1999 PLP 105 (PTD)

S. RAJENDRA BABU, J.

Two questions have been referred for our opinion in this reference arising under section 256(1) of the Income Tax Act, 1961, and the said questions are as follows: (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the guarantee commission paid by the assessee is an admissible revenue expenditure? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled to investment allowance on the screening plant and electrical installations used in mining?" In respect of this very assessee in another reference, we have answered an identical question as has been referred to us as question No. 1 in I.T.R.C.No 162 of 1993

CIT v. Gogte Minerals (No. 1) (1997) 225 ITR 57, disposed of on January 10, -1996. Following the said decision and for the reasons stated therein, we answer the question referred to us in this case also similarly. The argument in regard to the second question turns upon the inter pretation to be placed on the expression used under section 32-A(2)(b)(iii) of the Income Tax Act. The Assessing authority took the view that the assessee is engaged in mining operations and when iron ore is excavated, there is no manufacture involving production of any article or thing However, on appeal to first appellate authority, he took the view that production of iron ore is to be considered as manufacturing activity and upheld the claim of the assessee under section 32-A of the Act. On further appeal by the Department to the Tribunal, the view of the appellate authority was affirmed following its earlier decision in Agarwal Stone Industries' case 21 ITD (622 ?). Learned standing counsel urged that in excavating the iron ore and marketing the same, there is no production of any article or thing. He sought to rely upon the decisions in Hind Nippon Rural Industries Pvt. Ltd. (No.2) v. CIT (1993) 201 ITR 588 (Kar.) and Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 STC 124 (SC). In Hind Nippon Rural Industries (Pvt.) Ltd. (No.2)'s case (1993) 201 ITR

588. The assessee was engaged in chipping and sizing granite by using some machinery. This Court took the view that the same would not involve am manufacturing or processing of goods and the assessee was not an industrial company for the purpose o1 section 2(7)(c) of the Finance (No.2) Act, 1977. In an earlier case in Hind Nippon Rural Industries (Pvt.) Ltd. (No. 1) v. CIT (1993) 201 ITR 581, this Court took the view that if the assessee purchases granite blocks made to specifications stated by the assessee and granite blocks are brought into existence by exploying a contractor and no quarrying was done by the assessee, it was held that the activity of the assessee there under would nor involve any manufacturing process and, therefore, the assessee would not bf an industrial company. That reasoning was adopted and extended in the second case to which we have made reference. Even in that decision, this Court noticed a distinction between those cases where the granite blocks arc purchased and sized and cases where quarrying activity is done by the assessee. Therefore, Hind Nippon Rural Industries (Pvt.) Ltd.`s case cannot be of any assistance of the Department. The next decision referred to by the Department is Chowgule & Co. (Pvt.) Ltd.'s case (1981) 47 STC 124 (SC). The Supreme Court in that case was concerned with whether any article is produced as a result of blending and does such article continue to be commercially the same article. In that context, it was observed that there was no manufacturing activity. In the present case, what we are concerned with is a mining operation carried on for excavating iron ore and sequestering the same from other material which involves a very big process and there is complete transformation of the material from one form to another altogether and does not continue to be in the same form as it was found in the earth before excavation. When such complicated process is involved, it cannot be said that there is no manufacturing activity because what is brought into existence is iron ore. Thus, it must be stated that the process involved is a manufacturing activity. Indeed, after referring to Chowgule & Co. (P.) Ltd.'s, case (1981) 47 STC 124 (SC), the Gujarat High Court in CIT v. Kutch Oil and Allied Industries (Pvt.) Ltd. (1987) 163 ITR 237, stated that whenever a commodity unergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing. A company which carries out pulverising process by treating raw lumps of mineral chemically and thereafter converting the lumps into powder is engaged in processing of goods and, therefore, would fall within the definition of "industrial company" and is entitled to the concessional rate of tax. With respect, we agree with the view stated therein. In the circumstances, we agree with the view of the Tribunal and answer the question referred to us in the affirmative and against the Department. M.B.A./1654/FC Reference answered.