COMMISSIONER OF INCOME TAX vs. GUJARAT MINERAL DEVELOPMENT CORPORATION LTD.

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TAXAP/360/2006HC GujaratGJHC24037346200614 November 2014Bench: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the extraction and selling of lignite by the assessee amounts to 'production' within the meaning of the Income Tax Act, 1961. The Court relied on the Supreme Court's decision in Commissioner of Income-Tax v. Sesa Goa Ltd. (271 ITR 331) and its subsequent follow-up (287 ITR 416). In Sesa Goa Ltd., the Supreme Court had held that mining of ore is treated as 'production' and that the language used in sections like 33(1)(b) and 35E, which refer to production in the context of mining, is similar to the language in Section 32A(2). Therefore, there was no reason to assume 'production' was used in a different sense in Section 32A. Consequently, the assessee was entitled to the benefit of Section 80-I. The Court answered the substantial question of law in favour of the assessee and against the Department. Both appeals were dismissed.

What were the facts?

The Commissioner of Income Tax (appellant) challenged the Income Tax Appellate Tribunal's (Tribunal) decision in Tax Appeal No. 360 of 2006 and Tax Appeal No. 361 of 2006, concerning assessment years 1992-1993 and 1993-1994 respectively. The assessee, Gujarat Mineral Development Corporation Ltd., claimed deduction under Section 80-I of the Income Tax Act, 1961, for its lignite extraction and sale activities. The Assessing Officer disallowed this claim, holding that the deduction was not available for activities not resulting in the production of articles or things not included in the XI Schedule. The Commissioner (Appeals) upheld this disallowance. The Tribunal, however, allowed the assessee's claim, relying on a previous year's decision.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the deduction under Section 80-I of the Income Tax Act, 1961, on the extraction and selling of lignite? Assessee's Contention: The assessee contended that its activity of extraction and selling of lignite amounts to 'production' and is therefore eligible for the deduction under Section 80-I. The assessee relied on the Supreme Court decision in Commissioner of Income-Tax v. Sesa Goa Ltd. (271 ITR 331), which was subsequently followed in 287 ITR 416, holding that mining of ore is treated as 'production' for the purposes of other sections of the Act (like Section 33(1)(b) read with the Fifth Schedule, and Section 35E), and that the word 'production' in Section 32A(2) should be interpreted similarly. Revenue's Contention: The revenue argued that the Tribunal's view was contrary to law and should be quashed. The Assessing Officer's original reasoning was that the deduction was available only for industries producing articles or things not included in the XI Schedule, and that lignite extraction did not qualify as 'manufacture' or 'production' in this context.

Which sections of the Income-tax Act were involved?

Section 80-I,Section 33(1)(b),Section 35E,Section 32A(2)

AI-generated summary — verify with the full judgment below

O/TAXAP/360/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 360 of 2006 With TAX APPEAL NO. 361 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/- and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 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 ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus GUJARAT MINERAL DEVELOPMENT CORPORATION LTD.....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 14/11/2014 COMMON ORAL JUDGMENT Page 1 of 5

O/TAXAP/360/2006 JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of these Appeals, the appellant has challenged the judgment and order of the Income Tax Appellate Tribunal as per the following details, whereby the Tribunal has dismissed the Appeal of the Department :- Tax Appeal ITA No. Assessment Year 360/2006 96/AHD/99 1992 – 1993 361/2006 937/AHD/99 1993 – 1994 2.While admitting the matters on 04.09.2006, the following substantial question of law was framed :- “(i) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the deduction u/s 80-I of the Income Tax Act, 1961 on the extraction and selling of lignite?” 3.The facts in brief giving rise to the above Appeals are that :- It is the case of the appellant that the assessee is engaged in mining and sale of lignite. It had claimed deduction u/s. 80-I of the Act on its projects. During the assessment proceedings, the Assessing Officer noticed that the respondent had debited expenses of Multi Metal Project but as per the Audit Report, the said project at Ambaji Page 2 of 5

O/TAXAP/360/2006 JUDGMENT was under installation and the same was a pre-operative expenses. On the claim of deduction, the Assessing Officer rejected the claim holding that the same is available to those industries, which produces articles or things not included in XI Schedule. After considered the settled legal principles of the words “manufacture” and “production”, the claim was disallowed. The Commissioner (Appeals) confirmed the addition. On further appeal, the Appellate Tribunal relying upon a case of previous year, allowed the claim. 4.Learned Advocate Mrs. Mauna M. Bhatt for the appellant – the Department has contended that the view taken by the Income Tax Appellate Tribunal is contrary to law and deserves to be quashed and set aside. 5.However, learned Senior Counsel for the respondent Mr. S.N. Soparkar has contended that the issue is covered by the decision of the Supreme Court in the case of Commissioner of Income-Tax v. Sesa Goa Ltd. reported in 271 Income Tax Reports 331 and which was subsequently followed in 287 Income Tax Reports 416. Relevant part of the above decision reads as Page 3 of 5

O/TAXAP/360/2006 JUDGMENT under :- “Learned counsel appearing on behalf of the assessee, correctly submitted that the other provisions of the Act, particularly section 33(1)(b) (B) read with Item No.3 of the Fifth Schedule to the Act, would show that mining of ore is treated as “production” Section 35E also speaks of production in the context of mining activity. The language of these sections is similar to the language of section 32A(2). There is no reason for us to assume that the word “production” was used in a different sense in section 32A. We are, therefore, of the opinion that extraction of processing of iron ore amounts to “production” within the meaning of the word in section 32A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to “manufacture” is left open.” 6.In view of the above, the question is answered in favour of the assessee and in negative against the Department as the facts are akin in the cases. Hence, both the appeals stand dismissed. Sd/- (K.S. JHAVERI, J.) Page 4 of 5

O/TAXAP/360/2006 JUDGMENT Sd/- (K.J. THAKER, J) CAROLINE Page 5 of 5

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