Case Law Details
Pr. CIT Vs Lakesh Handa (Jammu and Kashmir High Court)
In the present case, the essential character has clearly undergone a change and this is the determinative factor. Gold in the raw form cannot be classified as jewelery or as an ornament. One of the main distinctive features being that raw gold or standard gold does not have the ability and character of being wearable whereas jewelery/ornaments are made for that specific purpose. Therefore, the end product of the process employed by the assessee is of a different and distinct commodity, commercially known as such in the market having a different name, character and use.
Consequently the processes employed by the assessee amount to manufacture. That being so, the benefit claimed under section 80-IB of the said Act cannot be denied to the assessee and the Income Tax Appellate Tribunal has accordingly correctly decided in favour of the assessee and against the revenue.
Full Text of the High Court Judgment / Order is as follows:-
Despite notice nobody appears on behalf of the respondent-Assessee.
2. We have heard Mr. Kawoosa, who appears on behalf of the Principal Commissioner (the appellant).
3. Although, three questions were framed on 6-6-2016, we feel that only one question would be sufficient for the purposes of this appeal and that question would be:–
“Whether the Income Tax Appellate Tribunal was justified in deleting the addition made by the assessing officer by dis-allowing the deduction claimed under section 80-IB of the Income Tax Act, 1961, on the ground that the assessee was not involved in the activity of manufacture when the assessee was converting raw 24 carat gold into 22 carat gold ornaments?”
4. The present appeal under section 260-A of the Income Tax Act, 1961, is directed against the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar’s order dated 10-12-2015 passed in ITA No. 332 (Asr)/2015 pertaining to the assessment year 2010-11. The appeal before the Tribunal arose out of the order of the Commissioner (Appeals), Jammu, dated 18-2-2015. The Tribunal confirmed the order of the Commissioner (Appeals) to the extent that the activity of the assessee amounted to manufacture and, therefore, the assessee was entitled to deduction under section 80-IB of the said Act. The appeal before the Commissioner (Appeals), Jammu, arose out of the Assessment order dated 20-3-2013 wherein the assessing officer took the view that the activity of the assessee did not amount to manufacture. Consequently, the assessing officer held that the assessee was not entitled to any deduction, as claimed under section 80-IB of the said Act.
5. After hearing Mr. Kawoosa on the above question of law and after going through the assessment order, the appellate order passed by the Commissioner (Appeals) and the impugned order passed by the Tribunal, we are of the view that the decision of the Tribunal does not call for any interference.
6. First of all, we feel that the Tribunal has correctly placed reliance on the decision of the Delhi High Court in the case of CIT v. Lovlesh Jain (2012) 204 Taxman 134. In that case, a Division Bench of the Delhi High Court was considering as to whether the conversion of standard gold into ornaments or jewelery amounted to manufacture. Though the said question was considered in the context of section 10A/10B of the said Act, the Division Bench, relying upon various decisions of the Supreme Court as also the definition of manufacture in section 2(f) of the Central Excise Act, 1944, came to the conclusion that such an activity whereby standard gold is converted into ornaments/jewelery, would amount to manufacture. The view taken was based on the reasoning that as a result of processing of standard gold a commercially different saleable product came into existence. Jewelery had a distinctive name, character and use and, therefore, it could no longer be regarded as the original commodity (i.e. gold), as it had a separate set of consumers and was a new commercial commodity. As pointed out above, this decision of the Delhi High Court commends to us and we have no hesitation in applying the same.
7. Secondly, for the assessment year 2010-11, with which we are concerned, the definition of manufacture had been inserted in the Income Tax Act itself. It is defined in section 2 (29BA) of the said Act as under:–
‘“manufacture”, with its grammatical variations, means a change in a non-living physical object or article or thing,–
(a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.’
8. If we examine the above definition, it is evident that, as per Clause (a), manufacture would mean a change in a non-living physical object or thing, which results in transformation of an object or article or thing into a new and distinct object or article or thing having a different name, character and use. Clause (b), of course, deals with the alternative case which involves the bringing into existence of a new and distinct object or article or thing with a “different chemical composition” or “integral structure”. The present case, however, falls under clause (a) of section 2 (29BA) of the said Act. This is so because standard 24 carat gold being a non-living physical object is changed through the processes employed by the assessee, into a new and distinct object or article or thing having a different name, character and use in the form of 22 carat gold jewelery.
9. As explained by the assessee before the Assessing officer, standard gold having a purity of 0.999/0.995 is converted into ornaments which have a purity level of 22 carats or lower. The purity is reduced by mixing other metals like silver, copper etc., which are necessary to give strength and durability to ornamental gold, inasmuch as, standard gold of 0.999/0.995 purity is very soft and tends to bend and break easily. The manufacturing processes also involve various steps whereby standard gold, copper, silver and other ingredients are processed through various mechanical processes with the aid of power as well as manual labour and skill, such as melting of metals, cold rolling, blanking, cutting and joining, sizing, base cutting, design cutting, rubbing, polishing, clearing, lacquering and packing. The result being an entirely new commodity in the form of gold jewelery, having a different name, character and use. Therefore, even if we look at the definition of manufacture under the said Act, it is evident that the processes employed by the assessee for converting 24 carat standard gold into 22 carat gold ornaments would amount to manufacture.
10. Mr. Kawoosa had cited the decision of the Supreme Court in CIT v. Gem India Manufacturing Co. (2001) 249 ITR 307, which was a case where cutting and polishing of diamonds was held as not amounting to manufacture for the purposes of deduction under section 80-I of the Income Tax Act, 1961. However, the facts of that case are different from the facts of the present case and from the processes employed in the present case. Moreover the definition of manufacture, as appearing in the Act at present, was not there at that time. The Supreme Court held that polished diamond, as compared to the uncut or raw diamond, was not a new article or thing. That case is distinguishable as it was not a case where raw diamonds were being processed to result in diamond jewell.
11. In the present case, the gold ornaments were clearly new articles or things compared with the raw standard gold, therefore, the said decision of the Supreme Court would not be of any help to the revenue in the present fact situation.
12. Mr. Kawoosa also cited the decision of the Supreme Court in the case of Satnam Overseas Ltd. v. CCE (2015) 13 SCC 166. That decision, of course, was in the context of the Central Excise Act, 1944. But, even that decision does not run counter to the view we have taken in the present case. In that decision, the Court took the view that the process employed did not result into transformation into a new commodity, commercially known as a distinct and separate commodity.
13. In the present case, the essential character has clearly undergone a change and this is the determinative factor. Gold in the raw form cannot be classified as jewelery or as an ornament. One of the main distinctive features being that raw gold or standard gold does not have the ability and character of being wearable whereas jewelery/ornaments are made for that specific purpose. Therefore, the end product of the process employed by the assessee is of a different and distinct commodity, commercially known as such in the market having a different name, character and use.
14. Consequently the processes employed by the assessee amount to manufacture. That being so, the benefit claimed under section 80-IB of the said Act cannot be denied to the assessee and the Income Tax Appellate Tribunal has accordingly correctly decided in favour of the assessee and against the revenue. This shall be our decision also. The question framed is answered in favour of the assessee and against the revenue.
15. The appeal is dismissed.
