2008 (12) TMI 746 - HC - Income Tax

Deduction u/s 80-IA - business carried out by the assessee amounted to manufacturing of article or things for the purpose of deduction or not. HELD THAT - It is well settled that every change or process cannot be termed as manufacture or production. Well known tests applied for determining whether a process amounted to manufacture or production are that a new and distinct commercial product is produced. In each case, it may be a question of fact whether a particular process involves manufacture or not. The question may be of degree and extent of change and though, the issue may at times be debatable, by applying the relevant tests, the Tribunal has recorded a finding and such finding cannot be held to be perverse, it cannot be held that a substantial question of law arises.The Tribunal has applied the correct test and recorded a finding that the process undertaken by the assessee involved manufacture. Merely because a different view can be taken will not be a ground to hold that a substantial question of law arises. In a recent order of this Court in CIT v. Mahesh Chadra Sharma 2008 (10) TMI 68 - PUNJAB AND HARYANA HIGH COURT , dealing with an identical issue. Thus, the question raised cannot be held to be a substantial question of law. Hence, dismissed.

Summary

Issues:
1. Appeal by the revenue under section 260A of the Income-tax Act, 1961 against the order of the Income-tax Appellate Tribunal regarding deduction under section 80-IA.
2. Whether the activity of the assessee amounts to manufacturing of articles or things for the purpose of claiming the deduction under section 80-IA.

Analysis:

Issue 1:
The appeal was filed by the revenue under section 260A of the Income-tax Act, 1961 against the decision of the Income-tax Appellate Tribunal regarding the deduction claimed by the assessee under section 80-IA. The Tribunal upheld the claim of the assessee, leading to the revenue's appeal before the High Court.

Issue 2:
The main issue was whether the activity carried out by the assessee amounted to manufacturing of articles or things for the purpose of claiming a deduction under section 80-IA. The assessee had a factory where Automobile Filter elements were produced for a specific company. The assessing authority disallowed the deduction, stating that the process did not yield a new commodity commercially. However, the Tribunal found that the assessee's activity involved assembling various raw materials and components to create a distinct product, a Semi-finished Automotive Filter. The Tribunal concluded that the process undertaken by the assessee indeed amounted to manufacturing, as the finished product was distinct in character and use from its raw materials.

The High Court, after considering the arguments presented, rejected the revenue's submission that the activity was merely assembling components and did not result in a new product. The Court emphasized that not every change or process could be considered manufacturing, and the key test was whether a new and distinct commercial product emerged. Referring to established legal principles, the Court noted that the Tribunal had correctly applied the tests to determine if the process amounted to manufacturing. The Court cited previous judgments of the Hon'ble Supreme Court to support the view that a distinct article with a distinctive name, character, and use had indeed emerged from the assessee's activities. Therefore, the Court concluded that the question raised did not constitute a substantial question of law and dismissed the appeal by the revenue.

In conclusion, the High Court upheld the Tribunal's decision, ruling that the assessee's activity qualified as manufacturing under section 80-IA of the Income-tax Act, 1961.