2015 (1) TMI 105 - HC - Income Tax

Nature of assessee and rate of depreciation - Whether the Tribunal was correct in holding that the assessee company is a semi- conductor industry and allowing depreciation at a higher rate of 40% - Held that - POY is a semi-finished product - It is a raw material/input - The raw material or input gets converted into a texturized yarn by reason of the thermo mechanical process - POY is unfit for the manufacture of fabric POY means partially oriented yarn whereas a cellulosic filament yarn is a final product in the sense after processing can be used directly for the manufacture of fabric - the reasons recorded by the CIT(A) as well as by the Tribunal are reasonable and proper and do not call for any interference - the technical expert from the Ministry of Communications and Information Technology has opined that for the purpose of mounting of silicon chips on PCB special equipments like chip bonding/wire bonding etc. are required which are the same required in any IC manufacturing industry and chip bonding operation in ECB assembly is 1st part of the manufacturing process - There is nothing contrary placed on record to controvert the expert opinion given by the technical person from the department of Information Technology - since the assessee is applying the use of machinery and plant used in the semi-conductor industry, the assessee company is entitled to claim depreciation at 40% in accordance with Entry no. XI part A (ii) of Old Appendix I under Rule 5 the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Whether the assessee company qualifies as a semi-conductor industry for claiming higher depreciation rate.
2. Interpretation of the term "manufacture" in the context of the Income Tax Act.
3. Comparison of different judgments to determine eligibility for depreciation benefits.

Analysis:
1. The primary issue in this case is whether the assessee company, engaged in manufacturing Electronic Circuit Boards (ECB), qualifies as a semi-conductor industry for claiming a higher depreciation rate of 40%. The assessing officer initially rejected the claim for higher depreciation, but the CIT (Appeals) and ITAT allowed the higher rate based on the argument that ECBs are semi-conductor devices. The Revenue contended that since the assessee imports 90% of the semi-conductor devices used in the final product, the company is merely assembling components and not manufacturing semi-conductor devices. However, the Commissioner (Appeals) referenced a letter from the Department of Information Technology supporting the assessee's position that mounting silicon chips on ECBs constitutes manufacturing of semi-conductor devices.

2. The second issue involves the interpretation of the term "manufacture." The Revenue argued that the assessee does not manufacture semi-conductor devices, therefore not eligible for the higher depreciation rate. However, the CIT (Appeals) and ITAT considered the process of mounting silicon chips on PCB as part of the manufacturing process, supported by expert opinions from the Ministry of Communications and Information Technology. The courts relied on previous judgments to determine that the process undertaken by the assessee qualifies as manufacturing under the Income Tax Act.

3. The final issue pertains to the comparison of various judgments to determine the eligibility for depreciation benefits. The assessee relied on the judgment in "Oracle Software India Limited" to support their claim for higher depreciation, arguing that the process of mounting silicon chips on PCBs constitutes manufacturing. The courts also referenced the judgment in "Emptee Poly-Yarn Private Limited" to establish that certain processes, even if involving semi-finished products, can be considered manufacturing under the Income Tax Act. The courts ultimately dismissed the Revenue's appeal, upholding the assessee's entitlement to claim depreciation at the higher rate of 40%.

In conclusion, the judgment by the Bombay High Court affirms the assessee's eligibility for a higher depreciation rate as a semi-conductor industry based on the manufacturing process involving Electronic Circuit Boards. The decision highlights the interpretation of "manufacture" in the context of the Income Tax Act and draws on previous judgments to support the assessee's claim for depreciation benefits.