2014 (9) TMI 724 - HC - Income Tax

Claim of deduction u/s 80IC Manufacture of air purifier or air purification systems amounts to manufacturing activity or not Held that - The Tribunal was rightly of the view that the product produced and sold was air purification system - For manufacturing the said product, the assessee had purchased parts like base motors, filters, UV lights etc. but the final product produced was entirely different from its constituents or parts -The product manufactured or produced, i.e. the air purifier or air purification system, was completely a new and an entirely different commodity having distinct name, character and use thus, the activity amounts to manufacture and the assessee is eligible for claim of deduction Decided against revenue.

Issues:
1. Whether the respondent-assessee was engaged in manufacturing activities to claim deduction under Section 80-IC of the Income Tax Act, 1961.
2. Disallowance of claim by the Assessing Officer and subsequent affirmation by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.
3. Definition of "manufacture" under Section 2(29BA) of the Act.
4. Assessment of manufacturing activities undertaken by the respondent-assessee.
5. Dispute regarding purchases of tools and implements for manufacturing activities.
6. Conclusion of the High Court on the substantial question of law in the appeals.

Analysis:
1. The appeals by the Revenue addressed whether the respondent-assessee was involved in manufacturing goods to claim deductions under Section 80-IC of the Income Tax Act for the relevant assessment years. The Assessing Officer disallowed the claim, which was later upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.

2. The respondent-assessee was engaged in manufacturing health care and surgical items, particularly air purifiers or air purification systems. The Assessing Officer contended that the respondent was merely assembling and lacked necessary tools or machinery for manufacturing. However, the appellate authorities found that the final product, the air purification system, was a new commodity with distinct characteristics, fulfilling the definition of "manufacture."

3. The definition of "manufacture" under Section 2(29BA) of the Act involves a change in a physical object resulting in a new and distinct object with different characteristics or chemical composition. The High Court noted that the product manufactured by the respondent was significantly different from its constituent parts, meeting the criteria of manufacturing.

4. The respondent-assessee provided detailed explanations and evidence of the manufacturing process, including the use of various technologies and components to create the air purification system. The manufacturing unit was registered with relevant authorities, and the respondent demonstrated the distinctiveness of the final product through photographs and a flow chart of the manufacturing process.

5. The Assessing Officer raised concerns about the purchases of tools and implements for manufacturing activities. However, the respondent clarified that simple tools and testing equipment were used for assembling the air purifiers. The Revenue did not dispute the actual manufacturing and sale of the air purifiers, indicating genuine manufacturing activities.

6. Considering the factual findings and evidence presented, the High Court concluded that no substantial question of law arose for consideration in the appeals. As a result, the appeals were dismissed based on the established manufacturing activities of the respondent-assessee and the fulfillment of criteria for claiming deductions under Section 80-IC of the Income Tax Act.

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