S.C : Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right of confirming the order of the CIT(A) holding that the assessee, engaged in cutting and polishing of diamonds, amounts to manufacturing or production of goods and is entitled to deduction under s. 80-I of the IT Act, 1961 ?

Supreme Court Of India

CIT vs. Gem India Manufacturing Co.

Section 80-I

Asst. Year 1983-84, 1984-85

S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal, JJ.

Civil Appeal No. 180 of 1999

5th December, 2000

Counsel Appeared

M.L. Verma with Navin Chawla, Prateek, S.K. Dwivedi & Ms. Sushma Suri, for the Appellant : Krishnan Venugopal, Deepamala Ranganathan, Musharaf Chaudhary & Uday Tiwari, for the Respondent

ORDER

BY THE COURT :

We are concerned with the asst. yrs. 1983-84 and 1984-85 in this appeal against the order of a Division Bench of the High Court at Bombay. By that order, the following question was answered in the affirmative and in favour of the assessee : “Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right of confirming the order of the CIT(A) holding that the assessee, engaged in cutting and polishing of diamonds, amounts to manufacturing or production of goods and is entitled to deduction under s. 80-I of the IT Act, 1961 ?”

The High Court gave this answer because counsel for the parties were agreed that the issue stood covered by the High Court’s decision in CIT vs. London Star Diamond Co. (I) Ltd. (1995) 124 CTR (Bom) 109 : (1995) 213 ITR 517 (SC) : TC 24R.219. Sec. 80-I gives a deduction in respect of profits and gains from industrial undertakings which, among other conditions, manufacture or produce any article or thing. The question, therefore, is whether the assessee, in cutting and polishing diamonds manufactures or produces any article or thing.

The Tribunal took the view that it did because in “common parlance and commercial sense raw diamonds are not the same thing as polished and cut diamonds. The two are different entities in the commercial world. Though the chemical composition remains the same the physical characteristics of shape and class, etc. are substantially different”. It would appear that no material had been placed on the record before the Tribunal upon which it could have reached the conclusions that, either in common or in commercial parlance, raw diamonds were not the same thing as polished and cut diamonds, and that they were different entities in the commercial world. An ipse dixit of the Tribunal is not the best foundation for a decision.

The High Court, as aforestated, concluded that the case was covered by its decision in the case of CIT vs. London Star Diamond Co. (I) Ltd. (supra). It was not pointed out to the High Court that the question in that case was whether the assessee was an industrial company within the meaning of s. 2(8) of the Finance Act, 1975, and that, in answering that question, the High Court had held that raw diamonds and cut and polished diamonds were different and distinct marketable commodities having different uses; therefore, a company engaged in cutting and polishing raw diamonds for the purpose of export was engaged in the “processing of goods” to convert them into marketable form. The question that the High Court and we are here concerned with is whether, in cutting and polishing diamonds, the assessee manufactures or produces articles or things. There can be little difficulty in holding that the raw and uncut diamond is subjected to a process of cutting and polishing which yields the polished diamond, but that is not to say that the polished diamond is a raw article or thing which is the result of manufacture or production. There is no material on the record upon which such a conclusion can be reached.

The appeal is, therefore, allowed. The order under challenge is set aside. The question quoted above is answered in the negative and in favour of the Revenue. The assessee shall pay to the Revenue the costs of the appeal.

[Citation : 249 ITR 307]

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