2014 (3) TMI 622 - HC - Income Tax

Claim of deduction u/s 80IB of the Act - Whether the Tribunal was correct in holding that the assessee s claim for deduction u/s 80IB of the Act is not hit by the exception provided in Section 80IB(2)(iii) r.w. Schedule 11th (Item 25) to the Act, as polyutherim foam used by the assessee in the manufacture of automobile seat results in commercially different product then that mentioned in the 11th schedule Held that - The end product could not be called commercially different from the PT foam as mentioned in the Eleventh Schedule - The assessee is not involved in any further process including stitching of seat covers - It simply produces the PT foam seats which are used for making end product to be fixed in different vehicles - the assessee do not manufacture the end product, namely seats to be fixed in vehicles. The decision in Commissioner of Income-tax Versus Vinbros & Co. 2012 (9) TMI 802 - SUPREME COURT followed - the end product is totally different and is commercially different commodity than the major input rectified spirit which is not fit for human consumption - the changes made to the original product results in a new different commercial commodity which is recognized as to in the trade - the assessee manufactures is the foam in the shape of seats and therefore it cannot be stated that new product with the help of the PT foam comes into existence by any process Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 80IB of the Income Tax Act regarding deduction eligibility.
2. Determination of whether the manufacturing of automobile seats using polyurethane foam qualifies for deduction.
3. Consideration of end product versus raw materials for deduction eligibility.

Analysis:

Issue 1: Interpretation of Section 80IB of the Income Tax Act
The primary issue in this case revolves around the interpretation of Section 80IB of the Income Tax Act, specifically focusing on the eligibility criteria for claiming deductions under this provision. The Tribunal's decision to allow the appeal filed by the assessee was challenged by the Revenue, raising substantial questions of law regarding the applicability of Section 80IB(2)(iii) and Schedule 11th of the Act.

Issue 2: Eligibility for Deduction under Section 80IB
The crux of the matter lies in whether the manufacturing of automobile seats using polyurethane foam qualifies for deduction under Section 80IB. The Tribunal held that the end product, i.e., the automobile seats, is commercially different from the item mentioned in the Eleventh Schedule, thereby granting the deduction. The Revenue contended that the assessee indeed manufactures polyurethane foam covered by Entry 25 in the Eleventh Schedule, thus challenging the Tribunal's interpretation.

Issue 3: End Product vs. Raw Materials for Deduction Eligibility
A significant aspect of the case involves the debate over whether the end product or the raw materials used should determine eligibility for deduction under Section 80IB. The respondent argued that the focus should be on the end product, i.e., the automobile seats, rather than the raw material, polyurethane foam. However, the Revenue emphasized that the assessee's manufacturing process involves producing polyurethane foam in the shape of seats without further altering its original character, thus falling under Entry 25 of the Eleventh Schedule.

The judgment ultimately favored the Revenue, ruling in favor of the interpretation that the assessee's manufacturing process aligns with Entry 25 of the Eleventh Schedule, thereby disqualifying them from claiming deduction under Section 80IB. The court highlighted the importance of consistency in applying legal principles and rejected the principle of consistency based on past benefit allowances.