C I T JAIPUR vs. M/S MANGLAM ARTS

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 174 / 2011 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 123 / 2012 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur ----Respondent D.B. Income Tax Appeal No. 125 / 2012 Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/S Manglam Arts, Govind Nagar, Amber Palace Raod, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur For Respondent(s) : Mr. Sanjay Jhanwar Ms. Archana _____________________________________________________ HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE GOVERDHAN BARDHAR Judgment 28/03/2017

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Applications (15048/2016, 15049/2016 & 15047/2016) for framing additional substantial question of law are allowed and the following question is framed in all these appeals: “Whether in the fact and circumstances of the case the ITAT was justified in law in directing to allow deduction under section 10BA despite of the fact that the assessee was not fulfilling the conditions laid down in the Act for claiming the said deduction?” By way of these appeals, the appellants have challenged the order of Income Tax Appellate Tribunal whereby the appeal preferred by the Department was dismissed. The appeal was admitted on following substantial question of law:- "whether in the facts and circumstances of the case, the ITAT was justified in law in deleting addition for depositing the EST & PF beyond the prescribed time despite the fact that as per Section 36(1)(va) employees contribution should have been deposited in time as prescribed in the relevant law. Section 43B permits delayed payment if paid before filing of ROI as per Section 139(1) in case of employer's contribution not in the case of employee's contribution." The issue is squarely covered by decision of this Court in D.B. Income Tax Appeal No.25/2009( Commissioner of Income Tax, Jaipur-II, Jaipur Vs. M/s Manglam Arts,) dated 14.02.2017 wherein this Court in para 4, 6, 7,12 & 13 has held as under:- 4. He has contended that the word which has been used in the section ‘manufacturing or

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process’ is to be construed very strictly and since it is an exemption, it should be equated with the provisions of Section 80I which has been interpreted by the Supreme Court in the case of Commissioner of Income-Tax Vs. Gem India Manufacturing Co.- (2001) 249 ITR 307, wherein it has been held as under:- 4. The Tribunal took the view that it did because in "common parlance and

commercial

sense

raw diamonds are not the same thing as polished and cut diamonds. The two are different entities in the commercial world. Though the chemical composition remains the same the physical characteristics of shape and class, etc., are substantially different". It would appear that no material had been placed on the record before the Tribunal upon which it could have reached the conclusions that, either in common or in commercial parlance, raw diamonds were not the same thing as polished and cut diamonds, and that they were different entities in the commercial world. An ipse dixit of the Tribunal is not the best foundation for a decision. “5. The High Court, as aforestated, concluded that the case was covered by its decision in the case of CIT v. London Star Diamond Co. (I.) Ltd.: [1995]213ITR517(Bom) . It was not pointed out to the High Court that the question in that case was whether the assessee was an industrial company within the meaning of Section 2(8) of the Finance Act, 1975, and that, in answering that question, the High Court had held that raw diamonds and cut and polished diamonds were different and distinct marketable commodities having different uses;

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therefore, a company engaged in cutting and polishing raw diamonds for the purpose of export was engaged in the "processing of goods" to convert them into marketable form. The question that the High Court and we are here concerned with is whether, in cutting and polishing diamonds, the assessee manufactures or produces articles or things. 6. There can be little difficulty in holding that the raw and uncut diamond is subjected to a process of cutting and polishing which yields the polished diamond, but that is not to say that the polished diamond is a new article or thing which is the result of manufacture or production. There is no material on the record upon which such a conclusion can be reached. 7. The appeal is, therefore, allowed. The order under challenge is sot aside. The question quoted above is answered in the negative and in favour of the Revenue. The assessee shall pay to the Revenue the costs of the appeal.” 6. Mr. Jhanwar, counsel for the respondent has taken us to the judgment of the Tribunal and contended that while considering the process which has been undertaken by the assessee, the Tribunal has observed as under: “The various activities carried out by the appellant, are as under:- (i) Firstly, the appellant purchases wood, semi finished material which requires further wood and other work of beautification and of artistic value. There apart, the other raw material, the wooden out of which is the main, and others i.e. grass, nails etc. are purchased. (ii) Thereafter various other items are added depending upon the

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designs, size, quality of the subjected item to be exported, (iii) After purchasing the semi finished goods and raw material, as stated above, the very first step is to assemble the same, if so required. Some time the semi finished furniture is required to be given further shape as per the desired exportable designs. (iv) Thereafter, punching is done by hammering nails by hand. It is pure labour work which can be done by experts only. It may be noted that the nails are of special type having artistic and antique look. (v) Fitting of brass and iron items again with a view to give artistic and antique look. (vi) Filling and filing with a view to smoothen the surface. (vii) Sanding (viii) Carving with a view to bring the artistic value and to show that these are antique items. (ix) And lastly polishing (x) Thereafter, various wooden items are fitted according to the need and design of the exportable wooden article, i.e. wooden moulding is fitted Inlay is done.” 7. He contended that taking into consideration the observations made by the Supreme Court in the case of Income Tax Officer, Udaipur Vs. Arihant Tiles and Marbles (P) Ltd.- (2010) 320 ITR 79 (SC), the Supreme Court has observed as under: “16. In the case of Aman Marble Industries Pvt. Ltd. v. Collector of Central

Excise reported in MANU/SC/0858/2003 : 157 ELT 393(SC), the question that arose for consideration was whether

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cutting of marble blocks into marble

slabs

amounted

to manufacture for the purposes of Central Excise Act. At the outset, we may point out that in the present case, we are not only concerned

with

the

word "manufacture", but we are also concerned with the connotation of the

word

"production"

in Section 80IA of the Income Tax Act, 1961, which, as stated herein- above, has a wider meaning as compared

the

word "manufacture". Further, when one refers to the word "production", it means manufacture plus something in addition thereto. The word "production" was not under consideration before this Court in the case of Aman Marble Industries Pvt. Ltd. (supra). Be that as it may, in that case, it was held that "cutting" of marble blocks into slabs per se did not amount to "manufacture". This conclusion was based on the observations made by this Court in the case of Rajasthan State Electricity Board (supra). In our view, the judgment of this Court in Aman Marble Industries Pvt. Ltd. (supra) also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the Excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones

may

not

constitute manufacture.

Similarly,

after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufacture. 17. In the present case, we have extracted in detail the process undertaken by each of the respondents before us. In the present case, we are not concerned only with cutting of marble blocks

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into slabs. In the present case we are also concerned with the activity of

polishing

and

ultimate conversion of blocks into polished slabs and tiles. What we find from the process indicated herein-above is that there are various stages through which the blocks have to go through before they become polished slabs and tiles. In the circumstances, we are of the view that on the facts of the cases in hand, there is certainly an activity which will come in the category of "manufacture" or "production" under Section 80IA of the Income Tax Act. As stated herein- above, the judgment of this Court in Aman Marble Industries Pvt. Ltd. was not required to construe the word "production" in addition to the word "manufacture". One has to examine the scheme of the Act also while deciding the question as to whether the activity constitutes manufacture or production. Therefore, looking to the nature of the activity stepwise, we are of the view that the subject activity

certainly

constitutes "manufacture or production" in terms of Section 80IA. In this connection, our view is also fortified by the following judgments of this Court which have been fairly pointed out to us by learned Counsel

appearing

for

the Department. 18. In the case of Commissioner of Income

Tax v. Sesa

Goa Ltd. reported in MANU/SC/1123/2004 : 271 ITR 331 (SC), the meaning of the word "production"

came

for consideration. The question which came before this Court was whether the ITAT was justified in holding that the assessee was entitled to deduction under Section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee was engaged in

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extraction and processing of iron ore, not amounting to manufacture or production of any article or thing. The High Court in that case, while dismissing the appeal preferred by the Revenue, held that extraction and processing of iron ore

did

not

amount

to "manufacture". However, it came to the conclusion that extraction of iron ore and the various processes would involve "production" within the meaning of Section 32A(2)(b) (iii) of the Income Tax Act, 1961 and consequently, the assessee was entitled to the benefit of investment allowance under Section 32A of the Income Tax Act. In that matter, it was argued on behalf of the Revenue that extraction and processing of iron ore did not produce any new product whereas it was argued on behalf of the assessee that it did produce a distinct new product. The view expressed by the High Court that the activity in question constituted "production" has been affirmed by this Court in Sesa Goa's case saying that the High Court's opinion was unimpeachable. It was held by this Court that the word "production" is wider in ambit and it has a wider connotation than the word "manufacture". It was held that while every manufacture can constitute

production,

every production did not amount to manufacture.” 12. In view of the observations made by the Supreme court in the case of Income Tax Officer, Udaipur Vs. Arihant Tiles and Marbles (P) Ltd. (supra), we are of the opinion that the process which has been prescribed by the Tribunal in para 10 clearly covers the process and will cover under section 10BA. Therefore, in our view, the

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view taken by the Tribunal is just and proper and no interference in the judgment of the Tribunal is called for. The issue is answered in favour of the assessee and against the department. 13. The second issue is subject to decision of the SLP. However, for the time being the same is answered in favour of the assessee and against the department." In that view of the matter, all the issues are decided in favour of the assessee and against the Department. The appeals are dismissed. A copy of this judgment be placed in each file. (GOVERDHAN BARDHAR),J. (K.S. JHAVERI)ACTING C.J. bijsh/124/126