2013 (9) TMI 295 - AT - Income Tax

Deduction u/s 80IC - Eligibility - Flour Mill versus Roller Flour Mill - Held that - This classification under various NIC standards has been issued by Ministry of Statistics and Programme Implementation, Government of India. Code 15311 has been mentioned in Part B of Schedule XIII at Col. 8. Since this Division pertain to Food and Brewages and only one item in respect of Flour Milling is there, it becomes clear that the Parliament was clear in its intention that activity of Flour Milling would not be entitled to deduction u/s 80IC and that is why the same has been placed in Schedule XIII along with Excise classification Code 11.01 as well as National Industries classification under Division 15 at Sl No. 15311. Therefore, the activity of Flour milling or article or thing under which can be called Flour is not eligible for deduction u/s 80IC by virtue of its entry in the negative list in Part B of Schedule XIII. Assessee though argued that this item should be interpreted on the basis of a trade name but no Trade Journal or any other material was produced to show that in the trade parlance Flour Mill is distinct from Roller Flour Mill . - CIT(A) has correctly brushed aside this clarification because it deals with the sales tax etc. which is a State subject and this clarification can not negates the intention of the Parliament given in Part B of Schedule XIII which is a negative list for deduction u/s 80IC. - Decided against the assessee.

Summary

Issues Involved:
1. Rejection of the assessee's claim for deduction under Section 80IC of the Income Tax Act.
2. Distinction between a "Flour Mill" and a "Roller Flour Mill" for eligibility of deduction under Section 80IC.

Issue-Wise Analysis:

1. Rejection of Deduction under Section 80IC:
The primary issue revolves around the assessee's claim for deduction under Section 80IC of the Income Tax Act, which was rejected by the Income Tax Officer (ITO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that they had made substantial expansion and thus were entitled to the deduction. However, the ITO observed that the deduction under Section 80IC is not available for the manufacture of articles specified in Schedule XIII, Part B, which includes "Flour Mill." The assessee contended that they operated a "Roller Flour Mill," which they claimed to be distinct from a "Flour Mill."

2. Distinction Between "Flour Mill" and "Roller Flour Mill":
The assessee argued that a "Roller Flour Mill" is different from a "Flour Mill" and thus should not be included in the negative list of Schedule XIII, Part B. They referenced a clarification from the Government of Himachal Pradesh, which distinguished "Roller Flour Mills" from "Flour Mills" under sales tax laws. However, the ITO and CIT(A) rejected this distinction, stating that for income tax purposes, the production of flour, regardless of the type of mill, falls under the same classification. The CIT(A) emphasized that the Schedule XIII, Part B entry for "Flour Mill/Rice Mill" covers all types of flour mills, including roller mills, and thus the prohibition on deduction under Section 80IC applies.

Detailed Judgment Analysis:

Assessing Officer's Findings:
The ITO noted that the assessee's claim for deduction under Section 80IC was based on the expansion of their flour milling operations. However, Schedule XIII, Part B explicitly lists "Flour Mill" as an ineligible activity for such deductions. Despite the assessee's argument that their operations involved a "Roller Flour Mill," the ITO concluded that this did not change the nature of the product (flour) being produced, which is covered under the negative list.

CIT(A)'s Decision:
The CIT(A) upheld the ITO's decision, stating that the term "Flour Mill" in Schedule XIII, Part B includes all types of flour mills, including roller mills. The CIT(A) referenced the Central Excise Tariff Act and the National Industrial Classification (NIC) to support this interpretation. The CIT(A) also dismissed the relevance of the Himachal Pradesh Government's sales tax clarification, noting that it pertained to a different tax scheme and did not influence the interpretation of the Income Tax Act.

Tribunal's Conclusion:
The Tribunal agreed with the CIT(A)'s detailed analysis, emphasizing that the legislative intent was clear in excluding flour milling activities from Section 80IC benefits. The Tribunal noted that the distinction between "Flour Mill" and "Roller Flour Mill" was not substantiated with trade-specific evidence and that the primary activity of the assessee remained flour milling, which is explicitly excluded from deductions under Section 80IC. The Tribunal also pointed out that the assessee's tax audit report identified the business as a "Flour Mill."

Final Judgment:
The Tribunal dismissed the assessee's appeal, confirming that the assessee is not entitled to a deduction under Section 80IC due to the inclusion of "Flour Mill" in the negative list of Schedule XIII, Part B. The Tribunal upheld the CIT(A)'s decision and the ITO's assessment, which allowed a deduction under Section 80IB at 25%, considering it reasonable.

Conclusion:
The appeal was dismissed, and the assessee's claim for deduction under Section 80IC was rejected based on the inclusion of "Flour Mill" in the negative list of Schedule XIII, Part B, which encompasses all types of flour mills, including roller mills. The Tribunal upheld the lower authorities' interpretation and application of the relevant provisions of the Income Tax Act.