JUDGMENT
1. The Income-tax Appellate Tribunal has referred the following question of law under Section 256(1) of the Income-tax, 1961 (hereinafter referred to as "the Act"), relating to the assessment year 1987-88 for opinion to this Court :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that the activity of purchase and refining of the oil amounted to manufacturing or processing of goods and that the assessee was entitled to deduction under Sections 80HH and 80I in respect of that activity as well ?
2. The brief facts of the case are that the assessee-respondent (hereinafter referred to as "the assessee") firm derived income from the business of extraction of oil from oil seeds and partly of refining oil from oil purchased from the local market. The assessee filed its return of income for the assessment year 1987-88 declaring income of Rs. 4,67,870 and has claimed deduction under Sections 80HH and 80I of the Act. The assessing authority made an assessment under Section 143(3) of the Act on an income of Rs. 5,32,710. The assessing authority has limited the deduction under Sections 80HH and 80I of the Act to the activities of extraction of oil from oil seeds but has disallowed the claim relating to the activities of refining the oil from the oil purchased from the market on the ground that the said activity did not amount to manufacture or processing of goods. The Commissioner of Income-tax (Appeals) confirmed the view of the assessing authority. The assessee filed appeal before the Tribunal which was allowed and the direction was issued to the assessing authority to allow necessary relief on the basis of the decision and directions of the Tribunal for the assessment year 1986-87. For the assessment year 1986-87, the assessing authority has made a similar disallowance but in appeal, the Tribunal allowed the claim. The Tribunal held that after purchasing the oil, the same was subjected to the process or treatment and what was sold by the asses-see was not the same thing as originally purchased. For the assessment year 1986-87, the order of the Tribunal has been accepted by the Department inasmuch as no reference was filed. It is alleged that reference was not filed due to the smallness of the amount involved.
3. Heard Sri A.N. Mahajan, learned standing counsel appearing on behalf of the Revenue. No one appears on behalf of the assessee.
4. We have perused the order of the Tribunal and the authorities below.
5. Under Section 80HH and Section 80I of the Act, deduction is available to the industrial undertaking which is involved in manufacture or produces articles or things. The relevant provisions of Section 80HH and Section 80I of the Act read as follows :
80HH.(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof.
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :
(i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, but before the 1st day of April, 1990, in any backward area....
80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof :....
(1A) Notwithstanding anything contained in Sub-section (1), in relation to any profits and gains derived by an assessee from--
(i) an industrial undertaking which begins to manufacture or produce articles or things or to operate its cold storage plant or plants ;
6. In the case of B.P. Oil Mills Ltd. v. Sales Tax Tribunal reported in [1998] 111 STC 188, the apex court held that the refining of the oil amounts to manufacture. The apex court held as follows (page 197) :
The word 'processing' has, however, not been defined under the Act but it has been the subject-matter of interpretation by this Court in various cases including that of Chowgule & Co. Pvt. Ltd. v. Union of India . Taking a cue from the definition of the word 'process' in Webster Dictionary, this Court observed therein that where any commodity is subjected to a process or treatment with a view to its development or preparation for the market it would amount to processing. The nature and extent of processing may vary from case to case ; in one case the processing may be slight and in another it may be extensive ; but in each process suffered, the commodity would experience a change. This Court further observed that whatever be the means employed for carrying out the processing operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes processing. Viewed in the context of the above meaning given to the word 'processing' by this Court there cannot be any manner of doubt that the nature and extent of the process to which the crude oil is subjected to to make it refined oil brings the latter within the meaning of the expression 'goods manufactured' in Section 3(3)(b)(iii) of the Act so as to make the appellant liable to pay tax on its sale.
7. The apex court as early as in 1961, in Chrestien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150, defined the word "production", albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced ; a thing that results from any action, process or effort, a product; a product of human activity or effort. It has been further held by this Court in CIT v. N.C. Bud-haraja and Co. , that the word "production" is much wider than the word "manufacture." It was said (page 423) :
The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture ....
The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing 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.
8. In the case of CIT v. Sesa Goa Ltd. reported in [2004] 271 ITR 331 (SC), relying upon the aforesaid two decisions referred hereinabove, while dealing with the provisions of Section 32A, the apex court held that the extraction and processing of iron ore amounts to "production" within the meaning of the word in Section 32A(2)(b)(iii) of the Income-tax Act, 1961.
9. The Tribunal has held that after purchasing the oil, the same was subjected to the process or treatment and what was sold by the assessee was not the same thing as was originally purchased. No contrary material has been brought on record to the aforesaid findings. In view of the aforesaid finding recorded by the Tribunal and the law laid down by the apex court, referred to hereinabove, we are of the opinion that there is no error in the order of the Tribunal allowing the benefit of Sections 80HH and 80I of the Act to the assessee in respect of refining of the oil from the oil purchased from the local market inasmuch as process of refining amounts to production as contemplated under the sections.
10. For the reasons stated above, the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.