Conversion of Limestone and Marble into Lime and Limedust constitute Activity of Manufacturing or Production, entitled for Deduction: Madras HC [Read Judgment]

The Madras High Court held that conversion of limestone and marble into lime and limedust constitute the activity of manufacturing or production, entitled for deduction.

The assessee, M/s. Jannani Holdings is engaged in the granite business and for the Assessment Year under consideration, AY 2005-06, they filed their return claiming 100% deduction under Section 10-B of the Act. The return was selected for scrutiny and the case was discussed with the assessee. The claim of the assessee was that they are in the business of manufacture of granites and they are a 100% export oriented unit and they are entitled to claim deduction under Section 10-B of the Act. The relevant records were also placed before the Assessing Officer to justify the said claim. The Assessing Officer proceeded to consider the matter by observing that, what is required to be decided is whether the assessee is engaged in the manufacture or production of an article or thing. After taking note of various factors, the Assessing Officer held that the assessee is not engaged in manufacture of any article or thing, within the meaning of Section 10-B of the Act, as is applicable in respect of the Assessment Year under consideration. Accordingly, the claim for deduction was rejected.

Mrs. R.Hemalatha, Senior Standing Counsel, appearing for the appellant/Revenue, is by submitting that, during the Assessment Year under consideration, the content in Section 2(29BA) of the Act was not available, and similarly, the definition of “manufacture” under Section 10-B(7)(iii) was not there in the Statute book and therefore, the Assessing Officer was right in holding that there was no process of manufacture and at the best, it can be construed as an exercise of processing and not that of manufacture.

Ms.Sri Niranjani Srinivasan, counsel appearing for the respondent/assessee, the decision in the case of Lucky Minmat Pvt. Ltd. was considered by the Supreme Court in Arihant Tiles & Marbles (P) Ltd. and it was pointed out as to how the important distinction was not noted by the Department. 

The division bench of Justice T.S. Sivangananam and Justice Sathi Kumar Sukumarar Kurup ruled that mere mining of limestone and marble and cutting the same before it was sold will not constitute 'manufacture' or 'production' but conversion into lime and limedust could constitute the activity of manufacturing or production. This distinction has not been taken into account by the Department while rejecting the claim of the assessee(s) for deduction under section 80-IA of the Income-tax Act, 1961.

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