2014 (8) TMI 727 - AT - Income Tax

Claim of deduction u/s 80IC - Packaging of Horlics, Boost for Glaxo Smithkline Consumer Healthcare Ltd. amounts to manufacture or not u/s 2(29BA) Held that - The AO disallowed the claim of deduction u/s 80IC by observing that assessee was not engaged in manufacturing activity - whether the assessee had to fulfill the conditions contemplated u/s 80IC, it is imperative to take note of the relevant statutory provisions - Sub-section (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee - Sub- section (2) has further sub-sections and in the case of the assessee, the clause applicable is 80IC (2) (b) which provides that assessee has begun or begins to manufacture any article or thing, which are not specified in Thirteenth schedule - assessee should not manufacture any article or thing which is specified in thirteenth schedule - the activity of manufacture should commence between the period 7th day of Jan 2003 and ending on Ist April 2012. It should be at the place notified by the Board in accordance with the scheme - the assessee was registered with the excise department - In the audit report of the excise department the assessee has been shown to be engaged in the manufacture of Malt Based Foods, falling within chapter 19 of CETA attracting central excise duty - CIT(A) in coming to the conclusion that assessee was engaged in the activity of manufacturing and production, eligible for deduction u/s 80IC, has drawn support from various judicial pronouncements - assessee has already been allowed deduction u/s 80IC in earlier years from A.Y. 2005-06 to A.Y. 2008-09 - No change in facts for the assessment year in question has been brought on record thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:
1. Whether the activity carried on by the appellant qualifies as a "manufacturing activity" under section 80IC of the Income Tax Act.
2. Whether the appellant is entitled to the deduction under section 80IC for the Assessment Year 2009-10.

Detailed Analysis:

1. Manufacturing Activity Qualification:
The primary issue was whether the appellant's activity of packaging Horlicks and Boost for Glaxo Smithkline Consumer Healthcare Ltd. qualified as "manufacturing" under section 80IC. The Assessing Officer (AO) disallowed the deduction, arguing that the appellant was engaged in "rendering services of job work" and not in manufacturing as defined under section 2(29BA) of the Income Tax Act. The AO's stance was based on the audit report's description of the business nature and the absence of a chemical change in the raw materials.

The appellant countered by providing a detailed manufacturing process, highlighting the transformation of raw materials (skimmed milk powder, fine crystalline sugar, etc.) into finished products (Horlicks and Boost) through extensive mechanical processing. The appellant emphasized that the final products had distinct physical, chemical, and commercial properties different from the raw materials, thus qualifying as manufacturing.

The CIT(A) accepted the appellant's additional evidences, including a flow chart of the manufacturing process and the excise registration, which recognized the activity as manufacturing. The CIT(A) observed that the appellant's process resulted in a new and distinct product, fulfilling the definition of "manufacture" under section 2(29BA). The CIT(A) also referenced several judicial precedents, including the Supreme Court's decisions in *Arihant Tiles and Marbles (P) Ltd.*, *CIT vs. Oracle Software India Ltd.*, and *CIT v. Emptee Poly-Yarn P. Ltd.*, which supported the appellant's claim.

2. Entitlement to Deduction under Section 80IC:
The CIT(A) concluded that the appellant's activity met the conditions of section 80IC, which provides deductions for profits derived from manufacturing activities in specified regions. The appellant had been consistently allowed this deduction from A.Y. 2005-06 to A.Y. 2008-09, and no change in the facts for A.Y. 2009-10 was noted.

The Tribunal upheld the CIT(A)'s decision, agreeing that the appellant's activity constituted manufacturing. The Tribunal noted that the appellant was registered with the excise department, which acknowledged the manufacturing nature of the business. The Tribunal also emphasized the importance of consistency, referencing the Supreme Court's decision in *Radhaswami Satsang*, and highlighted that the AO had allowed the deduction in previous years.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming that the appellant's activity of packaging Horlicks and Boost qualified as manufacturing under section 80IC, and thus, the appellant was entitled to the deduction for A.Y. 2009-10. The Tribunal's decision was based on a thorough examination of the statutory provisions, judicial precedents, and the facts of the case, ensuring that the appellant's manufacturing process met the criteria for the claimed deduction.