Nova Films and Paper Manufacturing Co. vs The Income Tax Officer

K. Raviraja Pandian, J.—The assessee filed these appeals against the order of the Income Tax Appellate Tribunal, Chennai Bench ""C"",

made in I.T.A. Nos. 2151 to 2153/Mds/06 dated 16.2.2007.

The material facts culled out from the statement of facts stated in the memorandum of appeals are as follows:

The appellant/assessee is a partnership firm engaged in the business of manufacturing photographic film and photographic paper. The photographic

films are manufactured out of jumbo rolls of films/pancakes by an elaborate manufacturing process. The appellant/assessee is also manufacturing

photographic paper, which is obtained by cutting, sizing and packing smaller sizes of photographic paper from jumbo rolls of photographic paper.

The assessee claimed relief and was granted relief u/s 80IB of the Income Tax Act in respect of assessment years upto 2002-03. But,

subsequently, the assessing authority revised the earlier assessment and in the assessment, for the assessment years 2003-04 to 2005-06,

disallowed the claim for relief u/s 80IB on the ground that the activity carried on by the assessee both in regard to photographic papers and

photographic films do not constitute manufacture or production of an article or thing entitling it to relief u/s 80IB. On appeal, the assessee''s appeals

were negatived by the Commissioner of Income Tax Appeals and further appeals to the Sales Tax Appellate Tribunal were also decided against

the assessee. Hence the present appeals at the instance of the assessee by framing the following substantial questions of law?

(a) Whether on facts and in the circumstances of the case, the Tribunal is right in holding that the appellant is not eligible for relief u/s 80IB of the

Income Tax Act?

(b) Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that the manufacture of photographic papers and the

manufacture of photographic film rolls involve identical activities and whether in the light of the material evidence produced before the Tribunal, the

Tribunal is justified in coming to the aforesaid conclusion?

(c) Whether on the facts and in the circumstances of the case, the Tribunal is right in rejecting the appellant''s prayer for an inspection of the factor

to assess the actual nature of the activities involved? and

(d) Whether on the facts and in the circumstances of the case, the disallowance of relief u/s 80IB in respect of the income assessed under the head

other sources""?

We have heard the learned Counsel on either side and perused the materials place on record.

The issue as regards the activity of converting jumbo rolls of photographic films into marketable small size photographic paper has been

considered by this Court in The Commissioner of Income Tax Vs. Computer Graphics Ltd., . In the case of India Cine Agencies Vs. The

Commissioner of Income Tax, , it has been held that in spite of sophisticated machinery having been used, the product imported in jumbo rolls of

photographic films, and the conversion of the same into marketable small size photographic paper, cannot be regarded as manufacturing activity.

This judgment has been taken on appeal to the Supreme Court and the Supreme Court, in the decision of India Cine Agencies Vs. Commissioner

of Income Tax, Madras, has held that the word ""production"" or ""produce"" when used in juxtaposition with the word ""manufacture"" takes in brining

into existence new goods by a process, which may or may not amount to manufacture. It also takes in all the by-products, intermediate products

and residual products, which emerge in the course of manufacture of goods and thus, reversed the finding recorded by this Court in the decision

reported in India Cine Agencies Vs. The Commissioner of Income Tax, .

In view of the above, questions of law 1 to 3 framed in these appeals have to be answered in the negative, in favour of the assessee and against

the Revenue and are answered accordingly.

The 4th question of law, however, was held against the assessee by the Supreme Court in the case of Pandian Chemicals Ltd. Vs.

Commissioner of Income Tax, , whereby the decision of this Court in Commissioner of Income Tax Vs. Pandian Chemicals Ltd., has been

affirmed by holding that the interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply

of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or

gains derived by the undertaking for the purpose of the special deduction u/s 80HH. Hence, the 4th question of law has to be answered in the

affirmative, against the assessee and in favour of the Revenue and is answered accordingly.

In the result, the tax case appeals are disposed of in the above manner. No costs. Consequently, connected miscellaneous petitions are closed.