2013 (12) TMI 251 - HC - Income Tax

Bottling of gas into gas cylinders - Production activity for section 80IB - Held that - Following Commissioner of Income Tax-I vs. M/s.Hindustan Petroleum Corporation Ltd. 2013 (5) TMI 124 - BOMBAY HIGH COURT and Supreme Court in Commissioner of Income Tax vs. Vinbros & Company 2012 (9) TMI 802 - SUPREME COURT - Every activity which bring into existence a new product would constitute production - The process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process - Neither loose gas nor an empty cylinders can be sold to customers and it is only gas cylinder containing gas is a marketable product which the assessee produces - When the assessee produces the gas cylinder containing gas, in our opinion, a new product comes into existence - The process of bottling of gas into gas cylinders, which requires a very specialized process and an independent plant and machinery, amount to production of gas cylinders containing gas for the purpose of claiming deduction under Section 80IB of the Act - Decided in favour of assessee.

Summary

Issues:
1. Deduction under Section 80IB of the Income Tax Act for bottling LPG gas into cylinders.

Analysis:
The appellant filed an income tax appeal against the Tribunal's order dismissing the appeal challenging the denial of deduction under Section 80IB of the Income Tax Act for bottling LPG gas into cylinders. The appellant contended that bottling gas into cylinders constitutes production/manufacturing activity eligible for the deduction. The High Court framed the question of whether bottling gas into cylinders qualifies as production activity under Section 80IB of the Act.

The High Court referred to a judgment by the Bombay High Court on a similar issue regarding the production activity of bottling gas into cylinders. The Bombay High Court concluded that every activity bringing a new product into existence constitutes production. The High Court also cited a Supreme Court case where blending and bottling of liquor were considered manufacturing for claiming deductions. Additionally, the Supreme Court's interpretation of manufacturing and production was discussed, emphasizing the creation of new goods as a key factor.

The revenue argued that bottling gas into cylinders does not amount to manufacturing or production but is merely processing. They relied on a Supreme Court judgment regarding the stages of tea production, manufacturing, and processing. However, the High Court highlighted the specialized nature of bottling LPG gas, requiring specific machinery and resulting in the production of marketable gas cylinders. The Court concluded that the bottling process creates a new product, the gas cylinder, distinct from loose gas or empty cylinders, thus qualifying as production activity under Section 80IB.

In line with the Bombay High Court and previous Supreme Court decisions, the High Court ruled in favor of the appellant, holding that bottling gas into cylinders constitutes production activity eligible for deduction under Section 80IB of the Income Tax Act. The orders of the authorities below were set aside, and no costs were awarded in the matter.