2000 INSC 1306
                                        SUPREME COURT OF INDIA

                                           Commissioner of Income-Tax

                                                           Vs.

                                          Gem India Manufacturing Co.

                            (S.P. Bharucha, N. S. Hegde and Y.K. Sabharwal JJ.)

                                                      05.12.2000

                                                       ORDER

1. We are concerned with the assessment years 1983-84 and 1984-85 in this appeal against the order
of a Division Bench of the High Court of Bombay. By that order, the following question was
answered in the affirmative and in favour of the assessee:

"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right of
confirming the order of the Commissioner of Income-tax (Appeals) holding that the assessee,
engaged in cutting and polishing of diamonds, amounts to manufacturing or production of goods
and is entitled to deduction under Section 80-1 of the Income-tax Act, 1961?"

2. The High Court gave this answer because counsel for the parties were agreed that the issue stood
covered by the High Court's decision in CIT v. London Star Diamond Co. (1.) Ltd. [1995] 213 1TR
517.

3. Section 80-1 gives a deduction in respect of profits and gains from industrial undertakings which,
among other conditions, manufacture or produce any article or thing. The question, therefore, is
whether the asses-see, in cutting and polishing diamonds manufactures or produces any article or
thing.

4. The Tribunal took the view that it did because in "common parlance and commercial sense raw
diamonds are not the same thing as polished and cut diamonds. The two are different entities in the
commercial world. Though the chemical composition remains the same the physical characteristics
of shape and class, etc., are substantially different". It would appear that no material had been
placed on the record before the Tribunal upon which it could have reached the conclusions that,
either in common or in commercial parlance, raw diamonds were not the same thing as polished and
cut diamonds, and that they were different entities in the commercial world. An ipse dixit of the
Tribunal is not the best foundation for a decision.

5. The High Court, as aforestated, concluded that the case was covered by its decision in the case of
CIT v. London Star Diamond Co. (I.) Ltd. [1995] 213 ITR 517. It was not pointed out to the High
Court that the question in that case was whether the assessee was an industrial company within the
meaning of Section 2(8) of the Finance Act, 1975, and that, in answering that question, the High
Court had held that raw diamonds and cut and polished diamonds were different and distinct
marketable commodities having different uses ; therefore, a company engaged in cutting and
polishing raw diamonds for the purpose of export was engaged in the "processing of goods" to
convert them into marketable form. The question that the High Court and we are here concerned
with is whether, in cutting and polishing diamonds, the assessee manufactures or produces articles
or things.

6. There can be little difficulty in holding that the raw and uncut diamond is subjected to a process
of cutting and polishing which yields the polished diamond, but that is not to say that the polished
diamond is a new article or thing which is the result of manufacture or production. There is no
material on the record upon which such a conclusion can be reached.

7. The appeal is, therefore, allowed. The order under challenge is sot aside. The question quoted
above is answered in the negative and in favour of the Revenue. The assessee shall pay to the
Revenue the costs of the appeal.