2008 (10) TMI 68 - HC - Income Tax

Special deduction - Tribunal was right in law in holding that process of assembling (of wheel using different components) carried out by the assessee is to be understood as amounting to manufacture or production of an article held that distinct article with distinctive name, character and use emerged - end product could not be held to be an article or thing deduction u/s 80IB is granted deduction cannot be denied mere because that tribunal erroneously referred to wrong section i.e. 80IA

Summary

Issues:
1. Whether the Tribunal was right in directing the Assessing Officer to allow deduction under section 80-IA instead of 80-IB?
2. Whether the activity of assembling carried out by the assessee amounts to 'manufacture' or production of an article for claiming deduction under section 80-IA?

Analysis:

Issue 1:
The appellant challenged the Tribunal's decision to allow deduction under section 80-IA instead of 80-IB. The Court noted that if the claim falls under section 80-IB, it cannot be disallowed based on a reference to section 80-IA. The Court found that the substantial question of law raised by the revenue was not valid in this regard.

Issue 2:
The Tribunal examined whether the activity of assembling carried out by the assessee constituted 'manufacture' or production of an article for claiming deduction under section 80-IA. The Tribunal analyzed the process of assembling motorcycle wheels from various components and raw materials. The Court observed that the final product, the motorcycle wheel, was distinct from its components and had a separate character and use. Referring to the judgment of the Bombay High Court, the Court highlighted that 'manufacture' involves bringing into existence something different from its components. The Court cited Supreme Court decisions emphasizing that 'manufacture' means transforming goods into a new commodity with distinct characteristics. The Court concluded that the process of assembling by the assessee amounted to 'manufacture' or production of an article eligible for deduction under section 80-IA.

The Court rejected the revenue's argument that no 'manufacture' was involved since the end product remained a wheel. Citing various Supreme Court judgments, the Court emphasized that 'manufacture' occurs when a new article emerges with a unique name, character, or use. The Tribunal's finding that a distinct article emerged from the assembling process was upheld, applying the tests laid down by the Supreme Court. The Court dismissed the appeal, affirming the Tribunal's decision regarding the eligibility of the assessee for deduction under section 80-IA based on the manufacturing activity of assembling motorcycle wheels.