved therein. Being identical matters, the facts are being extracted from ITR No. 22 of 1997. 2. On the directions of this Court vide orders dated 15.5.1996 in ITC Nos. 61 to 63 of 1995, the Income Tax Appellate Tribunal, Chandigarh Bench (in short “the Tribunal”) has referred the following question of law arising out of its order dated 29.3.1994 in ITA Nos. 463 to 465/Chandi/88, for the assessment years 1983-84 to 1985-86 for its opinion:- “Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was eligible for investment allowance -2- unde

The order continues below.

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