2020 (2) TMI 848 - HC - Income Tax

Deduction under Section 10B - manufacturing activity or not - export of handicraft items of dried parts of plants - HELD THAT - The issue has already been decided against the Revenue in the Appeals related to other assessment years of the same Assessee in M/S. DECO DE TREND 2013 (8) TMI 14 - MADRAS HIGH COURT held that process which the assessee had undertaken satisfies the test of manufacture to qualify for relief under Section 10B - apart from cleaning and grading, the assessee had taken further processing; that what is purchased as raw material and what is exported as a product for export are totally different items. The process that the assessee had undertaken clearly points out the irreversible nature of the final end product from a raw material purchased - Decided against Revenue.

Summary

Issues:
- Entitlement to benefit under Section 10B of the Income Tax Act
- Interpretation of the term 'manufacture' for qualifying for relief under Section 10B
- Claim for deduction under Section 10B for the assessment year 2007-08
- Splitting up under Section 10B(2)(ii) of the Income Tax Act

Entitlement to Benefit under Section 10B:
The High Court dealt with an appeal filed by the Revenue against the Income Tax Appellate Tribunal's order, where the Tribunal had allowed the Assessee's claim for benefit under Section 10B of the Income Tax Act for the Assessment Year 2007-08. The Tribunal held that the Assessee, engaged in manufacturing and exporting articles like bouquets, home and office decorations, garlands, etc., was entitled to the benefit under Section 10B. The High Court admitted the appeal and framed substantial questions of law regarding the Tribunal's decision.

Interpretation of the Term 'Manufacture' for Qualifying for Relief under Section 10B:
The High Court referred to a previous judgment where it was held that the Assessee's activities satisfied the test of manufacture for qualifying for relief under Section 10B. The Court emphasized that the process undertaken by the Assessee transformed raw materials into completely different exported products, indicating an irreversible change from the original material. The Court accepted the Assessee's contention that there was indeed 'manufacture' involved in the process, even though the term was not specifically defined in the Act.

Claim for Deduction under Section 10B for the Assessment Year 2007-08:
The High Court noted that the issue raised by the Revenue had been decided against them in appeals related to other assessment years of the same Assessee. Referring to a specific judgment, the Court agreed with the Assessee's argument that the activities undertaken by them constituted 'manufacture' as understood in common parlance, thus making them eligible for the deduction under Section 10B.

Splitting up under Section 10B(2)(ii) of the Income Tax Act:
Regarding the splitting up under Section 10B(2)(ii) of the Income Tax Act, the Court rejected the Revenue's contention that the firm was constituted by splitting up of the company. The Court found that the mere presence of directors as partners and the nature of products dealt with did not indicate a splitting up of the company into a new entity. The Tribunal's factual findings supported the conclusion that the firm and the company were not split entities, leading to the confirmation of the Tribunal's order in favor of the Assessee.

In conclusion, the High Court disposed of the appeal in favor of the Assessee, confirming the entitlement to benefit under Section 10B and rejecting the Revenue's arguments related to 'manufacture' interpretation and splitting up under the Income Tax Act.