2013 (1) TMI 158 - HC - Income Tax

Benefit of Section 80IC - whether the assessee is involved in manufacturing activities in Uttarakhand from its industrial unit situate therein? - The Assessing Officer found that instead of bringing the flowers, thus purchased, on the basis of job work, assessee extracts the oil contents from the flowers at Uttar Pradesh and, thereafter, such oil is brought in the factory of the respondent assessee situate in Uttarakhand and with the help of the extracted oil, the essence is manufactured. The Assessing Officer felt that in the whole process, the most important part of the manufacturing activity is undertaken in the State of Uttar Pradesh and the minimal in the State of Uttarakhand and, as a result, respondent assessee is not entitled to the benefit of Section 80IC Held that - The distilled oil, which is used as a raw material in the processing unit of the assessee situate in Uttarakhand, is available in the market. To that, there is no dispute. Instead of buying the same from the market, assessee gets the same processed in the State of Uttar Pradesh. - Benefit u/s 80IC allowed - Decided in favor of assessee.

Summary

Issues:
1. Appeal filed by Deputy Commissioner or Commissioner of Income Tax.
2. Eligibility of respondent assessee for benefit under Section 80IC of the Income Tax Act, 1961.

Analysis:
1. The first issue in this case revolved around the appeal filed by the Deputy Commissioner of Income Tax or the Commissioner of Income Tax. The appellant's counsel acknowledged an inadvertent error in using the word "Deputy" as a prefix to Commissioner, attributing it to a mistake. The respondent's counsel contested this, arguing that the appeal was not by an incompetent authority. However, the court accepted the appellant's submission, allowing the amendment application to remove the prefix "Deputy" from "Commissioner of Income Tax."

2. The second issue involved determining the eligibility of the respondent assessee for the benefit under Section 80IC of the Income Tax Act, 1961. The Assessing Officer found that the manufacturing activity crucial for availing the benefit was primarily conducted in Uttar Pradesh, not Uttarakhand. The respondent procured distilled oil from Uttar Pradesh, which was a key ingredient in the manufacturing process. The Assessing Officer concluded that the significant manufacturing activities took place outside Uttarakhand, rendering the assessee ineligible for the tax benefit.

3. The respondent produced a flow-chart detailing the manufacturing process, which was not disputed by the Assessing Officer. The flow-chart revealed that essential manufacturing steps, including obtaining distilled oil from Uttar Pradesh, were conducted outside Uttarakhand. The court observed that the distilled oil procured from Uttar Pradesh was not sold directly but processed further in Uttarakhand to create the final product. As the distilled oil underwent significant transformation in Uttarakhand before being sold, the court upheld the Assessing Officer's decision that the major manufacturing activities occurred outside Uttarakhand. Consequently, the court dismissed the appeal, affirming the denial of the tax benefit to the respondent assessee.