IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.648 of 2008 Date of decision: 9.12.2008 The Commissioner of Income Tax II, Chandigarh -----Appellant Vs. M/s Anand Affiliates, Chandigarh --Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR JUSTICE L.N.MITTAL Present: Ms. Urvashi Dhugga, Standing Counsel for the revenue. Adarsh Kumar Goel,J. 1. This appeal has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short, ‘the Act’) against the order of the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’ in ITA No.1033/Chandi/2004 dated 29.12.2006, in respect of assessment year 1997-98, proposing to raise following substantial question of law:- “Whether on the facts and circumstances of the case and in law, the ITAT was correct in holding that business carried out by the assessee amounted to manufacturing of article or things for the purposes of deduction under section 80IA of the IT Act, 1961?” 2. The assessee has a factory in backward area where the assessee produces Automobile Filter elements for M/s Puralator India Limited, which are further used for manufacture of Automobile Filters. The assessee claimed deduction under section 80IA of the Act, which was disallowed by the assessing authority on the ground that the process carried out by the ITA No.648 of 2008 assessee did not yield commercially any new or different commodity and thus, the assessee could not be held to be engaged in production or manufacture. This view was upheld by the CIT(Appeals) but on further appeal of the assessee, the Tribunal upheld the claim of the assessee. Following finding has been recorded by the Tribunal:- “8. We have considered the rival submission carefully. The crux of the dispute i.e., presently before us is to establish as to whether or not the assessee is engaged in the manufacture of an article or thing so as to qualify for deduction under section 80IA of the Act. Before we proceed to dilate on the legal position, it would be appropriate to understand the fact position with regard to the process canvassed by the assessee. The finished product of the assessee is automobile filter element. The raw materials used are:- 1. Filter Paper 2. Steel Sheet components a) Centre Tube/Outer Retainer b) End Caps. 3. Adhesives. The manufacturing process considered by the lower authorities is detailed as below:-  Paper passes through the marathon machine for pleating.  After pleating of paper, paper passes through the procuring oven so that the position of pleats has to be permanent.  Paper is being cut as per the specified length.  Both ends of the particular length of the paper are being sealed with the help of a clip at side sealer machine.  After the sealing of ends, round shape (Vertical) has to be given to paper and insert into the outer retainer along with a centre true inside the paper pack. It is called sub assembling. 2 ITA No.648 of 2008  PVC adhesive to be filled in the end cap with the help of PVC dispenser machine.  Place cap on one end of sub assembly and passes it through jeller having a constant temperature for curing of adhesive.  Fill another cap with adhesive with the help of dispenser, place on the other end and passes if through FCO at specified temperature of curing of PVC adhesive and paper.  Find Product-Semi-finished Automotive filter. 9. The finished product of the assessee i.e. Automobile Filter element is a semi-finished automotive filter, which is supplied to the original equipment manufacturer in Automotive Filter industry i.e. M/s Purolator India Limited. 10. Having noted the process which is involved, we have to examine whether the activity carried out by the assessee amounts to manufacture and if yes, then what does it manufacture. From the process noted above that the assessee brings together the various raw materials, components and by carrying intermittent processes, assembles them together so that they can work as one equipment which is termed as a semi-finished Automotive Filter. The semi- finished Automotive Filter, which the assessee manufactures as a result of various processes is a product, which is distinct by character as also in its use than each of raw materials. This is for the reason that none of the components or the raw material used can partake the character of or be a substitute for the functions performed by the finished product of the assessee.” 3. We have heard learned counsel for the revenue and perused the impugned order. 4. Learned counsel for the revenue submits that the activity of the assessee was merely assembling certain components, which did not give rise to any new product, particularly when the assessee, on job work basis, did a 3 ITA No.648 of 2008 part of process and finishing was done by the principal for whom the assessee was supplying. Activity resulting in production of semi-furnished product could not be held to be manufacturing. The identity of the items used in the manufacture did not undergo a complete change. 5. We are unable to accept the submission. 6. The Tribunal has discussed the nature of raw materials and the process conducted by the assessee resulting in production of automobile filter element, which is supplied to the automobile manufacturer. The assessee brings together various raw materials and after carrying out process, assembles the same leading to the equipment being produced. It is well settled that every change or process cannot be termed as manufacture or production. Well known tests applied for determining whether a process amounted to manufacture or production are that a new and distinct commercial product is produced. In each case, it may be a question of fact whether a particular process involves manufacture or not. The question may be of degree and extent of change and though, the issue may at times be debatable, by applying the relevant tests, the Tribunal has recorded a finding and such finding cannot be held to be perverse, it cannot be held that a substantial question of law arises.The Tribunal has applied the correct test and recorded a finding that the process undertaken by the assessee involved manufacture. Merely because a different view can be taken will not be a ground to hold that a substantial question of law arises. 8. In a recent order of this Court dated 31.10.2008 in ITA No.505 of 2007 (The Commissioner of Income Tax, Faridabad v. Shri Mahesh Chandra Sharma), dealing with an identical issue, it was observed:- 4 ITA No.648 of 2008 “9.The question whether an activity involves manufacture, has been gone into in several judgments of the Hon’ble Supreme Court including Union of India v. Delhi Cloth and General Mills, AIR 1963 SC 791, para 14, Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. M/s. PIO Food Packers, AIR 1980 SC 1227, Empire Industries Limited v.Union of India, AIR 1986 SC 662 and M/s Ujagar Prints etc. v. Union of India and others ,AIR 1989 SC 516. 10. In absence of any definition in the Act, the word ‘manufacture’ used in section 80-IB has to be given ordinary meaning. 11. In N.C.Budhiraja (supra), the Hon’ble Supreme Court considered earlier judgment in M/s PIO Food Packers (supra), particularly the observation that where commodity retained substantial identity, no manufacturing was involved. In the said judgment, the question involved was whether manufacturing was involved in construction of a dam so as to avail of benefit under section 80HH(1) of the Act. It was held that the word ‘article’ or ‘thing’ mentioned in section 80HH could not cover dam, bridge, building, road, canal and so on. Construction of dam was, thus, held not to be manufacture. Though the dam comprised of various articles, it was observed that end product could not be held to be an article or thing. Dam was constructed and not manufactured. 12. Commonly accepted meaning given to the word ‘manufacture’ as held in the judgments of the Hon’ble Supreme Court is when a new and different article emerges having distinctive name, character or use. In the present case, the Tribunal applying the tests laid down in the judgments of the Hon’ble Supreme Court, 5 ITA No.648 of 2008 held that distinct article with distinctive name, character and use emerged. The tests laid down in the judgments of the Hon’ble Supreme Court have to be applied from case to case. The Tribunal has arrived at a finding of fact in the present case.” 9. Thus, the question raised cannot be held to be a substantial question of law. 8. Dismissed. (Adarsh Kumar Goel) Judge December 9, 2008 (L.N.Mittal) ‘gs’ Judge 6