2010 (7) TMI 1038 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under section 80-IB of the Income-tax Act, 1961.
2. Determination of whether the assessee's activities constitute "manufacture" or "production" of an article or thing.

Detailed Analysis:

1. Entitlement to Deduction Under Section 80-IB:
The assessee, a partnership firm engaged in manufacturing various types of sheets and pre-engineered building material, claimed deductions under section 80-IB for the assessment years 2005-06 and 2006-07. The central issue was whether the assessee's activities qualified as "manufacture" or "production" of an article or thing, which is a prerequisite for claiming the deduction.

2. Determination of Whether the Activities Constitute "Manufacture" or "Production":
The core of the dispute was whether the assessee's activities of producing beams, columns, rafters, girders, and other structural components could be considered as manufacturing or producing an article or thing. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] held that the activities did not qualify as manufacturing, primarily because the end products were used in constructing buildings, which they considered as intermediary items.

Assessee's Argument:
- The assessee provided detailed descriptions and photographs of the manufacturing process, highlighting the transformation of raw materials into distinct products like beams, columns, and rafters.
- The assessee argued that the products had distinct names and uses in the trade, satisfying the commercial recognition test.
- The assessee submitted expert opinions and certificates from customers and industry bodies, supporting the claim that the activities constituted heavy manufacturing.

Assessing Officer's Argument:
- The AO contended that the activities involved merely processing steel into different shapes, which did not result in a new and distinct product.
- The AO relied on the Supreme Court decision in CIT v. N.C. Budhiraja & Co., where constructing a dam was not considered manufacturing for section 80HH purposes.
- The AO dismissed the relevance of the assessee being recognized as a manufacturer by Central Excise and other authorities.

CIT(A)'s Ruling:
- The CIT(A) upheld the AO's decision, emphasizing that the products were intermediary items used in building construction.
- The CIT(A) cited the Gujarat High Court decision in Cellulose Products of India Ltd. v. CIT, which held that only the end product, not intermediary items, should be considered for deduction purposes.

Tribunal's Analysis:
- The Tribunal reviewed the detailed manufacturing process and the distinct commercial identity of the products.
- The Tribunal referred to several Supreme Court decisions, including ITO v. Arihant Tiles & Marbles (P.) Ltd., which held that converting marble blocks into slabs and tiles constituted manufacturing.
- The Tribunal noted that the assessee's products were distinct in the trade and involved significant technical and mechanical processes, transforming raw materials into new articles.
- The Tribunal disagreed with the CIT(A)'s reliance on N.C. Budhiraja & Co., as the assessee was not constructing buildings but manufacturing materials for the construction industry.

Conclusion:
- The Tribunal concluded that the assessee's activities constituted manufacturing or production of an article or thing.
- The Tribunal directed the AO to allow the assessee's claim for deduction under section 80-IB for the assessment years in question.

Summary:
The Tribunal allowed the assessee's appeals, holding that the activities of manufacturing beams, columns, rafters, and other structural components qualified as manufacturing or production of an article or thing. Consequently, the assessee was entitled to deductions under section 80-IB of the Income-tax Act, 1961.