December 2008
S. 80IB — Production of masala varieties, is manufacture of goods
By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
Reading Time 4 mins
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13 ACIT v. Empire Spices & Foods Mumbai Ltd.
ITAT ‘G’ Bench, Mumbai
Before Sunil Kumar Yadav (JM) and
Rajendra Singh (AM)
ITA No. 4477/M/06
A.Y. : 2003-04. Decided on : 18-9-2008
Counsel for revenue/assessee : D. Songate/
B. V. Jhaveri
S. 80IB of the Income-tax Act, 1961 (‘the Act’) — Whether
business of the assessee, which is producing masala of different varieties, is
manufacture of goods or is only processing of goods — Held, it is manufacture of
goods.
Per Rajendra Singh :
Facts :
The assessee, engaged in business of masala, claimed for the
relevant assessment year, deduction u/s.80IB of the Act by treating the business
as industrial undertaking for manufacture and sale of masala. The Assessing
Officer (AO) noted that the assessee was only purchasing raw material in the
form of different spices which were grinded and mixed and filled in pouches and
then sold. The AO placed reliance on the judgments of the Supreme Court
(sic-Calcutta High Court) in the case of Apeejay Plantation and also in the case
of Indian Hotels and on the judgment of Madras High Court in the case of Sacs
Eagles Chicory and held that the activity of the assessee amounts to processing
and not manufacture and accordingly he disallowed the claim of deduction
u/s.80IB. Before the CIT(A) it was contended by the assessee that it was
manufacturing various types of masala, such as chivda masala, pickle masala,
etc. which involved different formulas and process; the raw material i.e., raw
spices underwent changes and the final product was masala which was sold in the
market as a distinct and different commercial product; each type of masala was
different in taste and uses; the manufacturing process involved various
activities such as cleaning of various raw spices, roasting, frying, polishing,
mixing, boiling, pulping, grinding, etc. which are done with the help of
machinery. Reliance was placed by the assessee on the judgment of the Supreme
Court in the case of Aspinwall & Co. Reference was also made to the decision of
the Mumbai Tribunal in the cases of Pankaj Jain and Comet Foods & Metals Ltd.
The CIT(A) being satisfied with the explanation, held that the end product in
this case was completely different from the raw material and therefore the
activity carried on by the assessee was manufacture and not processing. He also
observed that the Department had allowed the
claim of manufacture in earlier years. Accordingly, he allowed the claim for
deduction u/s.80IB treating the business as manufacture of masala. Aggrieved,
the Revenue preferred an appeal to the Tribunal.
Held :
It is settled legal position that producing articles whether
by any labour or by machine will amount to manufacture if the final product is
different from the input and is known as a commercially different product in the
business parlance. The assessee is producing different variety of masala, such
as chiwda masala, pickle masala, etc. which are commercially known products in
the market and these products are different from the different spices used in
the process. In case of the assessee, different raw spices which are inputs are
combined in different proportions and undergo different processes to produce the
final product which is masala and which is different from the input raw
material. The assessee is producing different types of masala using different
formula with the help of input spices and these products are commercially known
products, such as garam masala, mutton masala, pav bhaji masala and have
different uses. The Tribunal noted that the judgment of the Supreme Court in
Aspinwall & Co. supports the case of the assessee and that the decision of the
Tribunal in the case of Tirupathi Microtech Pvt. Ltd. is in favour of the
assessee. The judgments relied upon by the AO viz. Appejay Plantation, Indian
Hotels and Sacs Eagles Chicory were found to be distinguishable. Accordingly,
the Tribunal held that the assessee is a manufacturing concern entitled to
deduction u/s.80IB.
Cases referred to :
1. Indian Hotels Co. Ltd. & Ors. v. Income Tax Officer &
Ors., (245 ITR 538) (SC)
2. Aspinwall and Co. Ltd. v. Commissioner of Income-tax,
(251 ITR 323) (SC)
3. Apeejay Plantation (206 ITR 367) (Cal.)
4. Commissioner of Income-tax v. Sacs Eagles Chicory, (241
ITR 319) (Mad.)
5. Comet Foods & Metals Ltd. v. ITO, (95 TTJ 440) (Mum.)
6. Pankaj Jain v. ITO, (97 TTJ 28) (Asr.)
7. ACIT v. Tirupathi Microtech Pvt. Ltd., (111 TTJ 149) (Jodh.)
8. ACIT v. Panachayil Industries, (7 SOT 96) (Coch.)
