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Tuesday, Mar 23, 2004

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FICCI seeks definition of `manufacture' in I-T Act

Richa Mishra

New Delhi , March 22

TROUBLED by `different' interpretations of the term "manufacture" under various statutes, India Inc has urged the Government to define it in the Income-Tax Act.

"It should be defined in a reasonably comprehensive manner so that assessees can understand as to which activity would constitute `manufacturing' activity and thus save themselves from avoidable litigation," a Federation of Indian Chambers of Commerce and Industry (FICCI) official said.

Suggesting a definition for the particular term, FICCI said, "manufacture" means and includes any process or activity, carried on with the help of power - mechanical, animal or human, on any material, substances, article or thing, which has the effect of changing the physical form, characteristics, properties or use thereof or which makes it a commodity known with a different commercial description."

Explaining further, the Chamber said, "manufacturing process would include the process of extracting, altering, ornamenting, processing, treating, cutting, assembling of any material, substance, article or thing which has the effect of changing the physical form, characteristic, properties, or use of material, substance, article or thing on which the said process has been applied."

Recording of computer programmes or any digital information on any electronic or electromagnetic media should constitute the process of manufacture, it said.

In the absence of any definition, courts have relied on the definition given in different Acts, such as the Central Excise Act, Sales Tax Acts of the respective States and other similar legislation leading to inconsistent meanings.

It is common knowledge that absence of definition of the term in the Income-Tax Act has generated a lot of litigation, causing avoidable hardships to the assessees and expenditure to both - assessees and the Government.

"The interpretation of the definition of the term under different statutes is bound to be different as the context in which it is used and the object of concerned legislation would have vital bearing on such interpretations. In the context of the Income-Tax Act, this approach of interpretation has lead to contradictory decisions by various courts," the official said.

The Chamber, in a letter to the Central Board of Direct Taxes (CBDT), has said, "One is surprised to note that the term `manufacture' has not been defined in the Income-Tax Act, even though the word has been used in several sections of the Act, which provide for either exemption from tax or deduction from taxable income."

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