Law: Income Tax Act, 1961

Section: 256,32A

(a) Income-tax---Investment allowance---Manufacture---Curing of coffee---Process of manufacturing coffee beans from raw berries---Amounts to manufacturing activity---Coffee beans produced from berries have distinct identity and are a new commodity ---Assessee entitled to benefit of investment allowance on machinery installed for curing coffee-Indian Income Tax Act, 1961, S. 32A---[CIT v. Aspinwall & Co. Ltd. (1997) 227 ITR 916 reversed]. (b) Words and phrases--- ----"Manufacture"---Meaning of. In addition to other business activities, the assessee had coffee curing plants. In relation to machinery installed for curing of the coffee, the assessee claimed investment allowance under section 32A of the Income Tax Act, 1961, for the assessment years 1980-81 and 1983-84. After inspection of the factory premises, the Appellate Tribunal found that nine processes were involved in curing coffee and that to deal with the nine processes the assessee had a factory area where godowns for shortage of uncured/clean coffee, coffee drying yards, machine rooms, garbling sheds, etc, were located. The Tribunal held that in this process the assessee was involved in the activity of manufacturing the coffee beans from the raw material plucked from the plant, and that, therefore, the assessee was entitled to investment allowance on the machinery installed for curing coffee. On a reference, the High Court held that the asseesee was not entitled to the allowance as the activity of the assessee was not either manufacture or production. On appeal to the Supreme Held, reversing the decision of the High Court, that the assessee after plucking or receiving the raw coffee berries made them undergo nine processes to give them the shape of coffee beans. The final product was absolutely different and separate from the input. The change made in the article resulted in a new and different article which was recognised in the trade as a new and distinct commodity. The coffee beans had an independent identity from the raw material from which they were produced. Conversion of the raw berry into coffee beans was a manufacturing activity. The assessee was, therefore, entitled to the investment…

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