ITO, WARD-2(2), BHUBANESWAR, BHUBANESWAR vs. BISWAJIT DAS, BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER AND SHRI ABY T. VARKEY, JUDICIAL MEMBER ITA No.473/CTK/2014 Assessment Year :2010-2011

Income Tax Officer, Ward- Vs. Shri Biswajit Das, M/s. 2(2), Bhubaneswar. B.S.Industries, Plot No.9, Budha Nagar, Bhubaneswar. PAN/GIR No. AAYPD 9800 D (Appellant) .. ( Respondent)

ITA No.493/CTK/2014 Assessment Year :2010-2011 Shri Biswajit Das, M/s. Vs. Income Tax Officer, Ward- B.S.Industries, Plot No.9, 2(2), Bhubaneswar Budha Nagar, Bhubaneswar. PAN/GIR No. AAYPD 9800 D (Appellant) .. ( Respondent)

Assessee by : Shri P.K.Mishra, AR Revenue by : Shri D.K.Pradhan, DR

Date of Hearing : 16 /02/ 2017 Date of Pronouncement : 28 /02/ 2017

O R D E R Per Bench These are cross appeals filed by the revenue and the assessee against

the order of CIT(A)-1, Bhubaneswar, dated 12.9.2014, for the assessment

year 2010-2011.

2 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

justified in allowing exemption u/s.10B disallowed by the Assessing Officer

amounting to Rs.80,51,858/- to the assessee when the beneficiation

process employed by the assessee could not be construed as production or

manufacture of any article or thing.

deduction u/s.10B of the Act to the assessee for Rs.80,51,858/- on the

ground that the chemical composition of the product in the case of the

assessee after the processes employed does not change. The chrome

concentrate cannot be held to on a different character and use than chrome

ore. The chemical composition, character and use of the substance remain

the same though admittedly the chrome concentrate has a better

commercial value than chrome ore because of the higher chrome

concentrate. The value addition per se as has been held by the Hon’ble

Bombay High Court in the case of Sesa Goa, 217 ITR 849(Bom) cannot be

termed as manufacturing. Therefore, the assessee cannot be said to be

engaged in a process of manufacturing. The assessee is not engaged in

extraction and processing of ore and it cannot be said to be engaged in a

production activity.

as under:

“ I have considered the matter. The appellant's claim that production of chrome concentrate is the manufacturing activity is directly supported by the decision of the ITAT, Cuttack Bench in the appellant's own case in ITA Nos.l57/CTK/2013,

3 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

158/CTK/2013 for the AYs 2008-09 & 2009-10 in the case of Biswajit Das v. ACIT, Circle-l(l) Bhubaneswar. I 'have gone through the decision of the ITAT in the case of the appellant as cited. The facts in the instant case are similar to the facts for the AYs 2008-09 & 2009-10 in so far as the claim of exemption u/s.10 B is concerned. Following the said order of the ITAT, the AO is directed to allow exemption u/s.10 B of the Act.”

of the Tribunal in the case of the assessee itself for the assessment years

2008-09 and 2009-2010 in ITA No.157 & 158/CTK/2013 and ITA No.257 &

258/CTK/2013, C.O. No.31 & 33/CTK/2013 and submitted that the Tribunal

vide its consolidated order dated 31.12.2013 has confirmed the order of

the CIT(A) in allowing the deduction u/s.10B of the Act to the assessee.

authorities and materials available on record. We find in the assessment

years 2008-09 and 2009-2010, this Bench of the Tribunal while allowing

the claim of the assessee has held as under:

“3.4 We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below as well as the case laws cited before us. We noted that the issue involved in ground nos. 1 to 7 in A.Y 2008-09 and all the grounds in A.Y 2009-10 is the claim of deduction by the Assessee u/s 10B. The Revenue has taken the view that the Assessee's unit is not engaged in manufacturing or production of an article or thing. The beneficiation of the ore as carried out by the Assessee does not tantamount to production of a new product. Reliance was placed on the provisions of Sec. 2(29BA) while the assessee also relied on the language of the said provision.Before deciding the said issue, in our opinion, it is necessary to look into thenature of the activity carried out by the undertaking for which the claim u/s 10B has been made by the Assessee. It is not denied that the Assessee is processingraw Chrome ore of 30% to 45% grade and bringing it to the Chrome concentrateof 50% to 58% grade. It is also not denied that the Assessee has exported thewhole of the Chrome

4 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

concentrate and there are no local sales. The claim of theAssessee is that the Chrome ore of 30%o to 45% grade contains silica, iron, alumina oxides, phosphorus and cannot be used for the production of refractorybricks and mortar for use in preparation of blast furnace. It can be used only if silica, iron and alumina oxides and phosphorous components are drasticallyreduced. The Assessee reduces all these and thus produces Chrome concentrate of 50% to 58% grade. The chemical composition of both the raw materials aswell as Chrome concentrate is different. The Chrome ore has chemical composition of SiO2 (Silica): 10-12%, Fe2O3 (Iron): 18-25%, AI203 (Alumina) 15-16% where as the finished product as produced is having Cr203:50% to 58%, SIO2:0.4%, Fe2O3: 8-10%, AI203: 12-14%. The Id. DR before us even though vehemently relied on the order of the CIT(A), but did not deny that the chemical composition of the finished product i.e. Chrome concentrate is different from the Chrome ore which is being used by the Assessee as raw material. The stress of the argument of the DR, we noted, is mainly that both the products are having the same chemical composition. A similar issue in respect of processing of iron ore and upgrading it with higher chemical composition came for consideration before the same combination of ITAT Bench at Panaji in ITA No. 72/PNJ/2012 in the case of ACIT vs. Sesa Goa Ltd. in which we, vide our order dt. 8.3.2013, after discussing the various case laws on this issue, most of them having been quoted from both the sides, dealt with the issue what does the words "manufacturing or production of an article" mean in the following manner:

"42.7 In our opinion, the common issue involved on the facts of the case in the case of the assessee is whether all the three units in respect of which the assessee claimed the exemption u/s 10B are engaged in any manufacture or production of article or thing for the purpose availing of exemption u/s 10B. If engaged in processing, whether assessee is entitled for exemption u/s 10B in respect of all these three units. The nature of activities in the case of Amona plant as well as Chitradurga is similar as explained in the earlier paras. Both these units as well as Codli plant are approved as 100% EOU units. The necessary Board approvals are placed in respect of each unit by the assessee on record. For Codli Unit, approval was given initially for five years, which was subsequently extended to which we are satisfied as the revenue did not prove that the letter issued is bogus or forged one.To decide the issue whether all these units are engaged in any manufacturing or production of article or thing, it is necessary to refer to the relevant provisions of the Income-tax Act, 1961.

5 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

undertaking which manufactures or produces any article or thing. Explanation (i) to sec. 10B provides that the expression '100% Export Oriented Unit' means an undertaking which has been approved by the Board appointed in this behalf by the Central Government in exercise of the powers confirmed by sec. 14 of the Industries (Development & Regulation) Act, 1951 and the riles made there under. Explanation (iii) which was there at the time of the said sec. 10B defined the word 'manufacture' for the purpose of the said section to include any - (a) process or (b) assembling or (c) recording of programme on disc, tape, perforated media or other information storage device. Thus, 'process' was included within the word manufacture for the purpose of sec. 10B. Explanation (iv) of the said sec. 10B further provided that the word 'produce' for the purpose of said section, in relation to any article or thing shall include production of computer programme. CBDT vide its circular no.528 dated 16/12/1988 176 ITR ST.154 explained the [provisions enacted by the Finance Act, 1988 under para 8.2 of the circular]. In this circular, CBDT had clearly explained that the said new sec. 10B had been inserted in the statute book with a view to provide further incentive for earning foreign exchange so as to secure that the income of a 100% EOU shall be exempt from tax for a period of five consecutive assessment years falling within the block of eight assessment years. The exemption provided under this new section was similar to the one provided under sec. 10A of the Act to industrial undertaking operating under the free-trade zone. It was also clarified therein that the expression 'manufacture' for the purpose of both sections 10A and 10B of the said Act would include any processing or assembling or recording of programme on disc, tape, perforated media or other information storage device.

43.1 This definition of 'manufacture' was removed when sec. 10A and 10B of the Act were amended by the Finance Act, 2001 w.e.f. 01/04/2001. Sections 10A and 10B of the Act were further amended by the Finance Act, 2003 w.e.f. 01/04/2004 and the definition of 'manufacture' was inserted as under:-

“Explanation (iv) - For the purpose of this section, 'manufacture or produce' shall include the cutting and polishing of precious and semi-precious stones."

43.2 The EOUs were allowed to sell 25% production within the country. With a view to rationalize the concession and to phase these out by the end of the assessment year 2009-10, the provisions of sec. 10A and 10B were substituted by the new provisions by the Finance Act, 2000. CBDT vide circular no. 794 dated 09/08/2000 245 ITR St. 21, 34-35 under para 15.3 explained that the deduction u/s 10B would be granted in respect of profits and gains derived by an undertaking which manufactures or produces article or things or computer software and derived profits and gains from the exports thereof. The said exemption was available for a period of 10 consecutive years in a graded manner. The new provisions contained the following additional conditions:

6 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

i. The sale proceeds of articles or things or computer software exported out of India, should be received in or brought into India within a period of 6 months from the end of the previous year or within such further period as the competent authority may allow - Sub-section (3);

ii. The profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion, as the export turnover in respect of such article or things or computer software bears to the total turnover of business - Sub-section (4);

iii. The assessee must furnish in the prescribed form No. 56G, along with his return of income, the report of a Chartered Accountant certifying that the deduction has been correctly claimed in accordance with the provisions of section 10B- Sub-section (5);

iv. Where the assessee avails of the benefits of section 10 A or section 10B, it will not be eligible for other tax exemptions available under other provisions of the Act during the period of 10 years - Sub-section (6);

v. "manufacture" shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zones Act, 2005.

43.3 Subsequently, Special Economic Zone Act, 2005 was passed by' the Parliament in May, 2005, which was brought into effect w.e.f. 23/06/2005. Section 2(r) of Special Economic Zone Act defines the expression 'manufacture' as under:-

"Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinct name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisci culture, poultry, sericulture, aviculture and mining".

43.4 This definition was adopted by the Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) 'Manufacture' shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005.

As per the said definition 'process' is included in manufacture.

7 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 defining the expression "manufacture as under:

"manufacture", with its grammatical variations, means a change in a non- living physical object or article or thing,- (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.

43.5 In Chowgule & Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon'ble Supreme Court, after considering the judgment of Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay (1959) 10 STC 500 (Bom.), clearly observed on the question whether the blending of ore, whilst loading it in the ship by means of the mechanical ore handling plant, constituted 'manufacture or processing or ore for sale within the meaning of section 8(3)(b) and Rule 13 of the Central Sales Tax Act, 1956. Dealing with this question, their lordships held and observed at pages 659 and 660 of the reports as under:-

"It still remains to consider whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is tended. The answer to this question depends upon what is the true meaning and connotation of the word "processing" in Section 8(3)(b) and Rule 13. This word has not been defined in the Act and it must therefore be interpreted according to its plain natural meaning. Webster's Dictionary gives the following meaning of the word ‘process': "to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development of preparation for the market etc.; to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking."

Where therefore any commodity is subjected to a process or treatment with a view to its "development or preparation for the market", as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of Section 8(3)(b) and Rule 13. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity.

The nature and extent of change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of

8 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Om Prakash Gupta Vs Commissioner of Commercial Taxes [16 STC 935 (Cal)]. What is necessary in order to characterize an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore processing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical composition, because what is produced by such blending is Ore of a different chemical and physical compositions.

When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to "processing" of ore within the meaning of Section 8(3)(b) and Rule 13.

It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt of the mechanical ore handling plant, but to our mind it is immaterial as to how the blending is done and what process is utilized for the purpose of blending.

What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and chemical composition is a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions.

Thus the Hon"ble Supreme Court accepted that there is change in chemical compositions after processing of the iron ore in this case. From the said decision of the Apex Court, it is apparent that Hon'ble Apex Court held even blending of iron ore for the purpose of export involves change in the chemical and physical composition of iron ore. But if we look to the facts in the impugned case of the assessee, the assessee is not only blending iron ore but carrying out various processes as to make iron ore called crude ore useable to Ispat Industries. The activity of the units of the assessee for Amona and Chitradurga involved converting input into output consist of crushing (crude ore called ROM which appeared to be pieces of rocks as we noted during the course of hearing on the basis of sample shown to us) screening, washing, stacking, loading in barges, river transportation to the boat and export in ships. The finished product which comes out are called lumps and fines which are used for Ispat Industries and brought by the foreign buyers. The finished product technically after processing had different name. As shown to us during the course of hearing we noted that the lumps and fines are entirely different from crude ore. During conversion

9 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

of crude ore into lumps and fines, waste is generated which is called tailing and discharged into tailing pond. In Codli Unit these tailings which are in liquid form are converted into ultra fine. In our opinion as we noted from this physical sample also crude ore is entirely different from the lumps and fine in physical appearance used and chemical compositions even technically names are also different, similarly what comes as output from the input in codli unit that is also different in physical appearance and chemical composition. We do not agree with the learned D.R that there is not any change in physical and chemical composition of the output than the input as is being processed in all the three units. If we go to section 2(29BA) inserted w.e.f. 1.4.2009, we find clause (b) of this section clearly states that bringing into existence of new and distinct object or article or thing with a different chemical composition or integral structure tantamount to 'manufacture'. The Crude ore once processed is made marketable and had a different chemical and physical composition than the ROM (Crude Ore) even though in common parlance both may be called iron ore. It is no more remains as crude ores. Tailing no more remains tailing but converted into a powder. In view of this clause and the decision of Supreme Court in the case of Chowgule & CO. (Supra), it can be held that the assessee is engaged in these units in 'manufacturing'.

Further, in CIT Vs N.C. Budharaja & Co. (1993) 204 ITR 412 (SC), Hon'ble: Supreme Court further observed that the word "production" is much wider than the word "manufacture". It was said (page 423):

"The word "production" has a wide connotation than the word "manufacture". While every manufacture can be characterized as production, every production need not amount to manufacture...

The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods."

43.6 In Christian Mica Industries Ltd. Vs. State of Bihar (1961) 12 STC 150 (SC), Hon'ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word "production" in the Oxford English Dictionary, as meaning "amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort". For the wide definition of the word 'production', it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word 'production' since ore is 'a thing', which is the result of human activity or effort.

43.7 According to Webster International English Dictionary, the verb "produce" means to bring forward, beget, etc. The juxtaposition of the word "manufacture" with 'agriculture' and 'horticulture' is significant and cannot be lost sight of. The intention in employing the word "produced" obviously

10 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

was to introduce an element of volition and effort involving the employment of some process for bringing into existence some goods.

43.8 In paragraph 7 of its in the case of Chowgule & CO (P) Ltd. Vs. UOI (supra), Hon'ble Apex Court also considered the question whether the different brands of tea purchased and blended by the assesses for the purpose producing the tea mixture could be said to have been 'processed', after the purchase, within the meaning of the proviso to section 8(a), so as to preclude the assesses from being entitled to deduct their turnover under section 8(a), so as to preclude the value of the tea purchased by them. The relevant observations made by the Hon'ble Supreme Court in this respective are quoted and set out herein below for ready reference:

"7. The Revenue however relied on the decision of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [10 STC 500 (Bom HC)]. The assessees in this case were registered dealers in tea under the Bombay Sales Tax Act, 1953 and they purchased in bulk diverse brands of tea and without the application of any mechanical or chemical process blended these brands of different qualities according to a certain formula evolved by them and sold the tea mixture in the market. The question arose before the Sales Tax Authorities whether the different brands of tea purchased and blended by the assessee for the purpose of producing the tea mixture could be said to have been 'processed' after the purchase within the meaning of the proviso to Section 8(a), so as to preclude the assesses from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that different brands of tea purchased by the assesses could not be regarded as 'processed' within the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay High Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assesses could not be regarded as 'processing' of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute 'processing' of the ore.

Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case [10 STC 500 (Bom HC)] and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tea Company case [10 STC 500 (Bom HC)] as laying down the correct law. When different brands of tea were mixed by the assessee in Nilgiri Tea Company case [10 STC 500 (Bom HC)] for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavor than the different brands of tea which went into the mixture. There are, it is true, some observations in the

11 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the Assessee, since in the present case the blending was done by application of mechanical force, but we do not think that is the correct test to be applied for the purpose of determining whether there is 'processing'. The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes 'processing' we are clearly of view that the blending of ore in the course of loading through the mechanical ore handling plant amounted to 'processing' of ore within the meaning of Section 8(3)(b) and Rule 13 and the mechanical ore handling plant fell within the description of "machinery, plant, equipment" used in the processing of ore for sale......”

43.9 In deciding the said question, the Hon'ble Supreme Court after considering 'the judgment of the Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [1959] 10 STC 500 (Bom), inter alia, observed as follows:

(i) When different brands of tea were mixed by the assessee as in Nilgiri Ceylon Tea Supplying Co.'s case (1959) 10 STC 500 (Bom) for the purpose of purchasing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavor than the different brands of the tea which went into the mixture; (ii) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes is 'processing'. (iii) The question is not whether there is any manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes "processing".

12 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

43.10 Therefore, Hon'ble Supreme Court, in construing the expression "processing" allowed the appeal of the assessee, in Chowgule & Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its "development or preparation for the market" it would amount to processing of the commodity within the meaning of Central Sales Tax Act, 1956. Hon'ble Supreme Court, in the said judgment, did not consider the expression "manufacture" since the question was decided only on the expression "processing". However, considering the judgment of the Bombay High Court in the case of Nilgiri Tea Co. [1959] 10 STC 500, Hon'ble Supreme Court observed that, for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of a qualitative change, in that the tea mixture which came into existence was of a quality and flavor from the different brands of tea which went into the mixture.

43.11 Hon'ble Kerala High Court had the occasion to consider whether assessee is engaged in the manufacture or production of an article or thing when assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285. The assessee's unit was recognized as 100% EOU. The assessee claimed exemption u/s 10B of the Act for the assessment year 1996-97 onwards which was granted up to the assessment year 2000-2001, but for the assessment years 2001-02 and 2002-03 the exemption was denied for the reason that by the Finance Act, 2000, the definition of 'manufacture' which included processing contained in sec. 10B of the Act was deleted w.e.f. 01/04/2001. (The same reasoning as has been given by the coordinate bench in the case of Chowgule & co. IT A 162 & 184 heavily relied by the department under para 14 of their order dt. 12.7.2007.) Hon'ble High court noted in that case that the Revenue's stand is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion which covers even processing and, therefore, blending and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. Hon'ble Kerala High Court considered the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s 10A of the Act and units in the free trade zone provided u/s 10AA of the Act and the exemption available to 100% EOU u/s 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature. Hon'ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies (292 ITR 444 (SC) relied upon by the Sr. Standing Counsel for the revenue, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article or thing, but is only processing. Hon'ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea packets was not

13 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial units of the assessee's 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee's case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, would continue to enjoy tax 'exemption under section 10A of the Act and section 10AA of the Act respectively. The assessee was allowed exemption on the profit derived by its 100% EOU engaged in blending, packing and export of tea bags and tea packets. Hon'ble High Court held as under.

"The finding of this court is that the purpose of incorporation of section 2(r) of the Special Economic Zones Act, 2005, into section 10AA of the Income- tax Act is to provide a liberal meaning to the word "manufacture" which takes in even blending, refrigeration, etc. It was noticed by this court that the definitions of "manufacture" contained in the above definition clauses are very liberal which takes in even processing like blending. The contention of the counsel for the assessee is that the purpose of removal of the definition of "manufacture" from section 10B was not to provide a restricted meaning for that term contained in the main section because if that was so, then the Legislature would have only modified the definition clause. Further, the definition of 100 per cent export oriented unit even after the amendment is retained in the said section, which defines it as an undertaking which has been approved as a 100 per cent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 40 of the Industries (Development & Regulation) Act, 1951, and the Rules made under that Act. It is pertinent to note the products for which the assessee's unit is recognized as a 100 per cent export oriented unit are tea bags.tea in packets and tea in bulk packs. In fact, the assessee is exclusively engaged in blending and packing of tea for export and is not manufacturing or producing any other article or thing. Still it is recognized as a 100 per cent export oriented unit by the concerned authority within the meaning of that term contained in the definition clause of section 10B of the Income-tax Act and the Department has no case that the assessee's unit engaged in export of tea bags and tea packets is not a 100 per cent export oriented unit. So much so, in our view, if exemption is denied on the ground that products exported are not produced or manufactured in the industrial unit of the assessee's 100 per cent export oriented unit, the same would defeat the very object of section 10B. Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, will continue to enjoy tax exemption under section 10A and section 10AA respectively. The still worse position is that the appellant would be denied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies' case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income-tax Act. Therefore, following the judgment of this court above referred to we

14 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

hold that the assessee is entitled to exemption on the profit derived by its 100 per cent export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant's entitlement for exemption."

43.12 Hon'ble high court in this case, in our opinion, has clearly laid down that once the assessee is recognized as a 100% EOU for engaging in an activity and assessee is engaged in the same very activity, if the exemption is denied to the assessee on the ground that there is no production or manufacturing but only processing of the products exported in the 100% export oriented unit, the same would defeat the very object of section 10B. The Hon'ble high court took the view that the decision of the Hon'ble Supreme Court in Tara Agency's case 292 ITR 444 will not apply even though Hon'ble Supreme Court in that case has held that blending of tea does not amount to manufacture or production of an article but is only processing. Thus, the Hon'ble Kerala high court in the case of Tata Tea Ltd. (supra) gave the clear cut finding impliedly that even if the assessee is engaged in processing and is recognized as 100% EOU, it will be entitled for exemption claimed u/s 10B of the Act.

43.13 The crux of the submissions of the Ld. special Counsel for the department is that the assessee is engaged in these 100% export oriented units only in processing of iron ore and by processing it get it upgraded for export, therefore it is not entitled for exemption u/s 10B does not have any leg to stand in view of the decision of Kerala High Court (supra), Supreme Court in the case of Chowgule & Co(supra). Even on this issue we have gone through the decision of Hon'ble Special Bench in the case of Madhu Jayanti International Ltd. and Others Vs. DCIT. The question for consideration and decision of the Special Bench was:

"Whether on the facts and in the circumstances of the case, the Assessees, who are in the business of blending & processing of tea and export thereof, can be said to be "Manufacture/Producer" of the tea for the purpose of Section 10A/10B of the I.T. Act, 1961?"

15 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

thereafter it blends different varieties of tea to make it of 'uniform and consistent' quality throughout the year. Thereafter, it is packed in consumer packets of 50, 100, 250, 500 or 1000 gms. Etc. or packed in the form of tea bags of 1.94 gms. Or 2 gms. etc., as the case may be. The assessee claimed exemption u/s 10B of the Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The AO rejected the claim of assessee of exemption u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:-

"32. The provisions of section 10AA of the Act was inserted on the statute book by the Special Economic Zones Act, 2005 w.e.f. 10.02.2006. Even prior to the enactment of the said SEZ Act, Special Economic Zones (including units therein) were all along treated like EOU / FTZ / EPZ for all purposes whatsoever and were dealt within the Exim Policy accordingly. Section 2(k) of the Special Economic Zone Act, 2005 defines the expression "Existing Special Economic Zone" to mean every Special Economic Zone which is in existence on or before the commencement of the said Act. Section 2(e) defines the expression "existing unit" to mean every unit which has been set up on or before the commencement of the said Act in an existing Special Economic Zone. In other words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act; 2005. Clause (iii) of Explanation 1 to section 10AA lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Economic Zones Act, 2005, which definition is as under:

"Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re- engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining".

In Exim Policy, the expression "manufacture" is defined, in paragraph 9.30 & 9.31 thereof almost in the same manner as in the Special Economic Zone Act, 2005, which is as under:

“Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, repacking, polishing and labeling. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining."

16 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

But the only difference between the Exim Policy of 2002-07 and of 2000 is that words "and segregation" which were appearing in the definition of the expression 'manufacture" in the Exim policy of 2000 was deleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that "Tea used in the manufacture of flavoured tea shall conform to the standards of tea. The flavoured tea manufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribution & Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce & Industry (Department of Commerce) the expressions "flavour tea", "green tea" "instant tea", "packet tea" "quick brewing black tea", "tea" and "test bag" have been separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the ' Central Government, in exercise of the powers conferred by section 30(5)(3) of The Tea Act, 1953, the expressions "manufacturer", "Buyer", "Packet Tea", "Tea Bag",-"Green Tea", "Quick Brewing Black Tea", "Instant Tea" and "Made Tea" have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression "manufacture" as under.

"manufacture", with its grammatical variations, means a change in a non- living physical object or article or thing, -

(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure;

The aforesaid definition of the expression "manufacture", although brought into the statute book w.e.f. 01.04.2009, was applied by the Hon'ble Supreme Court even for the assessment year 2001-02 in ITO v. Arihant Tiles and Marbles Pvt. Ltd. (2010) 320 ITR 79, 82 (SC) on the ground that Parliament had taken note of ground reality in inserting section 2(29BA) in the Income Tax Law. The said definition was again applied by the Hon'ble Supreme Court in CIT V. Emptee Poly-Yarn Pvt. Ltd. (2010) "Green Tea" means the variety of manufactured tea commercially known as green tea; 320 ITR 665,667 (SC).

17 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

and Promotion Secretarial for Industrial Approvals, ECU Section in the state of West Bengal for manufacture of Packet Tea, Tea Bags/Bulk tea with annual capacity of 3110 Mt. in terms of Registration Certificate dated 26th December, 1995, inter alia, with the condition that its 100% production (excluding rejects not exceeding 5%) would have to be exported and that its registered EOU Unit shall make value addition to a minimum extent of 79%. Undisputedly, the exported consumer products, blended by Assessee in its said factory premises is a case of substantial value addition, as compared to the unblended black tea in granule and dust form normally available for sale in the open retail market throughout India.

18 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

no case that the assessee's unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial unit of the assessee's 100% EOU, it would defeat the very object of sections 10B of the Act.

44.1 From the reading of para 35 of the aforesaid judgment we noted that the Special Bench in this case clearly held that the assessee was engaged only in processing and was not engaged in the manufacture or production but had ultimately under para 36 it took the view in view of the fact that

19 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

the definition of 'manufacture' u/s 2(r) of the SEZ Act, 2005 which is incorporated in section 10AA w.e.f. 10/02/2006 includes 'processing'. Therefore, following the decision of Kerala High Court in the case of Girnar Industries and Tata Tea Ltd. (which was discussed by us in the preceding paragraphs) held that the assessee is entitled for exemption u/s 10B of the Act on account of blending of tea.

45.1 We have also gone through the decision of Hon'ble Supreme Court in the case of ITO Vs. Arihant Tiles and Marbles Pvt. Ltd. 320 ITR 79(sc). In this case when the assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words'manufacture or production' in section 80-1A of the Income-tax Act, 1961? In this case, Hon'ble Supreme Court, after discussing the definition of 'manufacture' given in section 2(29BA) of the Income-tax Act, 1961 and also discussing the provisions of section 80- IA(2)(iii) and after going through various decisions, held as under:

"22. Applying the above tests laid down by this Court in CIT Vs. N.C. Budharaja and Co. 204 ITR 412 (SC) to the facts of the present cases, we are of the view that blocks converted into polished slabs and tiles after undergoing the process indicated above certainly results in emergence of a new and distinct commodity. The original block does not remain the marble block, it becomes a slab or tile. In the circumstances, not only there is manufacture but also an activity which is something beyond manufacture and which brings a new product into existence and, therefore, on the facts of these cases, we are of the view that the High Court was right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Income Tax Act, 1961.

20 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognized by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of Section 80IA of the Income Tax Act, 1961."

45.2 In this case also, Hon'ble Supreme Court took the view that cutting and polishing of the marble blocks is the activity which constitutes 'manufacture or production' as after processing marble block no more remains as marble block. This decision has also duly considered, in our opinion, whether the activity of processing is manufacture / production.

45.3 Now, we would like to deal with the submissions of the revenue whether this issue should be sent to Special Bench or not. We have gone through the decision of this Tribunal in IT A No. 162/PNJ/2006 dt. 12th July, 2007 read with Misc. Application in MA No. 23/PNJ/2007 dt. 19th July, 2007 in the case of Chowgule & Co. In this case we noted that the coordinate Bench of the Tribunal has interpretedthe decision of the Hon'ble Supreme Court in the case of Sesa Goa 271 ITR 331 that extraction and processing of mining ore amounts to production; and one should read the expression 'extraction and processing' together (this decision was not rendered in respect of exemption available u/s 10B). Even the coordinate bench of this Tribunal further held that "if section 10B provides exemption for processing also, the law would have made it very clear by apparently stating that processing is also entitled for exemption. When the expression 'processing' is omitted in section 10B, we are not supposed to fill up the omission. If something is not there we should accept as it is not there. We should not provide for the omission that amounts to judicial legislation. There is no confusion in the provision of law provided under section 10B. The exemption is available only to manufacture or production. It is not available for processing." Although subsequently this Tribunal has rectified the order under section 254 vide order dated 19th July, 2007 on the application of the assessee and took the view that the assessee is entitled for exemption under section 10B as the assessee-company itself is extracting the entire iron ore from own mines and mines taken on lease and thereafter processing the same. We not look into the finding of the coordinate Bench whether they have correctly interpreted the decision of Supreme Court in 271 ITR 331 or not. The Ld. AR vehemently contended that the decision dt. 12 July, 2007 of this Tribunal in that case got overruled by the decision of this Tribunal vide order dt. 19 July, 2007 but we do not agree on this with the Ld. AR. We have gone through the order dt. 12th July, 2007 as well as order dt. 19th July, 2007 but we noted that the Tribunal rectified the

21 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

order as the Tribunal noted the assessee itself was extracting the entire ores and processing the same. Thus, the assessee complied with both the conditions of extracting and processing of iron ore. This Tribunal did not reverse the finding that the processing is not entitled for the exemption. The Tribunal did not reverse the finding that extraction and processing should go together. Even that bench / tribunal did not visualize that 100% EOU is approved for a particular location and its boundary cannot extend beyond that location. It is only the profit derived by the 100% EOU Unit situated within that location, can be regarded to be the profit derived by the 100% EOU. The assessee in that case has taken the mines on lease which were not approved as part of 100% EOU but still the assessee was allowed exemption u/s 10B even though the iron ore extracted from those mines which were taken on lease were not part of the 100% EOU.

45.4 No doubt the decision of the coordinate Bench is binding on us in view of the settled judicial principles in the various decisions even relied on by the Ld. CCIT but there are certain exceptions to this cardinal principle of judicial discipline. Once the decision of Special Bench or Third Member has come on similar issue subsequently, the decision of the Special Bench will be binding on us. If the decision of jurisdictional High Court / Supreme Court has come subsequently on the similar issue, in view of the Article 141 of the Constitution of India that decision will be binding on us. Even this will be regarded a mistake of law in view of the decision of Hon'ble Supreme Court in the case of CIT vs Saurashtra Kutch Stock Exchange 305 ITR 227 (SC). lf there is no jurisdictional High Court decision and subsequently any other high court has decided the similar issue, this is the settled principle of law that the decision of that high court has to be followed as the high court is always superior to the tribunal in preference to the decision of coordinate bench. The decision so pronounced subsequently if affects the issue relating to the assessee, in our opinion, these subsequent decisions are binding on us as judicial discipline require that. This Tribunal is bound to consider those decisions and the Tribunal is not bound with the decision of the coordinate Bench. The jurisdictional Bombay High Court in the case of H.A. Shah & Co. Vs. CIT (1956) 30 ITR 618, 625 (Bom.) even took the view that in case fresh material facts came to the knowledge of subsequent bench, the decision of coordinate bench is not binding. In this regard, Hon'ble High Court observed as under :-

"Nor are we satisfied that in order to enable the second Tribunal to depart from the finding of the first Tribunal it is essential that there must be some fresh facts which must be placed before the second Tribunal which were not placed before the first Tribunal. If the first Tribunal failed to take into consideration material facts, facts which had a considerable bearing upon the ultimate decision, and if the second Tribunal was satisfied that the decision was arrived at because of the failure to take into consideration those material facts and that if these material facts had been taken into consideration the decision would have been different, then the second Tribunal would be in the same position to revise the earlier decision as if fresh facts had been placed before it. On principle there is not much difference between fresh facts being placed before the second Tribunal and

22 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

the second Tribunal taking into consideration certain material facts which the first Tribunal failed to take into consideration".

45.5 The other exception is for non-binding of the coordinate Bench decision is when there had been amendment in law subsequent to the decision on the basis of which the coordinate bench rendered the decision and the co-ordinate Bench could not be able to consider the said amendments, the decision of the co-ordinate Bench is not binding. From para 14 of the order of the Co-ordinate Bench it is apparently clear while deciding the appeal in the case of Chowgule & Co. (ITA 162 & 184), it had got impressed that the expression "processing" is omitted in Section 10B. The appeal relates to A.Y.2002-03 not relating to impugned A.Y. Clause (iii) of Explanation 1 to section 10AA, which lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Economic Zones Act, 2005, and section 2(29BA) were subsequently brought into the statute after the rendering of the decision of Hon'ble Supreme Court in the case of Sesa Goa 271 ITR on the basis of Co- ordinate bench decided the case of Chowgule & Co. Even these provisions were not in the statute during the assessment year 2002-03 to which year the coordinate bench was entrusted with the issue of claim of exemption u/s 10B. The coordinate bench could not have any occasion to consider the same even though the clause (iii) of explanation 1 to section 10AA has already come into force after the decision of Hon'bie Apex court in the case of Sesa Goa Ltd 271 ITR 331 when the decisions was rendered but was not inserted with retrospective effect. Even the revision of Section 2(29BA) was also inserted after the decision of Hon'ble Supreme Court in the case of Sesa Goa Ltd(supra). Both these amendments are in the statute as on today and are to be considered for the impugned assessment year. The decision of Supreme Court in the case of Chowgule & Co as cited by us earlier was also not considered by the coordinate bench as the word "processing" was omitted in section 10B during that year for which case was decided. Both these amendments have duly been considered by the subsequent decision of Special Bench, High Court and the Supreme Court cited by us in discussion held here in above. We noted that subsequent to the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007, the Special Bench of this Tribunal in the case of Madhu Jayanti International Ltd. [2012-TIOL- 424-ITAT-KOL-SB] has dealt with the issue exhaustibly whether the assessees who are in the business of blending of tea i.e. processing of tea and export thereof in 100% EOU can be said to be manufacturer/producer of tea for the purpose of section 10A/10B. When the Supreme Court has already held in the case of Tara Agencies 292 ITR 444 that blending of tea is processing. Thus, the Special Bench has decided the issue in respect of 100% EOU for the purpose of exemption under section 10B whether an assessee who is engaged in processing can be said to be engaged in manufacture /processing. We also noted that Kerala High Court in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285 dealt with the issue in respect of 100% EOU for the purpose of exemption under section 10B whether the processing of tea is treated as manufacture or production of an article qualifying for exemption. Not only these decisions subsequent to the

23 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

decision of the coordinate Bench, Supreme Court has also decided following cases in which also, in our opinion, similar issue whether processing is manufacture or production has been decided. These decisions are given as under:- i) India Cine Agencies 308 ITR 98 (SC) ii) Oracle Software India Ltd. 320 ITR 546 (SC) iii) Arihant Tiles and Marbles (P) Ltd. 320 ITR 79 (SC).

45.6 We noted that in all these decisions except in the case of Oracle Software the decision of the Supreme Court in the case of CIT vs. Sesa Goa Ltd. 271 ITR 331 was referred to by the court. Hon'ble Punjab & Haryana High Court in the case of ''CIT Vs. Abhishek Industries Ltd. 286 ITR 1 (P&H) has observed as under on the Responsibility of the Tribunal while deciding the case:

"The Tribunal being the last fact-finding authority, a higher responsibility is cast by the Legislature on it to decide the cases by recording complete facts and assigning cogent reasons. It is the duty of the Tribunal to decide the cases on the basis of the law laid down by the Supreme Court/High Court and not what the Tribunal decides on the particular issue. Every effort must be made by the Tribunal to decide the issue by taking help from the decisions of the Supreme Court and if there is no direct authority of the Supreme Court on the point then of the jurisdictional High Court and lastly of any other High Court."

45.7 We noted that the coordinate Bench in the case of Chowgule & Co. Ltd. ITA No. 162/PNJ/2006 decided the issue only on the basis of the decision of the Supreme Court in the case of CIT Vs. Gem India Manufacturing Co. 249 ITR 307, while the said decision has not been followed by the Supreme Court in their subsequent decisions. Even the case relate to A. Y. 2002-03. No contrary decision subsequent to the decision of the Special Bench, Kerala High Court and that of the Supreme Court rendered in the case of India Cine Agency (supra) as well as Arihant Tiles & Marbles (Supra) was brought to our knowledge which may have taken a different view that 100% EOU approved by the competent authority if engaged in processing activity for upgrading a commodity for the purpose of marketability for export would not be allowed exemption u/s 10B. The Ld. Special Counsel even could not bring to our knowledge any decision subsequent to the decision of the Special Bench and Arihant Tiles & Marbles (SC) as well as Kerala High Court in the case of Tata Tea (Supra) which would have disallowed the claimof the assessee u/s 10B on this basis after considering the Explanation (iii) of section 10AA as well as definition given u/s 2(29BA). Thus, due to the decision rendered by the Special Bench, High Courts and Supreme Court subsequent to the date of order in the case of Chowgule & Co. Ltd. Vs. ACIT in ITA No.162/PNJ/2006 in our opinion, the issue raised by the Revenue is not fit to be referred to Special Bench as the decisions of Special Bench / High Court / Supreme Court are binding on us in preference to the decision of the coordinate Bench. Thus, we have in our opinion germane reason not to refer this issue for constitution of a Special

24 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

Bench as in our opinion, even if, the Special Bench is constituted the earlier decision of the Special Bench in the case of Madhu Jayanti will be binding until and unless there are special and germane reasons for constituting a large Special Bench. We, therefore, dismiss the application dt. 18/01/2013 moved by the Revenue for constituting the Special Bench.

45.8 Now coming back to the issue whether an assessee who is engaged in processing for upgrading and making the commodity fit for export and which is a 100% EOU approved by the competent authority can be said to have been engaged in manufacture or production of an article or thing. We have noted that this issue is duly covered by the decision of the Special Bench in the case of Madhu Jayanti International Ltd.(supra). The relevant paragraph of this judgment has been reproduced by us in the preceding paras."

From the aforesaid decision, it is apparent that the Panaji Bench of the Tribunal in the case of Sesa Goa Ltd., which was engaged in processing of iron ore by upgrading it, took the view that crude ore is entirely different from the iron ore in physical appearance, use and chemical composition. It was further held that the crude ore once processed, is made marketable with a different chemical and physical composition. Even though, both are called iron ore in common parlance, but the product so brought out by processing is a new and distinct object or article or thing. The Panaji Bench of the Tribunal in the case of Sesa Goa Ltd. has also discussed the decision of the Hon'ble Supreme Court in the case of C1T vs. Sesa Goa Ltd., 271 ITR 331 on which the Revenue has relied. Even the Tribunal has discussed the subsequent decisions of the Hon'ble Supreme Court in the case of ITO vs. Arihant Tiles and Marbles Pvt. Ltd., 320 ITR 79, CIT vs. Emptee Poly-Yarn Pvt. Ltd., 320 ITR 665, Indian Cine Agencies vs. CIT, 308 ITR 98 and CIT vs. Oracle Software Indi Ltd., 320 ITR 546. From the activity as has been carried out by the Assessee, we noted that the Assessee by processing raw Chrome ore reduces the Silica, Iron and Phosphorous content due to which high grade thermal value of the Chrome got increased. The product so received by the Assessee, in our opinion, has a different chemical composition. It cannot be said by any stretch of imagination that the product so obtained by the Assessee does not have a different chemical imposition. Sec.2(29BA) no doubt defines "manufacture" for the purpose of Income Tax Act, 1961 as relied by the Id. DR but sub-clause (b) of this section clearly states that 'manufacture' with its grammatical variation means a change a non-living physical object or article or thing bringing into existence of a new distinct object or article or thing with a different chemical composition or integral structure. It is not denied by the revenue that the Chrome concentrate obtained by the Assessee after processing the Chrome ore got increased from Cr2O3 content to 50% to 58% from 30% to 45%. It is also not denied that cost of the raw material is much less than the finished product. Even though revenue has vehemently relied on the definition given u/s 2(29BA), but sub-clause (b) of this section, in our opinion, is clearly applicable in the case of the Assessee. In view of the aforesaid discussion and following the aforesaid decision of the Panaji Bench of this Tribunal, we hold that the Assessee is engaged in manufacturing. Since the exemption u/s 10B was denied to the Assessee mainly holding that the Assessee is not engaged in

25 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

manufacturing, we, therefore, set aside the order of CIT(A) and allow exemption to the Assessee u/s 10B by holding that the Assessee is engaged in manufacturing. In the result, ground nos. 1 to 7 in A.Y. 2008-09 and all the grounds in A.Y 2009-10 are allowed.

confirm the order of the CIT(A) and dismiss the ground of appeal of the

revenue.

In assessee’s appeal, the first issue involved is that the ld CIT(A) 9.

erred in confirming the addition of Rs.5 lakhs made by the Assessing Officer

for commission paid to Raj Kishore Sahoo of Sanghai in Dollar on which no

tax is deductible in India.

Rs.5,00,000/- to one Shri Raj Kishore Sahoo of Sanghai in Dollar towards

commission for arrangement of buyers of export on which TDS was not

deducted. Therefore, he disallowed deduction for the same u.s,40(a)(ia)

of the Act.

the payment was made to international party and, therefore, no TDS was

required to be deducted u/s.194H of the Act.

since payment made to Shri Raj Kishore Sahoo was in the nature of

brokerage and commission and the payment was made in India, tax was

deductible u/s.194H of the Act and dismissed the ground of appeal of the

assessee.

26 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

CIT(A) and argued that the brokerage and commission was paid to Shri Raj

Kishore Sahoo, who is a non-resident for procuring exports orders of the

assessee and was paid the amounts of commission outside the India in

Dollars. The provisions of section 194H of the Act were not applicable to

the assessee as commission was paid to a non-resident and Section 194H

reads “any person, not being an individual or a Hindu undivided family,

who is responsible for paying, on or after the 1st day of June, 2001, to a

resident, any income by way of commission”.

services rendered outside India and payment was also made outside India

and no deduction of ITDS u/s.194H was required to be made.

the CIT(A) in writing, which is quoted by the CIT(A) at page 4 of his order

in para 3.3 was that “presuming but not accepting even if, it is disallowed

and added to the net profit, then also it is exempted from tax in view of the

exemption u/s.10B of the Act”. It was further argued that this alternate

submission of the assessee has not been adjudicated by the CIT(A).

that as the commission was paid to Shri Raj Kishore Sahoo, who is a non-

resident, therefore, the provisions of section 194H are not applicable to it

27 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

as section 194H applies to payment of commission to a person who is

resident in India. Further, we are also in agreement with the submission

of the AR of the assessee that the payment for commission was made

outside India for services rendered outside India and, hence, the income

is not earned in India by the non-resident and, therefore, not liable to tax

in India and hence, ITDS is not deductible from such payment made by the

assessee. However, no evidence with regard to the submission that Shri

Raj Kishore Sahoo is a non-resident and also no evidence to the effect that

payment was made Outside India in Dollars for the services rendered

outside India has been produced before us or even before the lower

authorities. Therefore, we are not able to accept the same.

assessee before the CIT(A) as well as before us that if the deduction for

payment of commission of Rs.5,00,000/- to Shri Raj Kishore Sahoo is not

allowed to the assessee then it goes to increase the net profit of the

assessee from the eligible undertaking and the same is allowable deduction

u/s.10B of the Act as a 100% exported oriented unit.

of the Tribunal in the case of DCIT vs. Planet Online (P) Ltd (ITA

No.1016/Hyd/2007) order dated 29.8.2008, wherein, it was held that

“Profits and gains of business is defined in section 28 and as per section

28 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

29 income referred to in section 28 shall be computed in accordance with

the provisions of section 30 to 43D. From the above provisions in the

statute, it thus clear that the profit of the undertaking in the case of the

appellant has to be computed in accordance with the provisions of

the section 30 to 43D., i.e., including the provisions of section 43B of the

Act. In view of the above legal provisions in my considered view, exemption

under section 10B has to be computed on the profits determined after

taking into account the disallowances to be made under section 43B of the

Act. "

Electronics Private Limited (2010-TIOL-89-ITAT-DEL) held that it is a

settled proposition that when the assessee is claiming exemption

under section 10A and assessee's profit from eligible business by the

Assessing Officer is recomputed the deduction under section 10A is also to

be allowed on the recomputed profit under section 10A.

International Gold Co Ltd Vs ITO, Mumbai, 2010-TOIL-652-ITAT has held

that even if the disallowance is sustained, it will only go to increase the

business profits of the assessee which is exempt under section 10A as per

the decision of the Hon'ble Bombay High Court in the case of Gemplus

Jewellery India Ltd., 194 Taxman 192 and allowed the appeal of the

assessee.

29 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

Plus Jewellery India Ltd [(2010) 233-CTR(Bom)-24 has held that exemption

under section 10A - profits and gains derived from exports - addition on

account of disallowance of employer's and employees' contribution towards

PF/ESIC - Disallowance of the PF/ESIC payments has been made because

of the statutory provisions i.e. Sec. 43B in the case of the employer's

contribution and Sec. 36(1)(v) r.w.s. 2(24)(x) in the case of the employees'

contribution which have been deemed to be the income of the assessee -

plain consequence of the disallowance and the add back that has been

made by the AO is an increase in the business profits of the assessee -

Exemption under section 10A is allowable with reference to such enhanced

income.

Assessing Officer to delete the addition of Rs.5,00,000/- for commission

paid to Shri Raj Kishore Sahoo. Thus, this ground of the appeal of the

assessee is allowed.

the CIT(A) erred in restoring the issue of disallowance of commission

payment of Rs. Rs.5,88,761/- made u/s.40(a)(ia) of the Act to Monarch

International to the file of the Assessing Officer.

and the orders of lower authorities.

30 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

made to Monarch International amounting to Rs.5,88,761/- on the ground

that the assessee had not deducted TDS u/s.194H from the payment made

to the said party.

ITDS from the payments made to M/s. Monarch International of

Rs.5,88,761/-, which was as under:

“Date Bill amount TDS amount Deposit dt. of TDS

22.4.2009 Rs.2,50,473.00 Rs.28,379/- 6.5.2009Ch. No.03781

23.7.2009 Rs.1,90,681.00 Rs.21,605/- 7.8.2009Ch. No.02932

11.8.2009 Rs.1,47,607.00 Rs.16,724/- 7.9.2009Ch. No.07037

Assessing officer was not justified.

assessee was that if deduction for payment of commission of Rs.5,88,761/-

to M/s. Monarch International was made then it will increase the net profit

of the assessee form eligible undertaking and the same is allowable

deduction u/s.10B as a 100% exported oriented unit.

assessee and restored the matter back to the file of the Assessing Officer

to decide the applicability of section 40(a)(ia) of the Act and decide the

addition as per law.

31 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

the alternate plea of the assessee while setting aside the matter to the file

of the Assessing Officer. The same may be adjudicated by the Tribunal.

the CIT(A), which remained adjudicated by him. In our considered view if

the commission payment of Rs.5,88,761/- to Monarch International was

disallowed and addition of the same is made to the income of the assessee,

it would increase the eligible profit of the assessee from the 100% exported

oriented unit and thereby increase the deduction allowable u/s.10B of the

Act to the assessee and, accordingly no addition is required to be made.

above in paras 20 to 23 (supra), Hence, we set aside the order of the

CIT(A) on this issue and delete the addition ofRs.5,88,761/- and allow this

ground of appeal of the assessee.

appeal filed by the assessee is allowed.

Order pronounced in the court on 28 /02/2017.

Sd/- sd/- ( Aby T. Varkey) (N.S Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER

Cuttack; Dated 28 /02/2017

32 ITA No. 473/CT K/ 2014 ITA No. 493/CT K/ 2014 Asse ssment Year :20 10- 201 1

B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant/Assessee: Shri Biswajit Das, M/s. B.S.Industries, Plot No.9, Budha Nagar, Bhubaneswar 2. The Revenue: Income Tax Officer, Ward- 2(2), Bhubaneswar. 3. The CIT(A)-1, Bhubaneswar. 4. CIT, Bhubaneswar, 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack