2014 (11) TMI 807 - HC - Income Tax

Grant of deduction u/s 80HHA and 80IA Ship breaking activity amounts to manufacture or not - Whether the Tribunal is right in law and on facts in holding that the assessee which is engaged in ship breaking business is entitled for grant of deduction u/s 80HHA and 80I considering the same as manufacturing activity Held that - Following the decision in Vijay Ship Breaking Corporation and Others vs. C.I.T 2008 (10) TMI 6 - SUPREME COURT the Tribunal was right in allowing the deduction u/s 80HH & 80I holding that the ship breaking activity gave rise to the production of a distinct & different article - ship breaking activity gave rise to the production of a distinct and different article and the assessee is entitled to deduction u/s 80HH and 80-I thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues involved:
1. Interpretation of whether ship breaking activity qualifies as manufacturing activity for deduction under sections 80HHA and 80I of the Income Tax Act, 1961.

Analysis:
The case involved a reference from the Income Tax Appellate Tribunal regarding the eligibility of an assessee firm engaged in ship breaking business for deduction under sections 80HHA and 80I of the Income Tax Act, 1961, as manufacturing activity. The Assessing Officer initially rejected the claim, but the CIT (Appeals) allowed it. The ITAT, in its judgment, held that ship breaking activity results in the production of a new article, making the undertaking eligible for the deduction. The issue was not new as it had been addressed by the Supreme Court in a previous case involving Vijay Ship Breaking Corporation. The Supreme Court had emphasized the distinction between "production" and "manufacture," stating that the former is broader and can involve the creation of a distinct article without the requirement of it being entirely new. The Court also referenced a previous judgment affirming the wider scope of the term "production" over "manufacture" in a different context. As a result, the Tribunal's decision to grant the deduction to the assessee was upheld based on the production of a distinct article through ship breaking activity.

The Supreme Court's ruling that ship breaking activity results in the production of a distinct article, making the assessee eligible for deductions under sections 80HHA and 80I, was decisive in this case. The Court emphasized the broader scope of "production" compared to "manufacture" and cited previous judgments to support this interpretation. The judgment highlighted that the emergence of a new article through the ship breaking process fulfills the criteria for claiming the deduction. The Court dismissed the revenue's arguments against granting the deduction, as it could not provide any contrary decisions or dispute the established legal principles. Ultimately, the Court confirmed the ITAT's decision in favor of the assessee, leading to the dismissal of the reference.

In conclusion, the Gujarat High Court upheld the decision of the ITAT regarding the eligibility of the assessee firm engaged in ship breaking business for deductions under sections 80HHA and 80I. The Court relied on the Supreme Court's interpretation that ship breaking activity results in the production of a distinct article, aligning with the criteria for claiming the deduction. The judgment emphasized the broader scope of "production" and affirmed the Tribunal's decision, ultimately dismissing the reference and confirming the allowance of deductions to the assessee.