Whether, for purpose of Sec 80IA, the expression 'manufacture or production' also includes 'processing' in its ambit - NO: High Court

THE issues before the Bench are - Whether, for the purpose of Sec 80IA, the expression 'manufacture or production' also includes 'processing' in its ambit and Whether when the transformer oil has been purchased by the assessee from market and centrifuging had been done by centrifugal machine in order to make it usable in Transformer, it cannot be construed that due to this transformation or activity there was change in the substance and new substance or article had come out. And the verdict goes against the assessee.

Facts of the case

The AO rejected the claim of deduction u/s 80IA(2)(iv)(c). The CIT (A) allowed the appeal of the assessee observing that the definition of the word Industrial Undertaking to which Section 80IA applies, includes 'processing of goods' also. Even processing of goods can be considered alongwith manufacture or production of goods while allowing deduction in respect of profits of the industrial undertaking u/s 80IA. Therefore deduction was allowed.

The ITAT partly allowed the appeal of Revenue observing that deduction u/s 80IA had been claimed on the transformer oil, scrap as well as the labour charges for the sale of scrap. The transformer oil as such was not sold, but was a part of assembly of transformer and therefore, deduction u/s. 80IA was allowable on it. But no deduction u/s 80IA was allowable on scrap and the labour charges for the sale of scrap.

Revenue contended that the assessee company was not indulging in any activities or producing/manufacturing the articles and no new product came out from their processing work. Infact, it only repaired the transformers and as per the provisions of the section 80IA(2)(iv)(c), while confirming the benefit of 100% deduction, the company must manufacture new product and while processing, manufacturing or producting new things, articles or product may come out. Thus, no deduction was allowable.

The assessee contended that assessee company was, infact, a manufacturer of aluminium HT/LT Leg Coils and was entitled for all the benefits as per the provisions u/s 80IA (2) (iv)(c) and contended that changing of transformer oil into centrifuge transformer oil through C. K. Machine amounts to processing of goods and industrial undertaking was mainly engaged in manufacture and production of goods and as per the section 80IA (12)(b), industrial undertaking shall have the meaning assigned to it in the explanation u/s 32B.

After hearing both the parties, the High Court held that,

++ the assessee company performs work in the nature of business for repairing and manufacturing of transformer. The company did not manufacture or produce transformer oil and scrap, rather it has purchased the T/Oil from the market and only centrifuging has been done and no new article or things has been produced/manufactured, only processing has been done. In the processing scrap, it had obtained from old/burnt Transformers Coils, which were made of aluminium wires of different amperes. The scrap has not been manufactured/produced. Certain more small parts have been purchased and have been used in manufacture of new HT/LT Leg Coils. The assessee has purchased the transformer oil from the market and after centrifuging the transformer oil by centrifugal machine, the centrifuged transformer oil has been made useful in old/burnt transformer. It is a sort of processing only and cannot be turned as manufacture of centrifuged transformer oil;

++ the explanation of sections 10A and 10B begins with the opending limb “For the purpose of this section” and, therefore, it can not be reasonably construed that this inclusive definition of “Manufacture” or “Produce” as enuciated and elaborated in Section 10-A and 10-B of the I.T. Act is applicable to provisions of section 80-I or section 80-IA because these words have been defined with a particular purpose or with reference to the limited/particular context i.e. free trade Zone and 100% Export Oriented Undertakings. Although prima-facie, there appears to be a discrimination yet this is a reasonable/discrimination because it is well within the competence of the legislature to define a word for specific purposes or object or section and not for general connotation where ever these words occur in the I.T. Act. Had this been the intention or object of the legislature/Parliament, the word “Manufacture” world also have been defined in section 80-I or 80IA in the same manner or a reference must have been made in section 10-A or 10-B of the I.T. Act because these sections are on the stature for the last 7-8 years or even some more years with certain new charges;

++ in Webster Third New International Dictionary process means, “To subject to a particular method, system or technique or preparation, handling or other treatment to effect a particular result put through a special process. It is clear that definition of processing would not be applicable in the present case, especially in the background that the transformer oil has been purchased by the assessee from market and centrifuging had been done by centrifugal machine in order to make it usable in Transformer, but in substance no new substance or articles or things has been emerged from the said processing, only some special processing or treatment had been given to transformer oil through a particular method. Therefore, it cannot be construed that due to this transformation or activity there was change in the substance and new substance or article had come out. Since, the assessee did not indulge in any manufacturing activities or producing any new articles or things, it is not entitled to the benefits of 100% deduction u/s 80IA (2)(iv)(c) of the Act, 1961.