Facts

Assessee was engaged in the business of conversion of jumbo rolls of photographic films into small flats and rolls of desired sizes. Assessee claimed deduction under sections 32AB, 80HH and 80I of the Income-tax Act,  1961 taking a stand that the aforesaidactivity amounted to manufacture or production.

Issue

What is the meaning of the term ‘manufacture’ and ‘production’ and whether conversion of jumbo rolls of photographic films into small flats and rolls amounts to manufacture or production

Held

Supreme Court held that conversion of jumbo rolls of photographic films into small flats and rolls of desired sizes amounted to manufacture or production. Supreme Court took into account the dictionary meanings and earlier decisions  and observed thatmanufacture implies a change but every change is not manufacture. Manufacture is a transformation of an article which is commercially different from the one which is converted. Supreme Court further took into account its decision in  CIT v.  SesaGoa (2004) 271 ITR 331 (SC) where it  was held that the word ‘production’ had a wider connotation than the word‘manufacture’ and that ‘production’ meant bringing into existence new goods by a process which may or may not amount to ‘manufacture’. Consequently, Supreme Court allowed the assessee’s claim for deduction under sections 32AB, 80HH and 80I. (CA Nos3649-3650 of 2003/, 6835-6836 of 2005/, 1522 & 3720 of 2007 and

451-452 of 2008 dt. 12-11-2008)

Editorial: Finance (No. 2) Act, 2009 introduced section 2(29BA) in the Act to define the term ‘manufacture’ to mean a change in a non-living physical object     or article or thing – (a) resulting in transformation of the object or article or  thing into a new anddistinct object or article or thing having a different name,

character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. Though the term ‘manufacture’ is now defined in the Act the term ‘production’ remains undefined – and as held by several decisions, the term ‘production’ has a wider connotation than the term ‘manufacture’.

“To give pleasure to a single heart by

a single act is better than a thousand heads bowing in prayer.”

– Mahatma Gandhi