Madras High Court
The Commissioner Of Income Tax vs M/S.Cauvery Stone Impex Pvt. Ltd on 19 August, 2021
T.C.A.No.726 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 19.08.2021
CORAM :
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP
T.C.A. No.726 of 2016
The Commissioner of Income Tax,
Chennai. ... Appellant
Vs.
M/s.Cauvery Stone Impex Pvt. Ltd.,
No.8, 2nd Street, Ganapathy Colony,
Gopalapuram, Chennai - 600 086. ... Respondent
Tax Case Appeal preferred under Section 260A of the Income Tax Act,
1961, against the order, dated 31.03.2016, passed by the Income Tax
Appellate Tribunal, Chennai "A" Bench, in I.T.A.No.2098/Mds/2015, for the
Assessment Year 2010-11.
For Appellant : Mrs.R.Hemalatha
Senior Standing Counsel
For Respondent : Mr.M.P.Senthil Kumar
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JUDGMENT
(Judgment was delivered by T.S. SIVAGNANAM, J.)
This Tax Case Appeal filed by the Revenue under Section 260-A of the
Income Tax Act, 1961 ("the Act" for brevity), is directed against the order,
dated 31.03.2016, passed by the Income Tax Appellate Tribunal, Chennai
"A" Bench, in I.T.A.No.2098/Mds/2015, for the Assessment Year 2010-11.
2.The appeal has been admitted on 26.08.2020 on the following
substantial questions of law :
“1.Whether on the facts and circumstances of the case,
the Tribunal was right in holding that the assessee was
eligible for claiming deduction u/s.10B?
2.Whether the finding of the Tribunal is correct by
holding that sculpturing and carving of dimensional block of
granites and monument amounted to manufacture overlooking
the conditions specified in Sec.2(29BA) wherein the
manufacture has been defined?”
3.We have heard Mrs.R.Hemalatha, learned Senior Standing Counsel
for the appellant/Revenue and Mr.M.P.Senthil Kumar, learned counsel
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T.C.A.No.726 of 2016
appearing for the respondent/assessee.
4.It is not in dispute that the substantial questions of law raised in this
appeal have been answered against the Revenue and in favour of the assessee
in T.C.A. Nos.230 of 2010, 279 of 2011 & 563 of 2014, dated 04.08.2021.
The said judgment reads as follows :
“These Tax Case Appeals filed by the Revenue under
Section 260-A of the Income Tax Act, 1961 (“the Act” for
brevity) are directed against the orders in
I.T.A.Nos.632/Mds/2009, 1094/Mds/2010 and 1442/Mds/2013,
passed by the Income Tax Appellate Tribunal, Chennai, “B”,
“A” and “A” Benches, respectively.
2.The appeals were entertained to decide the following
substantial questions of law :
“T.C.A.No.230 of 2010 :
1.Whether on the facts and circumstances of the case,
the Tribunal is right in deciding that the Assessee is entitled to
the benefit of deduction under Section 10-B of the Act?
2.Whether on the facts and circumstances of the case,
the Tribunal is right in not considering the amendment of
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T.C.A.No.726 of 2016
Sec.10B by omitting cl(iii) of explanation to sub section 7 of
the Act?
3.Whether on the facts and circumstances of the case,
the order of the Tribunal passed contrary to the case law 251
ITR 323 (SC) is valid?”
T.C.A.No.279 of 2011 :
Whether on the facts and circumstances of the case, the
Tribunal was right in dismissing the appeal without
considering provisions of sec.10B and the eligibility of the
assessee to claim exemption?
T.C.A.No.563 of 2014 :
Whether on the facts and in the circumstances of the
case, the Tribunal is right in holding that assessee had
dimensionally cut and polished the block of granites and same
were exported and the assessee is entitled for exemption
u/s.10B when the sale invoices clearly mentioned that the
assessee had exported 'processed dimensional rough or crude
granite' to mean that the granite has been processed into
rough/crude blocks merely making them fit for
transportation?”
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T.C.A.No.726 of 2016
3.We have elaborately heard Mrs.R.Hemalatha, learned
Senior Standing Counsel for the appellant/Revenue and
Ms.Sri Niranjani Srinivasan, learned counsel appearing for
the respondent/assessee.
4.There are three appeals arising out of three
Assessment Years and we will take T.C.A.No.230 of 2010 as
the lead case.
5.The assessee is engaged in the granite business and
for the Assessment Year under consideration, AY 2005-06,
they filed their return claiming 100% deduction under Section
10-B of the Act. The return was selected for scrutiny and the
case was discussed with the assessee. The claim of the
assessee was that they are in the business of manufacture of
granites and they are a 100% export oriented unit and they
are entitled to claim deduction under Section 10-B of the Act.
The relevant records were also placed before the Assessing
Officer to justify the said claim. The Assessing Officer
proceeded to consider the matter by observing that, what is
required to be decided is whether the assessee is engaged in
the manufacture or production of an article or thing. After
taking note of various factors, the Assessing Officer held that
the assessee is not engaged in manufacture of any article or
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T.C.A.No.726 of 2016
thing, within the meaning of Section 10-B of the Act, as is
applicable in respect of the Assessment Year under
consideration. Accordingly, the claim for deduction was
rejected.
6.The assessee preferred an appeal before the
Commissioner of Income Tax (Appeals)-XII, Chennai
(“CIT(A)” for brevity). The appeal was allowed by order
dated 31.12.2008. Aggrieved by the same, the Revenue
preferred an appeal before the Tribunal, which confirmed the
order of the CIT(A) by the order, dated 13.08.2009, impugned
before us.
7.The law on subject is no longer res integra and in this
regard, we refer to the decision of the Hon'ble Supreme Court
in Income-Tax Officer, Udaipur v. Arihant Tiles & Marbles
(P) Ltd. reported in (2010) 320 ITR 79 (SC) and the decision
of the Division Bench of this Court in the case of
Commissioner of Income-Tax, Chennai v. Pallava Granite
Industries (I) (P) Ltd. reported in (2014) 221 Taxman 107
(Madras). Both the above mentioned decisions deal with
granite and marble blocks.
8.The argument of Mrs.R.Hemalatha, learned Senior
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T.C.A.No.726 of 2016
Standing Counsel, appearing for the appellant/Revenue, is by
submitting that, during the Assessment Year under
consideration, the content in Section 2(29BA) of the Act was
not available, and similarly, the definition of “manufacture”
under Section 10-B(7)(iii) was not there in the Statute book
and therefore, the Assessing Officer was right in holding that
there was no process of manufacture and at the best, it can be
construed as an exercise of processing and not that of
manufacture. In fact, this very argument was considered in
the case of Pallava Granite Industries (I) (P) Ltd. (supra) and
the decision was taken in favour of the assessee on the
following terms :
“8.We are conscious of the fact that during the
assessment years under consideration 2003-04,
2004-05. 2005-06, the definition of Section 2 (29BA)
of the Income Tax Act, was not there. So too, sub-
section (7) sub-clause (iii) of Section 10B of the
Income Tax Act, defining 'manufacture' was not there.
Nevertheless, we may note that in the case of Gem
Granites v. CIT [2004] 271 ITR 322/141 Taxman 528
(SC), the Supreme Court considered the issue of
polishing granites and held the same is different from
rough granites and that rough granites under the
process as amounting to manufacture. Thus, when the
resultant article no longer retained its original
character, but has a different name and character, we
do not find any justifiable ground to accept the plea
of the Revenue solely by the reason of the absence of
definition of 'manufacture' under Section 10B of the
Income Tax Act, during the relevant assessment years
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T.C.A.No.726 of 2016
namely, 2003-04, 2004-05 and 2005-06, that the
terms 'manufacture' has to be read in a restricted way
that the processing could not be included within the
meaning of 'manufacture'.
9.Thus, going by the decision of the Supreme
Court in the case of Gem Granites (supra), on the
scope of the expression 'manufacture', in the absence
of any specific definition, we have no hesitation in
giving common man's understanding as to the scope
of the expression that the expression 'manufacture'
would include every process, which would ultimately
result in the production of new article having a
different character in view.”
9.The decision in the case of Arihant Tiles & Marbles
(P) Ltd. (supra) would also aid the case of the assessee,
wherein, the Court pointed out that it was not concerned only
with cutting of marble blocks into slabs, but also concerned
with the activity of polishing and ultimate conversion of blocks
into polished slabs and tiles and the processes/activities
undertaken by the assessee in various stages through which
the blocks had to go through before they become polished
slabs and tiles, undoubtedly constitute the activity of
manufacture or production.
10.Mrs.R.Hemalatha, learned Senior Standing Counsel,
appearing for the appellant/Revenue, placed reliance on the
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T.C.A.No.726 of 2016
decision of the Hon'ble Supreme Court in the case of
Commissioner of Income-Tax v. Gem India Manufacturing
Co. reported in (2001) 249 ITR 307 SC. On going through
the said decision, we find that the question was whether
cutting and polishing of diamond amounts to manufacture or
production of goods. Taking into consideration the factual
position, the Court held that, raw and uncut diamond is
subjected to process of cutting and polishing which yields
polished diamond and the polished diamond cannot be
treated to be a new article, because in the said case, there was
no material on record upon which such a conclusion can be
arrived at and therefore, the case was decided in favour of the
Revenue. In the case on hand, the CIT(A) had elaborately
examined the process through which the quarried rough stone
goes through before it becomes a polished granite slab or tile
or any other article. This aspect was rightly taken note of by
the Tribunal in the impugned order, more particularly, in
Para No.3 therein. Therefore, we find the decision in Gem
India Manufacturing Co. is distinguishable.
11.The learned Standing Counsel placed reliance on the
decision of the Division Bench of the High Court of Kerala in
Nishanth Exports v. Assistant Commissioner of Income-Tax,
Circle-1, Mattancherry reported in (2018) 401 ITR 401
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T.C.A.No.726 of 2016
(Kerala). The said decision also would not help the case of
the Revenue, because, whether garbling to make pepper edible
would amount to giving rise to a different commodity distinct
from the raw pepper purchased, was the issue therein.
Admittedly, in the said case, the pepper both in raw form or in
edible form, continued to remain as pepper.
12.The learned counsel referred to the decision of the
Hon'ble Supreme Court in Lucky Minmat Pvt. Ltd. v.
Commissioner of Income-Tax, Jaipur, reported in (2000) 245
ITR 830 (SC) to support her submissions that, mining of
limestones and marble blocks and thereafter cutting and
sizing the same, would not amount to process of manufacture.
13.As pointed out by Ms.Sri Niranjani Srinivasan,
learned counsel appearing for the respondent/assessee, the
decision in the case of Lucky Minmat Pvt. Ltd. was considered
by the Hon'ble Supreme Court in Arihant Tiles & Marbles (P)
Ltd. (supra) and it was pointed out as to how the important
distinction was not noted by the Department. The operative
portion reads as follows :
“11.The main judgment on which the
Department has placed reliance is the judgment of
this Court in Lucky Minmat (P) Ltd. v. CIT [2000]
245 ITR 830. In that case, the following question
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came up for consideration before the Tribunal:
"Whether on the facts and in the
circumstances of the case, the Tribunal was
justified in holding that business activity of the
assessee was in the nature of manufacturing or
production so as to be entitled for relief under
section 80HH of the Income-tax Act, 1961."
The assessee in that case had the business of
mining of limestones and marble blocks which
thereafter were cut and sized before being sold in
the market. It was held by this Court that the
assessee was essentially in the business of mining
of limestone. It was held that the activity of
excavation will not constitute manufacture or
production. It was further held that even the
activity of cutting and sizing of marble blocks after
excavation would not come within the ambit of
expression 'manufacture' or 'production'. In the
circumstances, this Court held that the assessee
was not entitled to the benefit of section 80HH of
the Income-tax Act. However, this Court
distinguished the judgment of the Rajasthan High
Court in the case of CIT v. Best Chemical & Lime
Stone Industries (P.) Ltd. [1994] 210 ITR 883. In
that case, Best Chemical & Lime Stone Industries
(P.) Ltd. (supra) was engaged in the business of
extracting limestone and its sale thereafter
converting it into lime and limedust or concrete
which was held to be an activity of manufacture or
production. The activity of conversion into lime and
limedust, according to this Court, in the case of
Lucky Minmat (P.) Ltd (supra) certainly constituted
a manufacturing process. It was clarified in the
said case that mere mining of limestone and marble
and cutting the same before it was sold will not
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constitute 'manufacture' or 'production' but
conversion into lime and limedust could constitute
the activity of manufacturing or production. This
distinction has not been taken into account by the
Department while rejecting the claim of the
assessee(s) for deduction under section 80-IA of
the Income-tax Act, 1961.”
14.In the light of the above, we are of the considered
view that the Tribunal was right in confirming the order
passed by the CIT(A). For all the above reasons, these Tax
Case Appeals are dismissed and the substantial questions of
law are answered against the Revenue. No costs.”
5.The above decision has also been followed by this Court in
T.C.A.No.484 of 2011, dated 05.08.2021.
6.Thus, following the said decision in T.C.A. Nos.230 of 2010, 279 of
2011 & 563 of 2014, dated 04.08.2021 (supra), this Tax Case Appeal is
dismissed and the substantial questions of law are answered against the
Revenue. No costs.
(T.S.S., J.) (S.S.K., J.)
19.08.2021
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T.C.A.No.726 of 2016
mkn
Internet : Yes
Index : Yes / No
Speaking order / Nonspeaking order
To
1.The Income Tax Appellate Tribunal,
Chennai, “A” Bench.
2.The Commissioner of Income Tax,
Chennai.
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T.C.A.No.726 of 2016
T.S. SIVAGNANAM, J.
and
SATHI KUMAR SUKUMARA KURUP, J.
mkn
T.C.A. No.726 of 2016
19.08.2021
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