2012 (8) TMI 809 - HC - Income Tax

Ineligibility for deduction u/s 80IA - the assessee is not engaged in any industrial activity of its own except assembling on job work basis - ITAT allowed the claim - Held that - The assessee procured raw materials and components and were handed over to the job contractors to make use of the same in the manufacture of grinder parts. The assessee exercised supervision and control in the manufacturing of the parts done by the job workers on the materials supplied in according to the specification in the dyes supplied by the assessee. They were subjected to quality control too. Thus even though the assessee had not employed its own employees yet the fact is that at every stage the assessee had extracted control over the job work as though they were employees of the assessee. Given the fact that the dyes and the materials were given by the assessee to the job workers who had merely bestowed their labours no hesitation in accepting the case of the assessee that it qualify for relief under Section 80IA - in favour of assessee.

Summary

Issues:
1. Eligibility of deduction under Section 80IA for a company engaged in assembling on job work basis.
2. Entitlement for claim of exemption under Section 80IA for a company not carrying out any manufacturing activity.

Issue 1:
The Revenue filed appeals against the order of the Income Tax Appellate Tribunal regarding the eligibility of deduction under Section 80IA for the assessment years 1996-97, 2000-01, and 2001-02. The key question was whether the company, engaged in assembling on a job work basis, was eligible for the deduction. The company claimed that, despite outsourcing assembling work, it was involved in various primary duties like planning, procurement, quality control, and supply chain management. The Commissioner of Income Tax (Appeals) and the Tribunal both ruled in favor of the company, highlighting the company's ownership of tools, dyes, and raw materials, as well as its strict supervision over the job workers. The High Court upheld the Tribunal's decision, emphasizing that as long as the company exercised control and involvement in the manufacturing process, it was entitled to the deduction under Section 80IA.

Issue 2:
The second issue involved the entitlement of the company to claim exemption under Section 80IA despite not directly carrying out any manufacturing activity. The Revenue argued that since the company had outsourced assembling work, it did not qualify as an industrial undertaking manufacturing grinders. However, the company contended that its control over the manufacturing process, including supplying materials and dyes, warranted the exemption. The High Court referred to previous decisions emphasizing the importance of control and involvement in the manufacturing process. The Court held that the company, by exercising supervision and providing necessary resources for manufacturing, qualified for the relief under Section 80IA. The Court rejected the Revenue's appeal and confirmed the order of the Tribunal, dismissing the Tax Case (Appeals) without costs.