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CALCUTTA HIGH COURT - ORIGINAL SIDE
MR. JUSTICE RAJESH BINDAL, CJ, MR. JUSTICE RAJARSHI BHARADWAJ, J
PRINCIPAL COMMISSIONER OF INCOME TAX, KOLKATA 2, KOLKATA – Appellant
Versus
V.N. ENTERPRISES LIMITED – Respondent
ITAT 129 of 2016 | ITA 34 of 2014
For the Appellants/Petitioners: Mr. Soumen Bhattacharjee, Mr. P.K. Bhaumick, Mr. Debasish Chowdhuri
For the Respondents: J.P. Khaitan, Ms. Swapna Das, Mr. Siddharth Das, Pratyush Jhunjhunwala, Mr. Arati Agarwal, Mr. Avra Mazumder, Ms. Rosy Banerjee
The activity of blending tea is not classified as manufacturing under Section 10B of the Income Tax Act, and exemptions must be interpreted strictly against the claimant.
Headnote:(A) Income Tax Act - Section 10B - Exemption provisions - The Tribunal erroneously allowed the exemption under Section 10B for blending tea—an activity not deemed manufacturing, contradicting the Supreme Court's holding in similar cases. Key legal questions revolved around whether blending tea constituted manufacture and interpretation of ambiguous exemption provisions. (Paras 5, 40, 46)
(B) Tax Exemption - When interpreting tax exemptions, any ambiguity must be strictly construed against the claimant, as affirmed by the Supreme Court, emphasizing the burden of proof lies with the assessee. (Paras 66.1, 66.2)
Facts of the case:
The appeals concern the entitlement of two entities for tax exemptions under Section 10B for blending tea, where the Tribunal allowed benefits despite such activity being classified as non-manufacturing.
Findings of Court:
The court held that blending tea does not qualify as manufacturing and reaffirmed the need for strict interpretation of exemption provisions under tax law.
Issues: The court primarily addressed whether blending tea constitutes manufacturing under Section 10B and the implications of strict interpretation of tax exemptions.
Ratio Decidendi: The court determined that since no new marketable commodity arises from blending tea, it does not fulfill the criteria for manufacturing, thus denying the exemption.
Result: Appeals allowed in favor of the revenue, overturning the Tribunal's decision.
| Table of Content |
|---|
| 1. factual background of the appeals (Para 1 , 2 , 3 , 4) |
| 2. revenue arguments against the tribunal's orders (Para 6 , 7 , 8) |
| 3. court's interpretation of manufacturing definitions (Para 9 , 12 , 13 , 14) |
| 4. assessee's arguments for exemption under section 10b (Para 10 , 11 , 19) |
| 5. supreme court's guidelines on tax exemptions interpretation (Para 33) |
| 6. final ruling on blending tea as manufacturing (Para 40 , 41 , 42) |
| 7. conclusion on the appeals and implications for future cases (Para 45 , 46) |
O R D E R
1. This order will dispose of two appeals bearing Nos. ITAT 129 of 2016 and ITA 34 of 2014.
2. ITA 34 of 2014 has been filed against the order passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Kolkata (for short ‘the Tribunal’) in I.T.A. No. 698/Kol/ 2009 for the Assessment Year 2004-05 raising the following substantial questions of law.
“A) Whether in the facts and circumstances of the instant case the Learned Tribunal erred in not appreciating that the business of the assessee did not involve any manufacturing process and thus the deduction of 3,72,40,380/- ought to have been disallowed under Section 10B of the said Act?
B) Whether in the facts and circumstances of the instant case the Learned Tribunal ought to have appreciated that the said Commissioner correctly applied the provisions of Section 263 of the said Act and suitably revised the order dated 15.12.2006 passed by the assessing officer inasmuch as the same had been found to be erroneous?”
3. ITAT 129 of 2016 has been filed against the order passed by Income Tax Appellate Tribunal ‘C’ Bench, Kolkata in I.T.A. No. 1777/Kol/2008 I.T.A. No. 1379/Kol/2008 and I.T.A. No. 1761/Kol/2009 for the assessment years 2002-03, 2003-04 and 2005-06, respectively raising the following substantial questions of law.
“A) Whether on the facts and in the circumstances of the case the learned Tribunal was justified in law to allow the benefits of Section 10B to the assessee;
B) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in making a statement being patently wrong that the appeal of the revenue is dismissed as not pressed despite the fact that the assessee chose not to contest the ground taken before the Tribunal and arriving at a wrong conclusion in the revenue’s appeal;
C) Whether on the facts and in the circumstances of the case the Tribunal was justified in law to rely upon a Special Bench decision of Kolkata Tribunal in Madhu Jayanti case ignoring the Apex Court decision in the case of Tara Agency reported in 292 ITR 444 holding, inter-alia, that the blending of tea was not constituting manufacture nor production;
D) Whether on the facts and in the circumstances of the case the Tribunal was justified in law to hold that for the assessment year 2003-04 the assessee formed a new set up with a 100% export oriented undertaking for eligible business and thus entitled to have the benefit under Section 10B of the said Act;”
4. At the very outset, it is agreed by learned Counsel for the parties that the tax effect in ITAT 129 of 2016 for the assessment year 2005-06 is less than 1 crore. Hence, the appeal pertaining to assessment year 2005-06 be dismissed as withdrawn, however, leaving the substantial questions of law raised therein, open. As single appeal has been filed for the assessment years 2002-03, 2003-04, 2005-06, appeal pertaining to assessment 2005-06 is dismissed as withdrawn. The legal issues for the assessment years 2002-03, 2003-04 in ITAT 129 of 2016 are being considered.
5. In our view, the substantial question of law which arises for determination in the present appeals needs to be reframed, as under:
i) Whether in the facts and circumstances of the case the assessee will be entitled to exemption under Section 10B of the Income Tax Act for business of blending of tea being carried on by it by taking aid from provisions of other statutes and the policies?
6. The learned Counsel for the revenue submitted that while allo
