C.I.T. vs. BHIKKAMAL CHHOTALAL

O/TAXAP/214/2003 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 214 of 2003 TO TAX APPEAL NO. 217 of 2003

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 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 ? ================================================================ C.I.T.....Appellant(s) Versus BHIKKAMAL CHHOTALAL....Opponent(s) ================================================================ Appearance: MS MAUNA BHATT, ADVOCATE for the Appellant(s) No. 1 MR YN RAVANI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 6

O/TAXAP/214/2003 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 15/10/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and orders passed by the Income Tax Appellate Tribunal, Rajkot Bench (hereinafter referred to as ‘the Tribunal’) dated 03.02.2003 in ITA Nos. 96/AHD/96, 97/AHD/96, 98/AHD/96, 99/AHD/96 for the Assessment Years 1985-86, 1986-87, 1990-91 and 1991-92 respectively, the revenue has preferred the present Tax Appeals for consideration of the following substantial question of law: Whether, the Appellate Tribunal was right in law and on facts in allowing the deduction u/s 80-HH and 80-I to the assessee, holding that ship breaking activity is a manufacturing activity and as a result of which a new article or a thing is produced? 2. The assessee firm is engaged in the business of ship breaking at Alang Port. During the years under consideration, the assessee claimed deduction u/s 80HH and 80-I on the ground that ship-breaking activity is manufacturing activity. The Assessing Officer rejected the claim on the ground that ship breaking activity cannot be considered to be an industrial undertaking engaged in manufacture or production of articles or things. On appeal the CIT (Appeals) set aside the disllowance of the Assessing Officer relying upon a decision of the Tribunal in the case of another assessee. Page 2 of 6

O/TAXAP/214/2003 JUDGMENT 3. On appeal before the Tribunal by the revenue, by impugned judgment and orders, Tribunal has held that ship breaking activity gives rise to manufacture and production of altogether a new article and hence the undertaking is entitled to deduction under sections 80HH and 80-I of the Act. 4. Being aggrieved and dissatisfied with the impugned orders passed by the Tribunal, the revenue has preferred the present Tax Appeals for consideration of the aforesaid substantial question of law. 5. The issue involved in the present Tax Appeal is now not res integra in view of the decision of the Honble Supreme Court in the case of Vijay Ship Breaking Corporation and Others vs. C.I.T reported in (2009) 314 ITR 309 wherein the Hon’ble Supreme Court has held as under. “7. We do not agree with the view taken by the Gujarat High Court in the impugned judgment for the following reasons: 8. Firstly, in the case of Ship Scrap Traders v. CIT [2001] 251 ITR 806, the Bombay High Court has analysed the entire ship breaking activity, the articles which emerged from that activity, the various steps which are required to be undertaken for ship breaking activity and, consequently, after placing reliance on the judgment of this Court in NC Budharaja & Co."s case, it has held that the ship breaking activity resulted in production of articles which emerged when the ship breaking activity stood undertaken. In our view, the important test which distinguishes the word "production" from "manufacture" is that the word "production" is wider than the word "manufacture" as held in N.C. Budharaja & Co."s case. Further, it is true that in N.C. Budharaja & Co."s case, the Page 3 of 6

O/TAXAP/214/2003 JUDGMENT Division Bench has used the words "new article". However, what the Division Bench meant was that a distinct article emerges when the process of ship breaking is undertaken. Further, the Legislature has used the words "manufacture" or "production". Therefore, the word "production" cannot derive its colour from the word "manufacture". Further, even according to the dictionary meaning of word "production", the word "produce" is defined as something which is brought forth or yielded either naturally or as a result of effort and work. It is important to note that the word "new" is not used in the definition of the word "produce". 9. Secondly, the judgment of the Bombay High Court in the case of Ship Scrap Traders stands affirmed by the judgment of this Court in the case of CIT v. Sesa Goa Ltd. [2004] 271 ITR 331. In that case, the question arose before a Bench of three Judges of this Court was as to whether extraction and processing of mineral ore amounts to production within the meaning of the word in section 32A(2)(b)(iii) of the 1961 Act? It was held that the word "production" is wider than the word "manufacture". It was held that the word "production" has a wider connotation than the word "manufacture". It was further held that the mined ore need not be a new product. In fact, the Department had raised an identical argument in that case stating that the mined ore was not a new product and, consequently, there was no production. This argument has been specifically rejected in Sesa Goa Ltd."s case. 10. For the aforestated reasons, therefore, we are of the view that the Tribunal in the present case was right in allowing the deduction under sections 80HH and 80-I to the assessee holding that the ship breaking activity gave rise to the production of a distinct and different article. Accordingly, the said question is answered in favour of the assessee and against the Department.” 5.1. In the aforesaid decision the Honble Supreme Court has held that ship breaking activity gave rise to the production of Page 4 of 6

O/TAXAP/214/2003 JUDGMENT a distinct and different article and therefore the assessee is entitled to deduction under sections 80HH and 80-I of the Act. 6. Ms. Mauna Bhatt, learned advocate on behalf of the revenue is not in a position to dispute the above and is not in a position to show and/or point out any contrary decision. 7. Having heard learned advocates appearing on behalf of the assessee and the question posed for consideration before us reproduced hereinabove and considering the decision of the Honble the Supreme Court in the case of Vijay Ship Breaking Corporation and Others (Supra), the question, which is raised in the present appeals is required to be answered in favour of the assessee. We are not giving any elaborate reasons for the same as in the case of Vijay Ship Breaking Corporation and Others (Supra) it is held by Honble the Supreme Court that ship breaking activity gave rise to the production of a distinct and different article and therefore the deduction under section 80HH and 80-I is required to be given. Accordingly, the question is answered in the negative i.e. against the appellant – revenue and in favour of the assessee. 8. In view of the above, the impugned judgment and orders passed by the Tribunal are confirmed. Hence, the present Tax Appeals are dismissed. (K.S.JHAVERI, J.) Page 5 of 6

O/TAXAP/214/2003 JUDGMENT (K.J.THAKER, J) divya Page 6 of 6