2017 (2) TMI 227 - HC - Income Tax

Claim u/s 80-IC denied - manufacturing activity - Held that - The assessee, we are concerned with here, is involved only with manufacturing activity of stone crushing plants and it is not installing or servicing machinery manufactured by others. The expression profits and gains derived from the business as mentioned in section 80-IC may not cover activities unrelated to the manufacturing but when the manufactured machinery is installed by the manufacturer themselves at the site of the customer, the amount received on this count, should not in our understanding, be excluded from the expression derived from the business, referred to in section 80-IC of the Income-tax Act. Therefore, when the assessee installs/erects the self-manufactured stone crushing plants and service them at the customer s site, the amount received from such service, is nothing but earnings from the business of manufacturing activity. - Decided in favour of assessee

Summary

Issues:
Whether income received from services/erection charges of plants and accessories is eligible for deduction under section 80-IC of the Income-tax Act, 1961.

Analysis:
The appellant, engaged in manufacturing stone crushing plants, claimed deduction under section 80-IC for income from service and erection charges. The Assessing Officer disallowed this claim, stating it was not derived from manufacturing business. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld this decision, leading to the present appeal.

The appellant argued that service and erection charges are directly connected to manufacturing income. They contended that existing judgments were misapplied and the disallowance was unjust. The Income-tax Department argued that income must be directly linked to manufacturing to qualify for section 80-IC deduction.

Section 80-IC, inserted in 2004, provides growth incentives for certain undertakings. The Court emphasized liberal interpretation to promote industrial growth, citing Bajaj Tempo Ltd. v. CIT. It noted that the appellant only engages in manufacturing and installing their machinery, not servicing others' machinery.

The Court referenced a Himachal Pradesh High Court judgment on a similar issue, where income from commissioning machinery was deemed eligible for deduction. It also cited a Bombay High Court case where service and maintenance income was considered connected to the main business activity.

The Court found that previous judgments against the appellant were wrongly applied. It highlighted a Gauhati High Court case that was later overruled, indicating its inapplicability. Consequently, the Court ruled in favor of the appellant, allowing the deduction claim under section 80-IC. The appeal was allowed, with each party bearing its own costs.