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TMI Blog2013 (8) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... T.C.(A)Nos.804 of 2010 and 805 of 2010 relate to the assessment years 2004-05 and 2006-07 respectively and T.C.(A)No.342 of 2012 relates to the assessment year 2008-09. The Tribunal passed separate orders for the assessment years 2005-06 and 2008-09 and common order for the assessment years 2004-05 and 2006-07. Since the facts are common, for convenient sake, we are referring to the facts relating to T.C.(A)No.299 of 2010. 3. The assessee is a partnership firm. In the returns filed, it claimed deduction under Section 10B of the Income Tax Act in respect of the income earned on the export of handicraft items of dried flowers and parts of plants. Admittedly, the assessee is a 100% EOU having three units at Mananjery, Kunrathur and Moonramkattalai. There is also a closely held private limited company in Kolkata, by name, M/s.Dry De Fashions Private Limited, in which three of the partners in the assessee firm are Directors. It is stated that the company also carries on business on the same line, namely, manufacturing and exporting dry flower and potpourri. The said Private Limited Company is not a 100% EOU. 4. In considering the claim for deduction under Section 10B of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wreaths, bouquets, pot arrangement, photo frames, wall frames, garland 7. Incense sticks 8. Aroma gifts and 9. Aroma therapy." 5. Based on this, the Assessing Officer made an analysis of the shipments made by the assessee. The invoice gave the description on decorative items of dried flowers. In the invoices, the botanical names of the flowers, plant parts and sea shells were mentioned. From the purchase bills, it was found that the assessee had obtained dry flowers, fern, grass, bajra sticks, palm fruits etc. from West Bengal. On going through the nature of activity undertaken, the Assessing Authority came to the conclusion that there was no manufacturing activity done, as had been claimed by the assessee. Referring to the decision reported in 292 ITR 444 (CIT V. Tara Agencies), the Assessing Officer held that out of 13 steps mentioned by the assessee, 8 steps involved labeling, bar coding and packing. The raw materials used as per the assessee's flow chart showed plant parts, sea shells and stone; perfumes, processing chemicals, bleaching and cleaning liquid and bonding materials, glitters and metallic powders. In the background of the nature of activity, particularly in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly different. The expenditure of the firm, even if were to be borne by the company and the employees of the company worked in the firm, such expenditure was to be a subject matter of disallowance at the hands of the company. Pointing out that there was no transfer of any assets by the company to the firm or the business of the company transferred to the firm, the question of holding that the firm was formed by splitting up or re-constructing the existing business could not be presumed. Thus the first Appellate Authority agreed with the assessee as to its entitlement for deduction under Section 10B of the Income Tax Act. As regards the allegation of the Assessing Officer that the same labour force worked in the company as well as in the firm, the Commissioner of Income Tax (Appeals) held that even if it be so, the inference on splitting up cannot be drawn without proper verification. In the light of the above, the claim of the assessee was allowed in toto. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal. 9. The Tribunal dismissed the Revenue's appeal and confirmed the view of the Commissioner of Income Tax (Appeals). Referring to the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant components are cleaned, graded, thereafterwards, according to the requirements, they are bleached, washed and coloured, laquer is applied and after using necessary preservatives to maintain their shape, the products are perfumed and added glitter according to the design. Thus the end product is a totally different one from what was purchased as raw material. If the nature of activity involved was just cleaning and grading or sizing up and mere processing thereon, then the Revenue must prove the same to test the requirement of law on the issue of manufacture. However, given the fact that apart from cleaning and grading, the activity of the assessee has gone further to make the dried plants and leaves, fit for being called a potpourri or dried flowers for export, even as per the botanical name, the contention of the Revenue that there was no manufacturing activity cannot be accepted. Thus, even applying the subsequent amendments to the provisions under Section 2(29)BA or even as under Section Section 10B Explanation, the end product being different from what was originally purchased as raw material, the processing of the dried leaves or plants had gone to such an extent of irrev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the assessee in this regard drawing support from the decision of the Apex Court reported in 251 ITR 323 (Aspinwall & Co. Ltd. V. Commissioner of Income Tax (Appeals)) that the word 'manufacture' has to be understood in common parlance, there being no definition of the word 'manufacture' in the Act. Even if one looks at the definition of 'manufacture', as given under Explanation 3 to Section 10B, as it existed prior to its substitution in 2001, we find, the term was defined inclusively that any process or assembling or recording of programme or disc, tape, perforated media or other information storage device are brought under the definition of 'manufacture'. In any event, with the definition of 'manufacture' available as under Explanation 4 to Section 10B of the Income Tax Act, inserted by Finance Act, 2003, with effect from 1.4.2004, which defines 'manufacture or produce' to include the cutting and polishing of precious and semi-precious stones, as is relevant for the assessment years under consideration, the decision relied on by the Revenue is not of any assistance. Learned Standing counsel appearing for the Revenue brought to our attention Section 2(29)BA, ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax act, the Supreme Court pointed out on facts that the assessee's activity amounted to processing only and the activity did not amount to production or manufacture. Thus the case relied on by the Revenue is distinguishable on facts. 20. Given the admitted fact that what was purchased by the assessee as raw material and exported goods are totally different items and commercially known as a different product, going by the definition 'manufacture' in Explanation 4 to Section 10B of the Income Tax Act, we have no hesitation in agreeing with the contention of the assessee and thereby confirm the order of the Tribunal. 21. As regards the splitting up under Section 10B(2)(ii) of the Income Tax Act, it is not denied by the Revenue that the assessee firm is a different assessable entity from the company. It is not denied by the Revenue that the mere fact of both the entities carrying on the same business, per se, would not lead to a conclusion that there was a splitting up of a company to a new entity, namely, firm. The Commissioner of Income Tax (Appeals) as well as the Tribunal had looked into the facts of the case and ultimately came to the conclusion that the mere presence of three o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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