2015 (6) TMI 610 - HC - Income Tax

Eligibility for deduction u/s 80IB - license to run the factory was not obtained on or before 31/03/2004 i. e. the cut off of starting the industrial undertaking as per provisions of Section 80IB(4) - Held that - Assessing Officer did not doubt about raw material consumption, power consumption, sales and employment of workers for the purposes of denying the benefit of Section 80IB of the said Act. It was further held that for the purpose of Section 80IB of the said Act, what is essential is that the assesee should manufacture or produce an article or thing and if there is any violation of any provisions of any other statutes then the assessee has to explain the same to the authorities implementing those Acts/Statutes and the same cannot be the basis of denial of benefit under Section 80IB of the said Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of conditions for obtaining a factory license before commencing industrial activities.
2. Eligibility of the assessee for deduction under Section 80IB of the Income Tax Act based on the timing of obtaining a factory license.

Issue 1: Interpretation of conditions for obtaining a factory license before commencing industrial activities:
The High Court considered the appeal for the Assessment Year 2007-08 by the Revenue, focusing on whether the Tribunal was correct in holding that there was no condition precedent to obtain a factory license before starting an industrial undertaking. The Revenue argued that production cannot commence without obtaining the license to run the factory as per Factory Rules and the Factory Act. The Tribunal, in its decision, relied on a previous case and found that the Assessing Officer did not doubt the essential manufacturing activities like raw material consumption, power consumption, sales, and employment of workers. The Tribunal emphasized that for the purpose of Section 80IB, the key requirement is the actual manufacturing or production of an article, and any violations of other statutes should be addressed separately without affecting the eligibility for the deduction. The High Court concluded that the Tribunal's decision was valid, and the conditions for obtaining a factory license were not a barrier to claiming the deduction under Section 80IB.

Issue 2: Eligibility of the assessee for deduction under Section 80IB based on the timing of obtaining a factory license:
The second issue revolved around whether the assessee was eligible for deduction under Section 80IB despite not obtaining the factory license before the cut-off date of March 31, 2004. The Tribunal upheld the finding of the CIT(A) that the assessee was entitled to the benefit of Section 80IB. The Revenue contended that since the factory license was granted after the cut-off date, the manufacturing activity could not be considered as commenced before the specified time. However, the Tribunal's decision was based on the fact that the essential manufacturing activities were carried out, and the delay in obtaining the license did not affect the eligibility for the deduction. The High Court concurred with the Tribunal's decision, emphasizing that the key factor for claiming the deduction under Section 80IB is the actual manufacturing or production of goods, and procedural issues like obtaining licenses should not impede the benefit if the core manufacturing activities are in place.

In conclusion, the High Court dismissed the appeal by the Revenue, stating that there was no reason to entertain the proposed questions of law. The decision affirmed the eligibility of the assessee for deduction under Section 80IB, emphasizing the importance of actual manufacturing activities over procedural requirements like obtaining factory licenses within specific timelines.