2007 (8) TMI 480 - AT - Income Tax

Issues Involved:
1. Denial of deduction under section 80-IA of the Income-tax Act, 1961.
2. Eligibility of the assessee's activity as 'manufacture' or 'production' of an article or thing.
3. Classification of the assessee's undertaking as an 'industrial undertaking'.
4. Classification of voter identity cards as 'goods'.
5. Applicability of Eleventh Schedule restrictions.
6. Validity of assumption of jurisdiction by the Assessing Officer under section 148.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80-IA:
The primary issue in all the appeals relates to the denial of deduction under section 80-IA of the Income-tax Act, 1961. The assessee derived income from the manufacture of photo identity cards for the Haryana Government. The Assessing Officer and CIT (Appeals) denied the deduction, stating that the activity did not qualify as 'manufacture' or 'production' of an article or thing.

2. Eligibility of the Assessee's Activity as 'Manufacture' or 'Production':
The assessee argued that its activity of producing photo identity cards involved significant processes such as data entry, photography, data processing, hologram application, and lamination, thus constituting 'manufacture'. The Tribunal referred to precedents, including the Pune Bench's decision in V.M. Jog Engg. Ltd. and the Special Bench's decision in Soni Photo Films (P.) Ltd., which supported the view that such activities amounted to 'manufacture'. The Tribunal concluded that the assessee's activity of producing identity cards did indeed amount to the 'manufacture' or 'production' of an article or thing for the purposes of section 80-IA.

3. Classification of the Assessee's Undertaking as an 'Industrial Undertaking':
The Tribunal examined the definition of 'industrial undertaking' under section 33B of the Act, which includes undertakings engaged in the business of generation or distribution of electricity, construction of ships, manufacture or processing of goods, or mining. Since the assessee's activity was deemed 'manufacture', the undertaking qualified as an 'industrial undertaking' for the purposes of section 80-IA.

4. Classification of Voter Identity Cards as 'Goods':
The CIT (Appeals) had argued that voter identity cards could not be considered 'goods'. The Tribunal referred to the Bombay High Court's decision in Emirates Commercial Bank Ltd., which held that data processing by banks constituted 'manufacture' or 'production'. Applying similar reasoning, the Tribunal concluded that the production of photo identity cards, which resulted in a tangible product, met the criteria for 'goods'.

5. Applicability of Eleventh Schedule Restrictions:
The Assessing Officer argued that the assessee's products fell under 'photography apparatus and goods' listed in the Eleventh Schedule, making them ineligible for section 80-IA benefits. The Tribunal disagreed, stating that the assessee was not engaged in manufacturing photographic products but was using photographic apparatus in its process. Hence, the Eleventh Schedule restriction did not apply.

6. Validity of Assumption of Jurisdiction under Section 148:
For the assessment year 2000-01, the issue of the validity of the notice under section 148 was raised. The Tribunal noted that the return for the year 2000-01 was processed under section 143(1), and the notice under section 148 was issued to reassess the claim under section 80-IA. The Tribunal referred to the Punjab & Haryana High Court's decision in Punjab Tractors Ltd., which clarified that section 147 could be invoked even if no order under section 143(3) was passed. The Tribunal upheld the issuance of the notice under section 148.

Conclusion:
The Tribunal concluded that the assessee satisfied the conditions for claiming the benefit under section 80-IA for the income derived from manufacturing photo identity cards. The orders of the CIT (Appeals) were set aside, and the Assessing Officer was directed to allow the deduction under section 80-IA. The appeal for the assessment year 2000-01 was partly allowed, validating the issuance of the notice under section 148 but directing a reappraisal of the claim for deduction under section 80-IA.

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