2010 (7) TMI 77 - HC - Income Tax

Exemption u/s 80-IB manufacture - CRGO Laminations tribunal held that CRGO Laminations shall amount to Manufacture for the purpose of Section 80IB of the Act Held that - in order to define Manufacture , what is sufficient is to find out a different commodity, having distinct name used in character emerging from the raw material. In the present case on hand, admittedly, a different commodity has emerged from the raw material supplied by the owner to the assessee exemption u/s 80-IB is allowable

Summary

Issues:
- Interpretation of Section 80-IB of the Income-tax Act for exemption eligibility based on manufacturing process.
- Determining whether the conversion of raw materials into laminations constitutes a manufacturing process for tax deduction purposes.

Analysis:
1. The judgment involves two appeals concerning the assessment years 2001-2002 and 2005-2006, where the issue revolves around the entitlement of exemption under Section 80-IB of the Income-tax Act. The Assessing Authority initially denied the exemption, but the Commissioner of Income Tax (Appeals) reversed this decision. Subsequently, the Tribunal upheld the Commissioner's orders, leading to the appeals in question.

2. The central question raised by the Revenue in these appeals was whether the assessees were eligible for deduction under Section 80-IB of the Act for converting CRGO Electrical Steel into laminations. The Assessing Officer argued that since the raw material remained the same, no manufacturing process occurred. In contrast, the Commissioner and the Tribunal found the conversion process to result in a distinct commercial product, justifying the deduction.

3. The operation performed by the assessees involved various processes like assorting, shearing, hole-punching, testing, and stacking the raw materials into laminations. The Commissioner and the Tribunal concluded that these processes transformed the raw material into a new product, meeting the criteria for a manufacturing process under Section 80-IB.

4. The judgment referenced the decision of the Hon'ble Apex Court in India Cine Agencies, emphasizing that for an activity to qualify as "manufacture," it must result in a commercially different and distinct product. The Court highlighted the importance of creating a new commodity through the manufacturing process, which aligns with the transformation seen in the conversion of raw materials into laminations in this case.

5. Applying the principles laid down by the Apex Court, the High Court found that the conversion of CRGO Electrical Steel into laminations indeed constituted a manufacturing process under Section 80-IB. The emergence of a different commodity from the raw material supported the eligibility of the assessees for the tax deduction, as confirmed by the Tribunal and the Commissioner. Consequently, the appeals were dismissed, affirming the decision in favor of the assessees.