L.NARASIMHA REDDY, J. - (1.) THE respondent is an Industrial Undertaking, established in an area notified as Backward, under the Income Tax Act, 1961 (for short the Act). It undertakes the activity of converting cotton pieces, known as cops into yarn. Depending upon the customer requirement, sometimes single yarn is made into double or multiple yarn threads. In its returns submitted for the assessment year 1992 -1993, the respondent claimed certain deductions, referable to Sections 80HH and 80I of the Act. The Assessing Officer took the view that no process of manufacture whatever is undertaken by the respondent, and thereby, it is not entitled to claim deductions under Sections 80HH and 80I of the Act. Aggrieved by the order of the Assessing Officer, the respondent carried the matter in appeal to the Commissioner of Income Tax (Appeals). The Commissioner allowed the appeal, through order, dated 27.03.1996. Challenging the same, the department filed I.T.A.No.1309/Hyd/1996, before the Hyderabad Bench A of the Income Tax Appellate Tribunal (for short the Tribunal). The appeal was dismissed, through order, dated 30.08.2002. Hence, this further appeal under Section 260A of the Act.
(2.) SRI S.R.Ashok, learned Senior Counsel for the appellant, submits that, it is only when an activity of manufacture is undertaken that an assessee would qualify for deductions under Sections 80HH and 80I of the Act, and that in the instant case, the assessee did not undertake any activity, except the one of making a single thread into double or multiple thread products. He contends that an activity of that nature cannot be treated as manufacture and the Assessing Officer has correctly denied the deductions. He has placed reliance upon the judgments of the Supreme Court in Collector of Central Excise, Jaipur v. Banswara Syntex Limited, 1996 11 SCC 55 and M/s.J.K.Cotton Spinning and Weaving Mills Limited v. Union of India, 1987 Supp1 SCC 350.
(3.) SRI B.S.Shivaji, learned counsel for the respondent, on the other hand, submits that the process undertaken by his client is a compendious one, involving the manufacture of yarn from cops and that there was no basis for the Assessing Officer to deny the deductions. He contends that any industrial undertaking not only manufacturing, but also producing articles, is entitled for deduction under Section 80HH of the Act, and the appellant is making an effort to place a restricted interpretation on such a provision, which he intended to encourage the establishment of industries in backward areas. The Parliament provided certain incentives to encourage the establishment of industries and hotels in backward areas. Section 80HH of the Act is one such provision. Bereft of the other details, sub -section (1) thereof reads as under:;