IN HIGH COURT AT CALCUTTA Special Jurisdiction Original Side Present:- Honble Mr. Justice I. P. Mukerji Honble Mr. Justice Protik Prakash Banerjee ITA 144 of 2018 Principal Commissioner of Income Tax, Central I, Kolkata Vs. M/S. Sona Vets Private Ltd. For Appellant : Mr. Smarajit Roy Choudhury, Mr. Manabendra Nath Bandopadhyay, Advs. For Respondent : Mr. J. P. khaitan, Sr. Adv. Mr. Sanjay Bhowmick, Ms. Swapna Das, Mr. Siddhartha Das, Advs. Judgment on : 27.02.2020 Protik Prakash Banerjee, J. 1. ITA No.144 of 2018 is appeal under Section 260A of Income Tax Act, 1961 referred to hereinafter as said Act , at instance of Revenue which is appellant. It is levelled against order dated November 30, 2016 passed by Learned Income Tax Appellate Tribunal, Bench, Kolkata in IT(SS)A No. 19-22/Kol/2016 relating to Assessment Years 2009-2010, 2010-2011, 2012-2013 and 2013-2014. 2. By said order learned Tribunal was pleased to uphold decision of Commissioner of Income Tax (Appeals) and dismiss appeals of Revenue. In effect, learned Tribunal held that activity of making poultry feed, as carried on by Assessee, was not mere process of mixing, but that of manufacture. It was held that Assessee was itself carrying on complete activity, id est, from mixing, grinding till pollicisation of all ingredients and that raw materials once consumed thus, could not be reconverted into same position, and that its utility got changed.In such view of matter, Learned Tribunal held that action of Assessing Officer of disallowing 2 deduction claimed by Assessee under Section 80-IB (5) was not justified. 3. This court, while admitting appeal, had framed following substantial question of law: - Whether conclusion arrived at by Tribunal that production of poultry feeds constitutes manufacture is perverse or not?" 4. To appreciate why deduction was sought by Assessee, we need to look at relevant clauses of Sections 80-IB and 80-IE of said Act. Section 80-IB provides, inter alia, as follows: - (1) Where gross total income of assessee includes any profits and gains derived from any business referred to in sub-sections 2[(3) to 3[(11), (11A) and (11B)]] (such business being hereinafter referred to as eligible business), there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains of amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all following conditions, namely: (i) it is not formed by splitting up, or reconstruction, of business already in existence: Provided that this condition shall not apply in respect of industrial undertaking which is formed as result of re-establishment, reconstruction or revival by assessee of business of any such industrial undertaking as is referred to in section 33B, in circumstances and within period specified in that section; (ii) it is not formed by transfer to new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in list in Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: (5) amount of deduction in case of industrial undertaking located in such industrially backward districts as Central Government may, having regard to prescribed guidelines 10, by notification in Official Gazette, specify in this behalf as industrially backward district of category or industrially backward district of category B shall be, 3 (i) hundred per cent of profits and gains derived from industrial undertaking located in backward district of category for five assessment years beginning with initial assessment year and thereafter, twenty-five per cent (or thirty per cent where assessee is company) of profits and gains of industrial undertaking: Provided that total period of deduction shall not exceed ten consecutive assessment years or where assessee is co-operative society, twelve consecutive assessment years: Provided further that industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during period beginning on 1st day of October, 1994 and ending on 11[31st day of March, 2004]; (ii) hundred per cent of profits and gains derived from industrial undertaking located in backward district of category B for three assessment years beginning with initial assessment year and thereafter, twenty-five per cent (or thirty per cent where assessee is company) of profits and gains of industrial undertaking: Provided that total period of deduction does not exceed eight consecutive assessment years (or where assessee is co-operative society, twelve consecutive assessment years): Provided further that industrial undertaking begins to manufacture or produce articles or things or to operate its cold storage plant or plants at any time during period beginning on 1st day of October, 1994 and ending on 11[31st day of March, 2004]. 5. word manufacture has been defined with effect from April 1, 2009, by Section 2(29-BA) as follows: - 2(29BA) "manufacture" with its grammatical variations, means change in non-living physical object or article or thing,- (a) resulting in transformation of object or article or thing into new and distinct object or article or thing having different name, character and use; or (b) bringing into existence of new and distinct object or article or thing with different chemical composition or integral structure. 6. Assessee gave, established and proved following particulars about manner in which it produced poultry feed, from raw materials/ingredients such as maize, soya, raw rice bran, deoiled cakes, meat and bone meal, fish meal, shell grit, rice polish and edible oil and 4 micro-ingredients such as Di Calcium phosphate, limestone powder and salt, which were mixed with vitamins, chemicals, minerals such as iron, copper, iodine, manganese, zinc and cobalt, amino acids, anti-oxidants, antibiotic drugs, cocktail enzyme, phytase enzyme and growth promoter, among other things, and cooked and cooled to produce poultry feed: - (i) Receiving individual Raw Materials and other inputs after proper quality check. (ii) Storage of input materials in different silos-bins. (iii) Weighinginput o f materials according to formula by computer. (iv) Feeding of input materials into Batch Weigher. (v) Grinding of input materials by Hammer Mills. (vi) Controlling size of ground material by adjusting size of grinding sieve. (vii) Transporting ground materials to Batch Mixer. (viii) Adding micro-ingredients and minerals to ground materials before mixing. This is also done by computer as per formula. (ix) Adding oils and other fats like tallow, to ground materials. (x) Mixing materials. (xi) Conditioning material at temperature of 85 degrees centigrade with help of dry steam coming from boiler. (xii) Pelleting conditioned material by pressing it through die. 5 (xiii) Cooling hot pellets released from pellet mill, in cooling tower. (xiv) Crumbling pellets according to size. (xv) Sieving pellets to remove over-sized pellets and dust. (xvi) Weighing finished product -poultry feed in automatic weigher. (xvii) Packing poultry feed in gunny or PP bags. (xviii) Dispatching poultry feed. 7. As is apparent from above, method of producing poultry feed requires grinding, mixing, roasting and blending, in proper proportions and ratio by usage of labour, machinery and pulverizer that is to say, through mills and/or small factories where these inputs are roasted, ground, mixed and blended. However, it is also not disputed that chemical composition of none of inputs is altered or any new compound generated by this even though finished product, being poultry feed, has utility separate and distinct from rice bran, or oil or bone meal or any of inputs before they were combined to make new product, poultry feed. By way of example, it is impractical to expect chickens to feast on Di calcium phosphate or even raw maize gluten whereas they naturally eat pellet sized poultry feed produced by Assessee. 8. In above factual conspectus, appellant Revenue tried to impress upon us that this could never be anything more than process of mixing and never manufacture , since mechanism of manufacture required that new product id est, product with different chemical composition than individual inputs used to make it be produced as 6 end result. In other words, it submitted that term manufacture occurring in Sections 80-IB(2) and (5) as also 80-IE, necessarily requires that end product of manufacturing process is to be completely different from ingredients, as regards its chemical composition, integrant structure or its use. However, it is argued that in instant case, it may be seen that composition of end product is merely that of mixture of individual components which went into process, and that such components are not intrinsically changed, enhanced or modified in process of production. All ingredients used in Poultry feed are basically items which are even otherwise independently used for poultry feed. In instant case, whole process amounts to just mixing together of all different ingredients. use of end product is also no different from use of maize, soya, vitamins or minerals etc. which are by themselves in wide use as food for poultry and animal husbandry. Thus basic reasoning on which process can be stated to be manufacture , as distinct from mere processing , does not hold true in this case. 9. In support of above contentions, Revenue has cited order of Income Tax Appellate Tribunal, Hyderabad Bench in case of Venkateswara Feeds & Feeds v ACIT, in ITA No.493 (Hyd)/2005 among other income tax appeals, and more particularly, paragraph 17.5 of said order, to demonstrate what was held to be manufacture in similar matter, which reads as follows: - 17.5. In conversion, whether identity of commodity before and after it undergoes various process/changes remain same. In manufacturing new and different article must emerge from original substance and new substance does not mean that merely change in substance is effected. Manufacture and production implies that something is brought into existence which is different from its components Moreover, term processing is distinguishable from term manufacture and mere processing does not amount to change losing its original identity whereas in manufacturing, original articles lose their identity. In case under consideration, doing something to substance to change or alter their form can be termed as processing and does not amount to manufacture as production of new substance does not mean merely to produce some change in substance. There is no change in basic component except 7 physical change in structure and shape in form of pellet as no new substance comes into existence. 10. On other hand, learned advocate for Assessee first brings to notice of Court that this is not first year in which deduction was sought on ground that what Assessee was doing by producing poultry feed was manufacture record shows that it had been claiming deduction under Section 80-IB of said Act from Assessment Year 2001-02 onwards and it has regularly been assessed to tax income tax authorities and allowed such deduction when assessment was done under section 143(3) of said Act, but without there being any incriminating material Assessing Officer has disapproved claim of Assessee under Section 153A assessment. If deduction had been allowed holding activity of Assessee as being manufacture , when same activity is carried on, without there being change in law or pronouncement making activity something other than manufacture, Assessee submits, it is not open to Revenue to disapprove of such deduction. In support of its contention Assessee has relied upon order of Income Tax Appellate Tribunal at Kolkata in case of ACIT-CC-XXVII, Kolkata v Kanchan Oil Industries Limited, which is similar to facts and circumstance of this case. I would think that order passed by Income Tax Appellate Tribunal is binding on all income tax authorities in Kolkata in respect of assessments made with relation to activities carried on in West Bengal by Assessee which alone are at issue, rather than order passed by Income Tax Appellate Tribunal at Hyderabad which would bind authorities in Andhra Pradesh or Telengana, as case may be. 11. More to point, and with far more binding effect than what Income Tax Appellate Tribunal at Hyderabad had held, Assessee has cited several judgments of Hon'ble Supreme Court, which Revenue 8 appears to have ignored since none, it appears, has told them that law declared by Hon'ble Supreme Court is binding on every civil and judicial authority in India, including revenue authorities, and this would override what statutory tribunal has decided in Hyderabad for authorities in respect of State which said tribunal has been formed for. judgments cited are as follows: - 11.1. CST v Pio Food Packers reported in (1980) Supp SCC 174: Hon'ble Supreme Court while determining as to what would amount to manufacturing activity held that test for determination whether manufacture can be said to have taken place is whether commodity which is subjected to process of manufacture can no longer be regarded as original commodity, but is recognized in trade as new and distinct commodity. 11.2. Aspinwall and Co. Ltd. v Commissioner of Income Tax reported in (2001) 251 ITR 323 (SC) where Bench comprising three Hon'ble Judges of Hon'ble Supreme Court was pleased to hold word 'manufacture' has not been defined in Act. In absence of definition of word 'manufacture' it has to be given meaning as is understood in common parlance. It is to be understood as meaning production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If change made in article results in new and different article then it would amount to manufacturing activity. 11.3. Income Tax Officer v Arihant Tiles and Marbles P. Ltd reported in (2010) 320 ITR 79 (SC) where Hon'ble Supreme Court was pleased to hold, by bench comprising three Hon'ble Judges, that where there are various stages through which marble blocks have to go through before they become polished slabs and tiles, there is certainly activity which will come in category of "manufacture . 11.4. Commercial Tax Officer v Jalani Enterprises reported in 2011 (266) ELT 294 (SC) was relied upon by Assessee for limited point of establishing that when ingredients were grinded (sic for ground ) and mixed, and new product separately known to commercial world comes into existence, then individual ingredients lose their own identity and character, and therefore this amounts to manufacture even though chemical composition is not altered. exact words in this case, which was determination of which entry would be applicable for levying sales tax on Jaljeera, are as follows: - Each one of contents of product referred to above and relied upon by High Court would indicate that most of items used in manufacture of Jaljira are nothing else but spices. They are grinded and mixed. When spices are grinded and mixed, it gives rise to new product, 9 which is mixed masala. Different ingredients are used in preparation of Masala after grinding and mixing several ingredients and when they are so grinded they lose their own identity and character and new product separately known to commercial world comes into existence. Sales tax is levied on sale of commercial commodities, therefore, individual spices could be termed as different commercial commodities. When they are grinded and mixed they give rise to separate commercial commodity altogether which could be taxed separately. 11.5. Commissioner of Income Tax v Vinbros and Co. reported in (2012) 349 ITR 697 (SC) Hon'ble Supreme Court was pleased to approve and follow above decisions and lay down, as general rule, that generally accepted test to find out whether there was manufacturing was to see whether application of processes brought out change to take commodity to commercially different and distinct commodity that it could no longer be considered as original commodity. 12. combined effect of above and reading them together with new definition of manufacture which is there in said Act from April 1, 2009, as stated in paragraph 5 above, it will be clear that all that is necessary to take activity out of realm of mere process to that of manufacture, would be that application of processes brought out change to take commodity to commercially different and distinct commodity that it could no longer be considered as original commodity . This also satisfies first limb being Section 2(29-BA)(a) of said Act, and definition having two disjunctive clauses, it is clear that there does not have to be change of chemical composition of end product from that of original ingredients, to take activity out of purview of ordinary process and constitute manufacture as argued by Revenue. This is in accordance with law laid down by Hon'ble Supreme Court in catenae of judgements including those referred to in paragraph 11 and its sub-paragraphs above. 13. As apparent from facts on record as in paragraphs 6 and 7 of this judgment, where I have set out and dwelt at length on stages of process involved, and end product and its separate commercial 10 utility and identity from that of original ingredients, it is clear that poultry feed is not merely rice bran or maize or vitamins or minerals but mixture of all in calculated proportions through process involving mills and manufacturing by use of machinery which run on electricity and where end product being pellet is wholly different from each of ingredients and results in product which is commercially different and distinct as commodity so that it cannot be considered as any of original commodities which were used as ingredients. 14. As result, question of law framed by this Court as in paragraph 3 of this judgment is answered against revenue and it is held that conclusion of learned tribunal that production of poultry feeds constitutes manufacture is not perverse. Consequentially, appeal of Revenue is dismissed and order of learned tribunal is confirmed. Revenue shall bear costs of appeal assessed at 1000 GMs. (PROTIK PRAKASH BANERJEE, J.) I. P. Mukerji, J.: I have had privilege of reading in draft judgment prepared by my brother. I am in full agreement with reasons given and conclusions reached by his lordship. There is precious little that I can add to judgment. Nevertheless, I think that few observations would be relevant. One has to ascertain meaning of words used to define manufacture in Section 2(29BA) of Income Tax Act, 1961. meaning conveyed by sub-section is absolutely clear. So is intention of legislature expressed in words in sub-section. Section 2(29BA) is as follows: 11 2(29BA) "manufacture" with its grammatical variations, means change in non-living physical object or article or thing,- (a) resulting in transformation of object or article or thing into new and distinct object or article or thing having different name, character and use; or (b) bringing into existence of new and distinct object or article or thing with different chemical composition or integral structure. In sub-section (b) legislature describes resultant product as one with different chemical composition or integral structure . In sub- section (a) there is no reference to different chemical or structural product. Therefore, sub-section (a) conceptualizes end product which is new and distinct from substance or substances which are used to produce it and something which is new and has different name, character and use without undergoing chemical or structural change or transformation. Say, for example in making of steel, carbon is added to Iron to lend it strength. Steel is composed of Iron and small percentage of carbon. Neither of elements undergoes any chemical or structural change. process is manufacture. In Income Tax Officer Vs. Arihant Tiles and Marbles P. Ltd. reported in (2010) 320 ITR 79 (SC) Supreme Court held that marble blocks undergoing polishing in industrial process which resulted in production of tiles, underwent manufacture. Similarly, in Commercial Tax Officer Vs. Jalani Enterprises reported in 2011 (266) ELT 294 (SC) jaljeera made out of various ingredients undergoing grinding process was held to be manufactured. 12 My brother has analysed in detail industrial process by which poultry feed is made by assessee and has rightly come to conclusion that it is manufacture. I would dismiss this appeal (ITA 144 of 2008) answering questions against revenue and in favour of assessee. Certified photocopy of this order, if applied for, be supplied to parties upon compliance with all requisite formalities. (I. P. Mukerji, J.) Principal Commissioner of Income-tax, Central-I, Kolkata v. Sona Vets Private Ltd