Himachal Pradesh High Court Judgments — 2009

The High Court held that the operation of mining and crushing in a stone crusher amounts to manufacturing within the meaning of Section 80IB of the Income Tax Act. The Court referred to the definition of 'manufacture' in Black's Law Dictionary and various Supreme Court judgments. It distinguished cases like Sterling Foods and Sacs Eagles Chicory, where the commodity retained its essential identity, from cases like Aspinwall and Co. Ltd. (coffee beans) and Lucky Minmat Pvt. Ltd. (stone crushers), where a commercially different article was produced. The Court found that the process of converting boulders into grit results in a commercially different article. The Court specifically noted that the observation in Lucky Minmat Pvt. Ltd. regarding stone crushers being a manufacturing process was not obiter dicta but part of the decision. Therefore, the questions were answered in favour of the assessee. The appeals were allowed, and the deduction was granted.

The High Court held that the decision in M/s. Kachwala Gems versus JCIT is applicable to the present case. The Court reasoned that the assessee's failure to produce purchase vouchers, provide details of sellers, and maintain proper stock registers justified the rejection of the books of account by the AO. The Court reiterated the Supreme Court's observation in Kachwala Gems that in a best judgment assessment, there is an element of guesswork, and the assessee is to blame for not submitting proper accounts. The Court further held that the question of what the gross profit percentage should be is a pure question of fact, not a question of law. Therefore, the High Court found no reason to interfere with the ITAT's decision in exercise of its powers under Section 260A. The appeal was dismissed.

The High Court held that the Income-tax Appellate Tribunal was justified in its finding. The Court referred to Section 271(1B) of the Income-tax Act, 1961, which was inserted by the Finance Act of 2008 but given retrospective effect from April 1, 1989. This provision states that where an assessment order contains a direction for the initiation of penalty proceedings under Section 271(1)(c), such an order shall be deemed to constitute the satisfaction of the Assessing Officer for initiating those proceedings. The Court noted that it was not disputed that this amendment applied to both cases. Therefore, in view of the statutory amendment, the question of law was answered in favour of the revenue and against the assessee. The appeals were accordingly dismissed.

The High Court held that the transport subsidy received by the assessee was not income derived from the business of the industrial undertaking. The Court reasoned that the phrase 'derived from' in Section 80-1A is narrower than 'attributable to' and restricts the deduction to profits generated directly from the eligible business. Relying on the Supreme Court's decisions in Sterling Food and Liberty India, the Court found that the source of the transport subsidy was the Central Government's scheme, not the assessee's operational business. Therefore, it was not an operational profit and did not qualify for deduction under Section 80-1A. The Court answered the question of law in favour of the Revenue and against the assessee. No issue was left undecided.

The High Court held that the conversion of limestone into limestone powder is a manufacturing activity. The Court reasoned that the Supreme Court in M/s. Lucky Minmat Pvt. Ltd. vs. CIT had clearly held that the conversion into lime and lime dust or concrete by stone crushers could legitimately be considered a manufacturing process, while mere mining or cutting of limestone and marble would not be. The Court found no merit in the revenue's contention that this observation was merely obiter dicta, stating that the Supreme Court had explicitly held the process of conversion of limestone into lime and lime dust to be a manufacturing process. Therefore, the Tribunal's reliance on this judgment was justified. The Court answered both questions of law in favour of the assessee and against the revenue. The appeals were disposed of accordingly, with no order as to costs.

The High Court held that the appeal challenging the first order of the Income-tax Appellate Tribunal has become infructuous. The court reasoned that since a fresh assessment was framed pursuant to the CIT(Appeals)'s order, and a subsequent order of the ITAT has attained finality, the original order under challenge is no longer relevant. The assessment of the assessee will be governed by the subsequent order passed by the ITAT. The operative direction is that the appeal is disposed of as infructuous.

The High Court held that the appeal filed by the Revenue against the first order of the Income-tax Appellate Tribunal had become infructuous. This was because, subsequent to the order under challenge, fresh assessment proceedings were completed, and a subsequent order of the ITAT had attained finality, governing the assessment of the assessee. The Court reasoned that the assessment proceedings would now be governed by this subsequent ITAT order, making the present appeal redundant. Therefore, the appeal was disposed of on the ground of being infructuous, with the operative direction that the assessee's assessment shall be governed by the subsequent order passed by the ITAT.

The High Court held that the appeal filed by the Revenue has become infructuous. The reasoning was that the first order of the ITAT, which is under challenge, has been superseded by a subsequent order of the ITAT that has attained finality. The assessment proceedings for the assessee will be governed by this subsequent ITAT order. Therefore, the Court disposed of the appeal by declaring it infructuous. No specific finding on the merits of the first ITAT order was made. The operative direction was that the assessment of the assessee shall be governed by the subsequent order passed by the ITAT.

The High Court held that the appeal filed by the Revenue against the earlier order of the Income-tax Appellate Tribunal has become infructuous. This is because, subsequent to the CIT(A)'s order and the first ITAT order, a fresh assessment was framed by the AO, and further proceedings culminated in a subsequent ITAT order which has attained finality. Therefore, the assessment of the assessee shall be governed by this subsequent, final order of the ITAT, rendering the present appeal on the earlier order academic. The operative direction is that the appeal is disposed of as infructuous, and the assessment will be governed by the subsequent ITAT order.

The High Court held that the appeal filed by the Revenue has become infructuous. This is because subsequent proceedings have culminated in a later order passed by the Income-tax Appellate Tribunal, which has attained finality. The assessment proceedings of the assessee will be governed by this subsequent, final order of the ITAT, rendering the present appeal challenging the earlier ITAT order moot. The operative direction is that the appeal is disposed of on the grounds of being infructuous, and the assessment shall be governed by the subsequent ITAT order. No specific issue was left undecided; rather, the appeal itself was found to be procedurally obsolete.

The High Court held that the appeal filed by the Revenue challenging the earlier order of the Income-tax Appellate Tribunal has become infructuous. This is because subsequent proceedings, following the CIT(A)'s order and the Assessing Officer's fresh assessment, have resulted in a subsequent order from the ITAT which has attained finality. Therefore, the assessment of the assessee will be governed by this subsequent, final order of the ITAT. The operative direction is that the appeal is disposed of as infructuous, and the assessment will be governed by the later ITAT order. No specific issue was left undecided; the appeal was disposed of on procedural grounds.

The High Court held that the appeal filed by the Revenue had become infructuous. The reasoning was that the order of the CIT(Appeals) which was challenged before the ITAT, had led to a fresh assessment being framed by the Assessing Officer. Subsequently, further proceedings culminated in a later order of the ITAT which had attained finality. Therefore, the present appeal, challenging an earlier ITAT order, was rendered moot. The High Court directed that the assessment of the assessee shall be governed by the subsequent order passed by the ITAT. No specific issue was left undecided; the appeal was disposed of on procedural grounds.

The High Court held that the interest earned on deposits made out of non-SLR funds is attributable to the banking activities of the assessee bank and is eligible for deduction under Section 80P(2)(a)(i). The Court reasoned that the term 'attributable to' is wider in import than 'derived from'. It further noted that any banking institution would invest its reserves to earn income, as keeping them idle would be imprudent business management and a part of banking activity itself. Therefore, the investment of funds, including non-SLR reserves, was considered part of the banking activities. The Court rejected the Revenue's plea for remand, distinguishing the present case from the facts in Mehsana District Central Co-operative Bank Ltd. where the issue had not been considered by lower authorities. The appeals were accordingly rejected in favour of the assessee.

The High Court held that the processes undertaken for Histic tablets did not amount to manufacture under Chapter Note 11. The court reasoned that affixing a label slip to correct the MRP was not relabelling of the container, nor was it coupled with repacking from bulk to retail packs as required by the conjunction in the note. Therefore, the CESTAT's order upholding the assessee's position on Histic tablets was affirmed. Regarding Pen-G Acylase, the court found that the rectification process constituted manufacture. The defective material was reprocessed, taken out of its original packaging, subjected to milling, blending, sifting, and repacking, and was given a new batch and expiry date. Crucially, the defective material was not marketable and the treatment rendered it marketable to consumers. This squarely fell under the last part of Chapter Note 11, which states that any treatment to render products marketable to the consumer shall amount to manufacture. The court also noted that Rule 173(3) of the Central Excise Rules, 1944, implies that if rectification involves a process amounting to manufacture, duty is payable. Thus, the question was answered in favour of the Revenue for Pen-G Acylase.

The High Court held that the interest subsidy received by the assessee is not a profit derived from the business. The reasoning is that the source of the income is the scheme framed by the State Government, not the business of the assessee. This aligns with the Supreme Court's interpretation in Liberty India's case and Sterling Food's case, which established that for a profit to be 'derived from' a business, there must be a direct nexus, and it should be an operational profit. The interest subsidy is not an operational profit, and its immediate source is the subsidy scheme, not the industrial undertaking itself. Therefore, the questions of law are answered in favour of the Revenue and against the assessee. The appeals are allowed.

The High Court held that the process of roasting raw groundnut seeds into roasted groundnuts does not bring into being a new and distinct product, and therefore, does not amount to manufacture. The Court reasoned that in cases like Sterling Foods, processed shrimps, prawns, and lobsters retained their character and identity. Similarly, in Sacs Eagles Chicory, roasting and powdering chicory roots was not considered manufacture. The Court distinguished Aspinwal's case, where the conversion of raw coffee berries into coffee beans resulted in a commercially different commodity. In the present case, groundnuts remain edible even after roasting and are still called groundnuts, retaining their original identity and character. The inability to extract oil from roasted groundnuts does not create a new product. The process of roasting was considered simple and less cumbersome than processes held not to be manufacture in prior cases. Consequently, the assessees are not entitled to the benefit of Sections 80IA or 80IB. All questions were answered in favour of the revenue and against the assessees. Issues 3 and 4 were not explicitly decided on merits but were subsumed within the overall finding against the assessees.

The High Court held that the transfer of 100% shareholding of a company does not amount to a succession of business under Section 170 of the Income Tax Act. The Court reasoned that a company is a juristic person, distinct from its shareholders. A change in shareholding, while it may constitute a transfer for the individual shareholders, does not alter the legal identity of the company itself. Therefore, there is no transfer of business from one assessee to another as far as the company is concerned. The Court relied on the Allahabad High Court's judgment in CIT v. Mass Products (Ind.) Ltd., which held that a change in shareholders does not affect the legal identity of a limited liability company. The Court found the revenue's reliance on CIT v. Mrs. Grace Collis and others misplaced, as that case dealt with amalgamation and capital gains tax for individual shareholders, not the company's succession. Consequently, Section 170 was held to be inapplicable. The appeal was dismissed, and both questions were answered in favour of the assessee. The issue regarding repairs and renovations expenditure was implicitly decided in favour of the assessee as the appeal was dismissed.

The High Court held that for the assessment years in question (1987-88 and 1988-89), Section 36(1)(viii), as it stood prior to the 1996 amendment, clearly stipulated that the deduction was permissible from 40% of the 'total income'. The Court reasoned that 'total income' inherently includes income from all sources, and therefore, any losses incurred in businesses other than long-term finance must be taken into account when computing the total income. The assessee's attempt to bifurcate income and exclude losses from other businesses was incorrect under the then-existing provision. The Court found that the Assessing Officer's initial calculation, which did not account for losses from other businesses, constituted an error apparent on the face of the record, making it rectifiable under Section 154. The amendment in 1996, which allowed deduction based on profits derived from the specific long-term finance business, was prospective and not retrospective. Consequently, both substantial questions of law were decided in favour of the revenue and against the assessee.

The High Court held that the Assessing Officer (AO) lacked jurisdiction to resort to block assessment under Chapter XIV-B of the Income Tax Act, 1961, because no undisclosed income was detected during the search operation. The court noted that block assessment is a special procedure for assessing undisclosed income resulting from a search, as defined in Section 158B(b), and cannot substitute for a regular assessment. The assessee's books of account were audited under Section 142(2-A), and no defects or irregularities were found. The department could only proceed under Section 158AB if undisclosed income was detected during the search. The ITAT's finding that the AO wrongly assumed jurisdiction for block assessment was in conformity with the law. Consequently, the appeal was dismissed.

The High Court held that the question raised in the appeal was no longer res integra (undecided) in view of the Supreme Court's affirmation of the Punjab and Haryana High Court's judgment in Commissioner of Income Tax versus Prithipal Singh and Company, 249 ITR 670. The reasoning was that the Supreme Court's decision directly addressed the issue of penalty under Section 271(1)(c) when there is no taxable income or tax assessed. The ratio decidendi is that penalty under Section 271(1)(c) cannot be imposed in the absence of taxable income or tax liability. Consequently, the substantial question of law was answered in favor of the assessee, and the appeal filed by the revenue was dismissed. No costs were awarded.

The High Court held that since the main appeals before the Income Tax Appellate Tribunal (ITAT) for the relevant assessment years had been finally adjudicated on March 2, 2006, and March 23, 2006, the interim orders passed by the ITAT in the stay petitions had merged with these final decisions. Consequently, the substantial questions of law that formed the basis for admitting the present appeals before the High Court were no longer alive for adjudication. The Court found that there was nothing left for adjudication in the present appeals. Therefore, the appeals were dismissed as infructuous. All interim orders passed in these cases were vacated forthwith. The Court made no order as to costs.