2006 (2) TMI 143 - HC - Income Tax

Deduction under section 80-I - assessee is engaged in the business of developing photographs snapped in film rolls and printing them - Whether, on the facts and circumstances of the case, the Tribunal was right in holding that processing of the film and printing photographs from the negatives amounts to a manufacturing activity and is an industrial undertaking eligible for the benefit of section 80-I? - we find no error or infirmity in the order of the Tribunal and the same requires no interference. Finding no substantial question of law arising for consideration, the revenue s appeal stands dismissed.

Summary

Issues:
- Appeal against order allowing deduction under section 80-IA of the Income-tax Act, 1961
- Dispute over whether processing of film and printing photographs amounts to manufacturing activity for claiming benefits under section 80-I

Analysis:
The High Court of MADRAS delivered a judgment regarding an appeal challenging the order allowing deduction under section 80-IA of the Income-tax Act, 1961. The case involved the question of whether processing film and printing photographs qualified as a manufacturing activity eligible for benefits under section 80-I of the Act. The court examined the concept of "manufacture" and emphasized that the emergence of a new commercial commodity from basic raw material signifies manufacturing. It was highlighted that the transformation into a new commodity does not require complete loss of the original material's identity. The court determined that the process of developing film rolls into distinct photographs results in a new commercial commodity with its own identity, qualifying as manufacturing. Citing precedents, the court affirmed that activities like producing positive films from exposed films or obtaining positive prints from raw film constitute manufacturing activities eligible for investment allowance.

Moreover, the court referred to judgments from other High Courts to support its decision. The Andhra Pradesh High Court's ruling emphasized that converting raw film into films with images and sounds constituted manufacturing, as the resulting positive prints were distinct commodities. The Rajasthan High Court's decision clarified that plant and machinery producing articles not on the prohibitory list in the Eleventh Schedule, even for personal use, qualified as manufacturing equipment. In a specific case, a colour photo processing machine delivering colour photographs was considered eligible for deduction under the Income-tax Act, reinforcing the broader interpretation of manufacturing activities.

In light of the legal principles and precedents discussed, the court concluded that the Tribunal's decision to allow the investment allowance to the assessee was correct. Finding no substantial question of law warranting further consideration, the court dismissed the appeal, affirming the entitlement of the assessee to claim the deduction under section 80-IA of the Income-tax Act, 1961.