2015 (5) TMI 686 - HC - Income Tax

Entitlement to claim deduction u/s. 10B - whether assembling of instruments and apparatus for measuring and detecting ionizing radiators as admitted in column 8(a) of Form-3CD is a manufacturing activity producing an article or thing? - Held that - The finished product which is sold by the assessee, is different from the material which are procured for making such a finished product. A series of processes are carried out and a new product is arrived. After going through the said process, the product which comes under that process is different from that which originally existed, in the sense that the thing produced is by itself a commercially different commodity. The moment there is transformation, a new commodity commercially known as distinct and separate commodity having its own character, use and name, whether it be the result of one process or several processes, manufacture takes places and duty is attracted. Therefore, the Tribunal was justified in holding that the process undertaken by the assessee constitutes manufacture and that they are entitled to the benefit of Section 80(ia) of the Act. Accordingly, the substantial question of law is answered in favour of the assessee - Decided against the Revenue

Summary

Issues:
Challenge to Tribunal's order granting deduction under Section 10B of the Income Tax Act, 1961 for the manufacture or production of article or thing.

Analysis:
The issue at hand revolves around whether the assembling of instruments and apparatus for measuring and detecting ionizing radiators qualifies as a manufacturing activity under Section 10B of the Income Tax Act, 1961. The assessee, engaged in assembling such instruments, claimed deduction under Section 10B, which was initially denied by the Assessing Authority. The Appellate Commissioner concurred with the Assessing Authority, stating that the assembling process did not amount to production or manufacture of articles or things as required by the Act. However, the Tribunal, upon reevaluation, determined that the process undertaken by the assessee did indeed constitute manufacturing or production, making them eligible for the deduction under Section 10B.

The Tribunal's decision was based on a technical write-up provided by the assessee, detailing the intricate process involved in manufacturing radiation detectors. The write-up highlighted the steps such as sanding, polishing, sealing, and shielding, which transformed the raw materials into a distinct and commercially different commodity. The Tribunal emphasized that the finished product sold by the assessee was fundamentally different from the materials procured for its production, indicating a substantial transformation had taken place.

In support of its decision, the Tribunal referenced legal precedents and the definition of 'manufacture,' emphasizing that the essence of manufacturing lies in the transformation of an article into a new and distinct commodity recognized in trade. The court reiterated that every change does not amount to manufacture; true manufacturing involves a significant transformation resulting in a commercially different product. Applying these principles to the case at hand, the Tribunal concluded that the assessee's process met the criteria for manufacturing under the Act.

Conclusively, the High Court upheld the Tribunal's decision, affirming that the process carried out by the assessee constituted manufacturing, thereby entitling them to the deduction under Section 10B of the Income Tax Act, 1961. The court emphasized that the transformation of raw materials into a new and distinct commodity, as evidenced by the detailed manufacturing process, qualified as manufacturing for the purposes of the Act. As a result, the appeals challenging the Tribunal's order were dismissed, and the substantial question of law was resolved in favor of the assessee, affirming their entitlement to the deduction.