Adarsh Kumar Goel, J. - (1.) THIS appeal has been preferred by the Revenue under Section 260A of the IT Act, 1961 (In short, 'the Act') against the order of the Tribunal, Chandigarh Bench 'A' in ITA No. 1033/Chd/2004 dt. 29th Dec, 2006 reported as Anand Affiliates v. , in respect of asst. yr. 1997 -98, proposing to raise following substantial question of law: Whether on the facts and circumstances of the case and in law, the Tribunal was correct in holding that business carried out by the assessee amounted to manufacturing of article or things for the purposes of deduction under Section 80 -IA of the IT Act, 1961?
(2.) THE assessee has a factory in backward area where the assessee produces automobile filter elements for M/s Puralator India Ltd. which are further used for manufacture of automobile filters. The assessee claimed deduction under Section 80 -IA of the Act, which was disallowed by the assessing authority on the ground that the process carried out by the assessee did not yield commercially any new or different commodity and thus, the assessee could not be held to be engaged in production or manufacture. This view was upheld by the CIT(A) but on further appeal of the assessee, the Tribunal upheld the claim of the assessee. Following finding has been recorded by the Tribunal: 8. We have considered the rival submissions carefully. The crux of the dispute i.e., presently before us is to establish as to whether or not the assessee is engaged in the manufacture of an article or thing so as to qualify for deduction under Section 80IA of the Act. Before we proceed to dilate on the legal position, it would be appropriate to understand the fact position with regard to the process canvassed by the assessee. The finished product of the assessee is automobile filter element. The raw materials used are: 1. Filter paper 2. Steel sheet components (a) Centre tube/outer retainer (b) End caps Adhesives. The manufacturing process considered by the lower authorities is detailed as below: Paper passes through the marathon machine for pleating. After pleating of paper, paper passes through the procuring oven so that the position of pleats has to be permanent. Paper is being cut as per the specified length. Both ends of the particular length of the paper are being sealed with the help of a clip at side sealer machine. After the sealing of ends, round shape (vertical) has to be given to paper and inserted into the outer retainer along with a centre true inside the paper pack. It is called sub -assembling. PVC adhesive to be filled in the end cap with the help of PVC dispenser machine. Place cap on one end of sub -assembly and pass it through jeller having a constant temperature for curing of adhesive. Fill another cap with adhesive with the help of dispenser, place on the other end and pass it through FCO at specified temperature of curing of PVC adhesive and paper. Find product semi -finished automotive filter. 9. The finished product of the assessee i.e. automobile filter element is a semi -finished automotive filter, which is supplied to the original equipment manufacturer in automotive filter industry i.e. M/s Purolator India Ltd. 10. Having noted the process which is involved, we have to examine whether the activity carried out by the assessee amounts to manufacture and if yes, then what does it manufacture. From the process noted above that the assessee brings together the various raw materials, components and by carrying intermittent processes, assembles them together so that they can work as one equipment which is termed as a semi -finished automotive filter. The semi -finished automotive filter, which the assessee manufactures as a result of various processes is a product, which is distinct by character as also in its use than each of raw materials. This is for the reason that none of the components or the raw material used can partake the character of or be a substitute for the functions performed by the finished product of the assessee. 3. We have heard learned Counsel for the Revenue and perused the impugned order. Learned Counsel for the Revenue submits that the activity of the assessee was merely assembling certain components, which did not give rise to any new product, particularly when the assessee, on job work basis, did a part of process and finishing was done by the principal for whom the assessee was supplying. Activity resulting in production of semi -finished product could not be held to be manufacturing. The identity of the items used in the manufacture did not undergo a complete change. We are unable to accept the submission.
(3.) THE Tribunal has discussed the nature of raw materials and the process conducted by the assessee resulting in production of automobile filter element, which is supplied to the automobile manufacturer. The assessee brings together various raw materials and after carrying out process, assembles the same leading to the equipment being produced. It is well settled that every change or process cannot be termed as manufacture or production. Well known tests applied for determining whether a process amounted to manufacture or production are that a new and distinct commercial product is produced.;