The judgment established that for an assessee to claim deduction under S.80-I of the Income Tax Act, it must be considered an industrial undertaking engaged in manufacturing activity.

Arijit Pasayat, C.J.

Heard Sri. P.K. Raveendranatha Menon, learned counsel for the revenue. No-one appears for the assessee when the matter is called.

2. Considering an application for reference under S.256(1) of the Income Tax Act, 1961 (in short 'the Act'), the following question has been referred to by the Income Tax Appellate Tribunal, Cochin Bench (in short 'the Tribunal') for opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding,

(i) the assessee is an industrial undertaking;

(ii) the assessee is entitled to get deduction under S.80-1 in respect of profits referable to manufacture of any article or product or thing in the course of its construction activities and are not the above finding and decision wrong and unreasonable?"

3. Factual position necessary to be noted for disposal of the question is as follows:-Assessee is a partnership firm engaged in the execution of pile foundation work. In its return of income for the assessment year 1985-86, deduction was claimed under S.80-I of the Act. The same was rejected by the assessing officer on the ground that it was not an industrial undertaking engaged in manufacturing activity but only a contractor for execution of work for others. Matter was carried in appeal before the Commissioner of Income Tax (Appeals) (in short 'the C.I.T.(A)') who allowed the claim. Revenue challenged the appellate order before the Tribunal. It was inter alia held by the Tribunal that assessee was not entitled to get the deduction in respect of profits from construction activities, but was eligible for deduction in respect of profits and gains derived from manufacture of frames, doors, windows etc. The issue was restored to the file of the assessing officer to quantify the profit from manufacture of frames, doors, windows etc. An application for reference being made, as stated above, the question quoted has been referred for opinion.

4. Sri Ravindranatha Menon, learned counsel for the revenue submitted that assessee is not an industrial undertaking engaged in the manufacture or production of any article or thing, entitling it to claim deduction under S.80-1 of the Act. 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 that the word 'manufacture'. While every manufacture can be characterised 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 byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. The expressions 'manufacture' and 'produce' are normally associated with movables - articles and goods - but they are never employed to denote construction activity of the nature involved in construction of a dam or a building. The word 'article' is not defined in the Act or the Income Tax Rules 1962 (in short'the rules' ). It must, therefore, be understood in its normal connotation, i.e. the sense in which it is understood in the commercial world. It is equally well-settled that a word takes its colour from its context.

5. Undisputed factual position is that assessee was engaged in the execution of pile foundation work. As was observed by the Apex Court in C.I.T. v. N. C. Budharaja and Co. (1993) 204 I.T.R. 412, such activities cannot be construed to involve a process of manufacture or a process of production. It is to be noted that the Tribunal itself had observed that frames, doors and windows as well as cement, concrete slabs and other allied articles were used in the building construct