Law:

Section:

I. Section 80HH, read with section 80-I, of the Income-tax Act, 1961 - Deductions - Profits and gains from hotels or industrial undertakings, etc., in backward areas - Whether ship breaking activity results in production of a distinct and different article and, therefore, assessee doing said activity would be entitled to deduction under sections 80HH and 80-I - Held, yes II. Section 10(15), read with section 195, of the Income-tax Act, 1961 - Interest, exemption to - Whether usance interest is exempt from payment of income-tax if paid in respect of ship breaking activity - Held, yes Words and phrases : 'Manufacturing and producing articles' as occurring in section 80HH(2)(i) of the Income-tax Act, 1961 FACTS-I The assessee-company, engaged in the business of ship breaking, claimed deduction under sections 80HH and 80-I. The Assessing Officer disallowed the assessee's claim. On appeal, the Tribunal allowed the assessee's claim. On the revenue's appeal, the High Court held that when a ship breaking activity is undertaken, the articles, which emerge from the activity of ship breaking, continue to be the part of the ship and such parts do not constitute new goods and, consequently, the assessee was not entitled to claim the benefit under sections 80HH and 80-I as there was neither production nor manufacture of new goods by the process of ship breaking. On appeal to the Supreme Court : HELD-I The important test, which distinguishes the word 'production' from 'manufacture', is that the word 'production' is wider than the word 'manufacture'. Further, the Legislature has used the words 'manufacture' or 'production'. Therefore, the word 'production' cannot derive its colour from the word 'manufacture'. Further, even according to the dictionary meaning of word 'production', the word 'produce' is defined as something which is brought forth or yielded either naturally or as a result of effort and work. It is important to note that the word 'new' is not used in the definition of the word 'produce'. [Para 8] Therefore, the Tribunal was right in allowing the deduction under sections 80HH and 80-I to the assessee holding that the ship breaking activity gave rise to the…

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