2014 (12) TMI 104 - HC - Income Tax

Deduction u/s 80HH and 80I Held that - What becomes entitled to claim exemption u/s 80HH of the Act, is an industrial undertaking, as is evident from the very heading of the Section, than the nature of activity taken up by it - once the assessee answers the description of an industrial undertaking, it is immaterial whether it is manufacturing, or producing or processing - The amount that qualifies for deductions is the profits and gains of such an undertaking to the extent of 20% - Things would have been different altogether, had the deduction been restricted only to the activity of manufacturing - the activity was not restricted to the one of multiplying the yarns that were already produced by someone else - the respondent has been manufacturing yarn, from cops, and then, multiplying the yarns, depending upon the customer demand there is no ground to interfere in the order of the Tribunal Decided against revenue.

Summary

Issues:
1. Interpretation of Sections 80HH and 80I of the Income Tax Act for claiming deductions.
2. Determining whether the activity of converting cotton pieces into yarn qualifies as a manufacturing process.
3. Comparison of the criteria for manufacture under the Central Excise Act and the Income Tax Act.
4. Analysis of relevant case laws such as Banswara Syntex Limited and J.K.Cotton Spinning and Weaving Mills Limited.
5. Examination of the decision in Commissioner of Income Tax v. Emptee Poly-Yarn Private Limited.

Analysis:
1. The case involved the interpretation of Sections 80HH and 80I of the Income Tax Act for claiming deductions. The respondent, an Industrial Undertaking, claimed deductions under these sections for the assessment year 1992-1993. The Assessing Officer initially denied the deductions, stating that no manufacturing process was undertaken by the respondent.

2. The main issue revolved around whether the activity of converting cotton pieces into yarn, and further processing them into double or multiple yarn threads, qualifies as a manufacturing process. The appellant argued that such activities do not constitute manufacturing, relying on judgments like Collector of Central Excise, Jaipur v. Banswara Syntex Limited and M/s. J.K.Cotton Spinning and Weaving Mills Limited v. Union of India.

3. The judgment delved into the comparison of the criteria for manufacture under the Central Excise Act and the Income Tax Act. It highlighted that the definition and scope of manufacturing differ under these laws. While the Central Excise Act focuses on the activity of manufacture for levy of excise duty, the Income Tax Act considers manufacturing concerning the taxability of income.

4. Relevant case laws such as Banswara Syntex Limited and J.K.Cotton Spinning and Weaving Mills Limited were analyzed. The Supreme Court's decision in Banswara Syntex Limited's case regarding the treatment of multiplying yarn as an independent manufacturing activity under the Central Excise Act was distinguished from the present case under Section 80HH of the Income Tax Act.

5. The judgment also referenced the decision in Commissioner of Income Tax v. Emptee Poly-Yarn Private Limited, where the Bombay High Court and subsequently the Supreme Court affirmed that the product involved was independent of its raw material, supporting the assessee's claim for deductions. The court found no grounds to interfere with the Tribunal's order and dismissed the appeal.

This detailed analysis of the judgment provides a comprehensive understanding of the issues addressed, the arguments presented by both parties, and the legal principles applied in reaching the decision.