Madras H.C : Whether deduction under section 80-IB available even if only assembly of different parts of the Wind Mills together was done

High Court Of Madras

CIT-I, Coimbatore Vs. Chiranjjeevi Wind Energy Ltd.

Assessment Year : 2005-06

Section : 80-IB

F.M. Ibrahim Kalifulla And N. Kirubakaran, JJ.

Tax Case (Appeal) No. 1164 Of 2010

January 10, 2011


F.M. Ibrahim Kalifulla, J. – The revenue has come forward with this appeal and the substantial question of law sought to be raised by the appellant reads as under :—

“Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in law in holding that, the assessee-company is eligible for deduction under section 80-IB of the Income-tax Act, 1961, even though the assessee-company assembled different parts of the Wind Mills together, it does not undergo any process by which as a new and distinct article?”

2. We heard Mr. J. Naresh Kumar, learned Standing Counsel for the appellant. In order to appreciate the question raised, the facts are required to be stated.

3. The assessment year pertains to 2005-06. The respondent-assessee was engaged in the activity of procuring different parts for assembling Wind Mills. The question for consideration is whether such assembling of different parts and thereby ultimately Wind Mill is brought into existence, would amount to the activity of “manufacture”, in order to entitle the respondent-assessee for deduction as provided under section 80-IB of the Income-tax Act.

4. According to the appellant, since the respondent-assessee merely procured the different parts of the Wind Mill and assembled the same, it will not amount to either “manufacture” or “production” of any article or thing, as spelt out in section 80-IB(2)( iii) of the Income-tax Act. Such contention put forth by the appellant was rejected by the Tribunal in the order impugned in this appeal.

5. In this respect, we need not dilate the issue in deep inasmuch as the Hon’ble Supreme Court in a recent decision in India Cine Agencies v. CIT [2009] 308 ITR 98 has laid down the test to determine what activity would amount to “manufacture”. The ratio laid down by the Hon’ble Supreme Court has been set out in paragraph 7, which reads as under :

“7. To put it differently, the test to determine whether a particular activity amounts to “manufacture” or not is : Do new and different goods emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether it be the result of one process or several processes “manufacture” takes place and liability to duty is attracted. Etymologically the word “manufacture” properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314).”

The Hon’ble Supreme Court also considered the meaning of the word “production” and in that context, referred to its earlier decision CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 and the relevant portion extracted from the said judgment, is to the following effect:

“9. The matter can be looked at from another angle. In CIT v. Sesa Goa Ltd. [2004] 271 ITR 331 this Court considered the meaning of the word “production”. The issue in that case was whether the extraction and processing of iron ore amounted to manufacture or not in view of the various processes involved and the various processes would involve production within the meaning of section 32A of the Act. It was, inter alia, observed as under :

10. In Words and Phrases 2nd Edn. by Justice R.P. Sethi the expressions “produce” and “production” are described as under:

‘In Webster’s New International Dictionary, the word ‘produce’ means something that is brought forth either naturally or as a result of effort and work; a result produced. In Black’s Law Dictionary, the meaning of the word ‘produce’ is to ‘bring into view or notice; to bring to surface’.

A reading of the aforesaid dictionary meanings of the word ‘produce’ does indicate that if a living creature is brought forth, it can be said that it is produced. (See CIT v. Venkateswara Hatcheries (P.) Ltd. [1999] 3 SCC 632; CIT v. N.C. Budharaja & Co. [1994] Supp (1) SCC 280).

Production or produce – 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 byproducts, intermediate products and residual products, which emerge in the course of manufacture of goods. The expressions ‘manufacture’ and ‘produce’ are normally associated with movables, articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road and a building. (See Moti Laminates v. Collector of Central Excise [1995] 3 SCC 23).'”

6. Applying the above test to the case on hand, the different parts procured by the respondent-assessee by themselves cannot be treated as a Wind Mill. Those different parts bear distinctive names and when assembled together, thereafter it gets transformed into an ultimate product which is commercially known as a “Wind Mill”. There can, therefore, be no difficulty in holding that such an activity carried on by the respondent-assessee would amount to “manufacture” as well as “production” of a thing or article as set out in section 80-IB(2)(iii) of the Income-tax Act. In such circumstances, the conclusion of the Tribunal in accepting the plea of the respondent-assessee cannot be found fault with. We, therefore, do not find any question of law, much less substantial question of law, to entertain this appeal.

7. The appeal fails and the same is dismissed. No costs.

[Citation : 333 ITR 192]

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