2009 (1) TMI 12 - AAR - Income Tax

Eligibility for deduction u/s 80 IC(2) - raw castings have to pass a detailed description of process to acquire a different name machined castings new product machined casting has been utilized as an essential part of a tractor - raw casting not retained substantial identity - applicant s enterprise can be said to have undertaken business activities which amount to manufacture/production of an article different from the raw casting and therefore merits requisite deduction u/s 80-IC(2)

Summary

Issues Involved:
1. Eligibility for deduction under Section 80-IC(2) of the Income-tax Act, 1961.
2. Definition and scope of 'manufacturing' under the Income-tax Act.
3. Applicability of judicial precedents to the case.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80-IC(2) of the Income-tax Act, 1961:

The applicant, a non-resident individual, seeks to establish a 100% ancillary unit in Himachal Pradesh and claims eligibility for deduction under Section 80-IC(2) of the Income-tax Act, 1961. The applicant's business involves processing raw castings into 'machined castings' for tractors, which he argues constitutes manufacturing. The Revenue contends that the activities do not amount to manufacturing, as no new article is produced, citing the Supreme Court's definition of manufacturing in Union of India vs. Delhi Cloth and General Mills (1977).

2. Definition and Scope of 'Manufacturing' under the Income-tax Act:

The applicant relies on the Madras High Court's decision in Perfect Liners, asserting that the transformation of raw castings into 'machined castings' constitutes manufacturing. The Revenue argues against this, referencing the Rajasthan High Court's decision in CIT Vs. Lucky Minerals Pvt. Ltd., which held that mere processing does not amount to manufacturing if the original commodity retains its identity. The applicant provided detailed descriptions and photographs of the manufacturing process, emphasizing that the raw castings undergo significant changes to become 'machined castings,' which are essential parts of tractors.

3. Applicability of Judicial Precedents to the Case:

The Authority examined various judicial precedents to determine the scope of 'manufacturing.' It referenced decisions such as Deputy CST vs. PIO Food Packers, CIT vs. N.C. Budhiraja, and Aspinwall and Co. Ltd. vs. CIT, which collectively establish that manufacturing involves a transformation resulting in a new, distinct product. The Authority found that the applicant's activities meet this criterion, as the raw castings undergo substantial changes to become 'machined castings,' a new product with distinct name, character, and use.

Conclusion:

The Authority concluded that the applicant's activities constitute manufacturing or production of an article or thing, thereby qualifying for the deduction under Section 80-IC(2) of the Income-tax Act, 1961. The ruling was given in favor of the applicant, affirming their eligibility for the deduction.

Pronouncement:

The ruling was pronounced by the Authority on January 27, 2009, answering the question in the affirmative, as contended by the applicant.