2014 (1) TMI 1037 - AT - Income Tax

Whether income earned on mixing of rubber compound is eligible for deduction u/s. 80IB being intermediate product - Exemption in relation of Job work charges - Held that - Section 80IB is worded in the same way as section 32A - Decision in Midas Polymer Compounds P. Ltd. Versus Assistant Commissioner of Income-tax 2010 (12) TMI 414 - Kerala High Court followed - The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture it also taken in all the by-products intermediate products and residual products which emerge in the course of manufacture of goods - Even production of intermediary products is sufficient to entitle the assessee for deduction available to new industrial unit - Compound rubber produced by the assessee on job work for the tyre manufacturing companies is an intermediary from which tyre is manufactured - There is nothing in the section to indicate that article or thing produced or manufactured should be final product in itself. So much so the activity of the assessee in their new industrial unit which is mixing rubber with chemicals process oil etc. making compound rubber is covered by section 80IB of the Act - Decided against the revenue.

Summary

Issues:
Whether job work income earned in mixing rubber compound is eligible for deduction u/s. 80IB of the Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Cochin concerned the eligibility of job work income for deduction under section 80IB of the Income Tax Act. The Assessing Officer disallowed the deduction claimed by the assessee, stating that job work income does not result in "full manufacturing of goods." However, the Ld. CIT(A) allowed the claim based on a decision of the Hon'ble Jurisdictional High Court of Kerala in the assessee's own case. The Revenue challenged this decision before the Hon'ble Supreme Court.

The key issue revolved around whether the income earned by the assessee on processing rubber on a job work basis qualifies as "production or manufacturing" for deduction u/s 80IB of the Act. The Ld. DR argued that the mixing charges received by the assessee cannot be considered an intermediary product in the manufacturing process. Conversely, the Ld. AR relied on the decision of the Hon'ble Jurisdictional High Court of Kerala in the assessee's case to support the claim.

The Tribunal examined the relevant observations made by the Hon'ble Kerala High Court in the assessee's case, emphasizing that the production of compound rubber through job work for tire manufacturing companies qualifies as "production of an article or thing" for deduction under section 80IB. The Tribunal noted that the Supreme Court has interpreted the term "production" broadly to include intermediary products, supporting the assessee's claim. As the issue had already been decided by the full bench of the Hon'ble jurisdictional Kerala High Court in favor of the assessee, the Tribunal upheld the Ld. CIT(A)'s decision.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, affirming the eligibility of the job work income for deduction under section 80IB of the Act based on the precedent set by the Hon'ble Kerala High Court's decision in the assessee's case.