2007 (7) TMI 297 - HC - Income Tax

Deduction in respect of profits and gains from industrial undertakings - assessee produces printed paper labels which is recognised in the trade as a new and distinct commodity - both the Commissioner of Income-tax (Appeals) as well as the Tribunal have given a concurrent finding that the assessee produces new, distinct and different commercial product and hence they were right in holding that the process of printing activity will amount to manufacture in order to quantify for the benefit under section 80-IA

Summary

Issues Involved:
1. Entitlement to deduction under section 80-IA for the assessment year 1999-2000.
2. Whether the process of printing activity amounts to manufacture for the benefit under section 80-IA.
3. Relevance of the judgment in CIT v. Western India Pharmaceutical Services P. Ltd. [1998] 230 ITR 96.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80-IA for the Assessment Year 1999-2000:
The core issue revolves around whether the assessee is entitled to a deduction under section 80-IA of the Income-tax Act, 1961, for the assessment year 1999-2000. The assessee, a widely held public limited company, derived income from various units, including a printing unit at Pondicherry, and claimed a 100% deduction under section 80-IA. The Assessing Officer rejected this claim, arguing that the assessee was not engaged in the manufacture or production of any article or thing as required by section 80-IA(2)(iii). However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal (the Tribunal) both ruled in favor of the assessee, concluding that the printing process constituted manufacturing, thus entitling the assessee to the deduction.

2. Whether the Process of Printing Activity Amounts to Manufacture for the Benefit under Section 80-IA:
The Tribunal held that the process of printing labels amounts to manufacturing. The assessee's printing unit was engaged in the manufacture of printed paper labels using raw materials like paper, ink, fountain solution, and varnish, transforming them into distinct commercial products. The Tribunal relied on the Gujarat High Court judgment in CIT v. Ajay Printery P. Ltd. [1965] 58 ITR 811, which supported the view that printing constitutes manufacturing. The Supreme Court's interpretation of "manufacture" and "production" in CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412 was also considered, establishing that the end product must be recognized as a new and distinct commodity, which was met in this case.

3. Relevance of the Judgment in CIT v. Western India Pharmaceutical Services P. Ltd. [1998] 230 ITR 96:
The Revenue argued that the Tribunal should have followed the Bombay High Court's judgment in CIT v. Western India Pharmaceutical Services P. Ltd., where it was held that printing manufacturers' names on pharmaceutical capsules does not amount to manufacture. However, the court distinguished this case, noting that in the present scenario, the printing process resulted in a new and distinct commercial product, unlike the pharmaceutical capsules case where the basic character of the commodity did not change. The court emphasized that the facts and circumstances of the present case were different, and thus the Bombay High Court judgment was not applicable.

Conclusion:
The court concluded that the assessee's printing process constituted manufacturing, satisfying the conditions under section 80-IA(2)(iii). The concurrent findings by the Commissioner of Income-tax (Appeals) and the Tribunal were based on valid materials and evidence, and there was no error or illegality in the Tribunal's order. Therefore, the court dismissed the tax case, affirming that no substantial questions of law arose for consideration.