2014 (10) TMI 744 - HC - Income Tax

Allowability of deduction u/s 80HH and 80I Ship breaking activity amounts to manufacture and production or not Whether the Tribunal was right in allowing the deduction u/s 80-HH and 80-I holding that ship breaking activity gives rise to manufacturing and production of altogether a new article or thing - Held that - Following the decision in Vijay Ship Breaking Corporation and Others vs. C.I.T 2008 (10) TMI 6 - SUPREME COURT - the ship breaking activity resulted in production of articles which emerged when the ship breaking activity stood undertaken - the important test which distinguishes the word production from manufacture is that the word production is wider than the word manufacture - the word production cannot derive its colour from the word manufacture - the word production is wider than the word manufacture - the word production has a wider connotation than the word manufacture - the Tribunal was right in allowing the deduction u/s 80HH and 80-I to the assessee holding that the ship breaking activity gave rise to the production of a distinct and different article - ship breaking activity gave rise to the production of a distinct and different article and therefore the deduction u/s 80HH and 80-I is required to be given thus, the order of the Tribunal is upheld Decided against Revenue.

Summary

Issues Involved:
Interpretation of ship breaking activity as manufacturing for tax deduction under sections 80HH and 80-I.

Comprehensive Analysis:

Issue 1:
The primary issue in this case involves determining whether ship breaking activity qualifies as manufacturing for claiming tax deductions under sections 80HH and 80-I of the Income Tax Act. The assessee firm engaged in ship breaking at Alang Port claimed the deductions, which were initially rejected by the Assessing Officer. The CIT (Appeals) upheld this decision based on a Tribunal ruling. However, the Tribunal, in the present case, ruled in favor of the assessee, stating that ship breaking activity results in the production of a new article, making it eligible for the deductions.

Issue 2:
The critical legal precedent cited in this judgment is the decision of the Hon'ble Supreme Court in the case of Vijay Ship Breaking Corporation and Others vs. C.I.T. The Supreme Court emphasized that ship breaking activity indeed leads to the production of a distinct and different article. The Court highlighted the distinction between "production" and "manufacture," stating that the former is broader in scope. Referring to previous judgments, including Ship Scrap Traders v. CIT and CIT v. Sesa Goa Ltd., the Supreme Court reinforced the interpretation that production need not result in a completely new product to qualify as manufacturing.

Issue 3:
The judgment further elaborates on the reasoning behind allowing the deductions under sections 80HH and 80-I for the ship breaking activity. The Court emphasized that the ship breaking process gives rise to a unique article, meeting the criteria for production as per the legislative language. The absence of the term "new" in the definition of "produce" was noted, supporting the broader interpretation of production. The Court ultimately concluded that the Tribunal's decision to grant the deductions was appropriate based on the distinct nature of the articles resulting from ship breaking.

Conclusion:
In conclusion, the High Court upheld the Tribunal's decision, affirming that ship breaking activity qualifies as manufacturing for tax deduction purposes under sections 80HH and 80-I. The judgment relied heavily on the Supreme Court's interpretation and precedent, emphasizing the distinct nature of the articles produced through ship breaking. The Court dismissed the revenue's appeals, confirming the eligibility of the assessee for the deductions based on the established legal principles and precedents.