Himachal Pradesh High Court– While deciding an appeal, where the Court was asked to determine three substantial questions as to whether the conversion of gram Dal into Besan powder, by a process of mere roasting and grinding, amounts to ‘manufacture’ and the profits so derived are eligible for deduction under Section 80IB(4) of the Income Tax Act, whether the profits eligible for deduction under Section 80IB (4) of the Act are necessarily to be computed after allowing depreciation under Section 32 and whether the mandate of section 80IB(2)(iv) is complied with even if ten or more workers are employed for only seventy three days in a year, a division bench of Mansoor Ahmad Mir CJ and Tarlok Singh Chauhan J, held that conversion herein amounts to manufacture and the assessee is entitled to the deduction under Section 80IB(4) and the profits eligible for deduction being computed after allowing depreciation under Section 32 only from April 1, 2002. Deciding on the third question, the Court held in favour of the revenue department stating that the facts depicts that the assessee had not employed ten or more workers during the ‘substantial part of the year’.
The Court while deciding the above questions referred to the Supreme Court decision in Idandas v. Anant Ram Chandra Phadke (1982) 1 SCC 27 wherein the Court culled out three tests for the purpose of determining ‘manufacturing processes’ namely (1);That it must be proved that a certain commodity was produced; (2) That the process of production must involve either labour or machinery; (3) That the end product which comes into existence after the manufacturing process is complete, should have a different name and should be put to different use. In other words, the commodity should be so transformed so as to lose its original character.
The Court further discussed in detail the relevant clauses of Section 80 IB. and also referred to Commissioner of Income Tax v. Sree Senha Valli Textiles P. Ltd., 2003 259 I.T.R. 77 wherein it was held that the newly added Explanation 5 inserted in Section 32(1); of the Act takes effect only on and from April 1, 2002, and will not be applicable for prior years. CIT v. Shree Triveni Foods, 2015 SCC OnLine HP 998, decided on April 23, 2015