Full Judgment
(ii) That the levy of interest under section 234B and 234C needs to be kept in abeyance till the case is disposed of.
The assessee declared an income of Rs. 9,12,150 in its return filed on 22-10-1997 which was processed on 20-8-1998. The claim of the assessee for deduction under section 80-IA for Rs. 3,04,049 was allowed. It was noticed by the assessing officer, subsequently, that the business of printing of technical literature, brochures, manuals, catalogues etc., is processed as per the orders and requirements of Multi National Companies. As per the assessing officer, the assessee is only a printer and thereby ineligible for deduction under section 80-IA. The assessing officer after recording the reasons reopened the assessment under section 147 of the Act by issuing a notice under section 148. In response to the notice, an authorised representative appeared on various occasions before the assessing officer also preferred written submissions, by stating that by virtue of being a Small Scale Industrial Undertaking, the assessee has fulfilled all the conditions and criteria laid down under sub-section (2) of section 80-IA. and thus entitled to the benefit of deduction at 25% of the business profits from the gross total income. The assessee also placed reliance on certain judicial pronouncements, which are mentioned in the assessment orders. The assessing officer hold that the assessee is not a publisher but merely a printer and disallowed the claim under section 80-IA of the Act. Interest under sections 234B and 234C was also levied. The assessee carried the same unsuccessfully in appeal before the first appellate authority. Now the assessee is in further appeal before the Tribunal.
At the time of hearing we have heard Shri V. Srinivas, learned CA for the assessee and Shri Shyamsundar, learned representative for the revenue. The gist of argument on behalf of the assessee is almost the same, which was preferred before the lower authorities and disputed the judicial pronouncements on which reliance was placed by the learned CIT(A). Reliance was also placed on the decision pronounce in CWT v.Smt. Pratima Bhargava (2001) 249 ITR 123 (Delhi), to which the learned representative for the revenue argued that there is no manufacturing activity involved in the case of the assessee and relied upon the decision pronounced in CIT v. Hemsons Industries (2001) 251 ITR 693 (AP). In nutshell, the learned representative supported the orders of the lower authorities. We have considered the rival submissions.
Manufacture and processing are not clearly demarcated fields. The test of manufacture lies in the answer to the question whether what is processed or produced as the end product is commercially known as a different product from the materials out of which it is so produced.
Therefore, if the product has a different name and is identified by the buyers and sellers as a different product and is bought and sold as a distinct product from its raw materials, one can say that it is a manufactured product. There may be some room for debate as to whether this test is fully satisfied by edibles that come as end products from the raw materials out of which they are made. But the expression 'produce'has to be taken in a more liberal sense than manufacture. If the end product is different, that by itself would suffice to meet the requirement of 'producing'. The test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not amount to manufacture. 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 by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The expressions 'manufacture' and produce' are normally associated with movable - articles and goods - but they are never employed to denote construction activity involved in construction of a dam or building.
A provision in the taxing statute granting incentives for promoting growth and development should be construed liberally. Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. At the same time, the word 'derived from' cannot have a wide import so as to include any income which can in some manner be attributed to the business. The derivation of the income must be directly connected with the business in the sense that the income is generated by the business.
The Hon'ble High Court of Calcutta in the case of Addl. CIT v. A.Mukherjee & Co. (P) Ltd. (1978) 113 ITR 718(Cal) hold that book publishing is covered, where it was held that in order that a publisher of books should be a manufacturer of books it is wholly unnecessary for him either to be an owner of a printing press or to be a book binder himself. Where the assessee published books by getting the manuscripts printed according to its requirements under its supervision and then getting the books bound after suitable changes, the assessee must be treated as engaged in the activity of manufacturing and also processing of books. The subject and substance as we feel in the case (supra) is that the assessee need not necessarily be the owner of the printing press. But in the present case before us, the assessee is the owner of the printing press, who is using paper, ink and other raw materials and is printing the same, in our view some value is added in the raw material, so it can be said that the end product is commercially a different identity/product.
The Hon'ble jurisdictional High Court in the case of CIT v. Darshak Ltd. (2001) 247 ITR 489 (Karn.) opined that conversion of plain glassware into decorative glassware is eligible for deduction under section 80-IA of the Act, because the marketing of the end product is commercially different from plain glass, is a process of 'manufacture, If we see the facts of the case in juxtaposition with that of Darahsk Ltd., in that case also, the assessee already having plain glassware, which was made decorative. The end product was held to be a different and distinct from plain glassware. In similar lines, in the present case, the assessee used lot of machinery to transform the raw materials into a commercially different end product.
The Hon'ble High Court of Gujarat in the case of CIT v. Ajay Printery (P.) Ltd. (1965) 58 ITR 811(Guj), where the assessee was having the business of printing balance sheets, profit and loss accounts, dividend warrants, pamphlets, share certificates, etc., required by companies.
It was held that the pamphlet or the balance sheet or the share certificate is an article quite different from the raw materials, paper and ink, from which it is made, the use of which would be different from the use of the raw materials used in producing it. In the present case also, the assessee used plain paper with the help of ink or other writing material and bound the same as per requirement of NMC, in our view, is definitely a different end product because some value has been added to the raw material. Only if the plain papers are bounded, it cannot serve the purpose, which the end product or printed papers serve. When something is printed or some value is added then it becomes a commercially different article. So, in our view, when something is printed then only it becomes a commercially different commodity. The assessing officer and also the learned CIT(A) has relied upon so many judicial pronouncements, which seems to be very attracted and plausible, but if the object of section 80-IA and the judicial pronouncements and the facts of the case are put in a juxtaposition, then one may not agree with the finding of the learned CIT(A). In its narrower shade the expression implies transforming raw materials into a different commercial commodity or a finished product which has an entity by itself, but this does not mean that the materials with which the commodity is manufactured must lose their identity. In any case, the expressions 'manufacture' and 'production' apply to the bringing into existence of something which is different from its components, as was held in CIT v. Tata Locomotive & Engg. Co. Ltd. (1968) 68 ITR 325 (Bom.) and also in V.M. Salgaocar Bros. (P.) Ltd. v. CIT (1996) 217 ITR 849, 859-60 (Karn.).
Manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, or series of changes of the prime commodity (viz., paper) to the point where commercially, it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place.
In CIT v. D.K. Kondke (1991) 192 ITR 128, 131 (Bom.), the production of a cinematograph film is a manufacturing activity.
The Hon'ble High Court of Rajasthan in the case of Poonam Chand Prem Raj v. CIT (1994) 207 ITR 895, 897-98(Raj.) hold that ginning of cotton amounts to manufacture. If you take this view that the cotton and seeds were already available and merely have been separated by the ginning plant then there is no manufacturing. But the cotton seeds and the residue of cotton are called different commercial identity in the market and was opined to be 'manufacturing'.
The Hon'ble High Court of Delhi in the case of CIT v. Hindustan Times Ltd. (2000) 241 ITR 509(Del.) hold that the publication of a newspaper is also an industrial undertaking. In the present appeal before us also, the assessee is using machinery, printers, paper, ink and other materials, binding the same and the end product comes into the form of a printing paper or a booklet, so in our view, is commercially a different material.
The Hon'ble Apex Court in the case of Chillies Export House Ltd. v. CIT (1997) 225 ITR 814(SC) considered whether an exporter of chillies who had to undertake processing by way of fumigation could be treated as a manufacturing company. The Hon'ble Apex court reversing the High Court decision on the subject hold that the process should be understood in the wider sense and the Hon'ble Apex Court had not departed from its earlier law as laid down in Chowgule & Co. (P.) Ltd. v. Union of India (I981) 47 STC 124, when it explained the concept of processing as involving some change, for example, pasteurisation, sorting, packing and repacking, etc., which may involve processing that the latter decision in Delhi Cold Storage (P.) Lid. v. CIT (1991) 191 ITR 656 (SC) did not really depart from this view, because the latter decision against cold storage was only on the ground that preservation is different from processing and not by diluting the concept of processing in any manner. We are aware that there is a hairline difference between the word' process' and 'manufacture', but we are supposed to see the same in the light of intention of the legislature in introducing section 80-IA and also whether any new article or a thing has been oozed out, using the raw material consumed in the same.
In our considered opinion, we are of the view that the appeal of the assessee deserves to be allowed. The stand of the learned CIT(A) is reversed. Accordingly, the assessee is entitled to deduction.
As we have decided the main issue in favour of the assessee, the levy of interest under sections 234B and 234C of the Act is consequential in nature.