9911796707
TMI Blog2015 (2) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... sh. The said unit is a 100% export oriented and located in customs bounded area. 4. For the assessment year 2007-08, the respondent assessee had filed return declaring loss of Rs. 4,11,190/- and had claimed deduction/exemption under Section 10B of the Income Tax Act, 1961 (Act, for short) on profit of Rs. 69,69,429/- from the Noida Unit. The Assessing Officer did not allow deduction under Section 10B on the ground that the assessee had not manufactured any goods in the Noida Unit. He referred to reply received from R.N. Metals, Jaipur, M/s Sustul Engg. Corp. Mumbai, M/s Chanderpur Works Yamuna Nagar (Haryana) to the effect that they had manufactured and exported various goods on behalf of respondent assessee. He observed that the aforesaid letters showed that the assessee itself had not undertaken manufacturing activities. The assessing officer noticed that the asessee had incurred electricity expenditure of Rs. 19,771/- during the year and Rs. 2,27,694/- in the previous year, through they had turnover of Rs. 18.92 lacs and had shown opening stock of work in progress of Rs. 1.6 crores. The total turnover from Noida unit as declared was Rs. 6,19,35,990/-. 5. For the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on the basis of aforesaid addition and other additions was computed at Rs. 10,86,14,708/-. 6. The assessee succeeded in the first appeals as Commissioner of Income Tax (Appeals) decided the issue in favour of the assessee. The Commissioner (Appeals) in addition to giving finding on merits in favour of the respondent assessee, applied the principle of consistency. As is apparent, the aforesaid findings have been a affirmed in favour of the respondent assessee by the Tribunal. 7. In order to decide, the controversy, we would like to reproduce Section 10B(1), (2), (4) and Explanation 2 clauses (iii) and (iv) and Explanation 4 to Section 10B which read: "10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this sub-section as they apply for the purposes of clause (ii) of that sub-section. xxxxx [(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.] xxxx xxxx Explanation 2.-For the purposes of this section,- xxxx xxxx (iii) "export turnover" means the consideration in respect of export [by the undertaking] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the undertaking, as turnover of such article or thing or computer software bears to the total turnover of business. The term ‗export turnover' has been defined for the purposes of said section in clause (iii) to explanation 2 and means consideration received in convertible foreign exchange in respect of exports by the undertaking, of articles or things of computer software, received or brought into India. It does not include freight, telecommunication charges or insurance attributable to delivery or expenses, if any, incurred in foreign exchange for providing technical services outside India. In Explanation 3, for removal of doubts, it has been declared that profits and gains derived from on site development of computer software, services for development of software outside India shall be deemed to be profits and gains derived from computer software exported outside India. Thus, on site development of computer software including services for development of software outside India would be treated as profits and gains derived from export of computer software. The aforesaid explanation begins with the expression for removal of doubts'. Use of this expression is signi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory to the assesseed. The goods were then examined at the Noida Unit and approved. The respondent-assessee had also undertaken in-house fabrication in addition to inspection at the vendors factory to whom the production or manufacture had been outsourced. Once the goods were received at the Noida unit, they were examined and assembled and tested. Rust protection was undertaken. Big assemblies were disassembled and repacked. Small assemblies were packed as such. Thereupon, the goods were exported from India and erected at the site, tested and then commissioned. The Tribunal has referred to the following activities specifically undertaken by the assessee and the relevant portion reads:- S.No. Description of Component Manufacturing Process performed by the Appellant 1. AC Frequency Drive The AC Frequency drive was purchased as per Assessee's design specifications & integrated with a squirrel cage motor by programming its Programmed Logic Controller (PLC) to required operational parameters and mounting it on motor control panel; after the above said processing the manufactured item is called MOTOR SPEED CONTROLLER, and was sold as such vide our Invoice dated 19/08/2006. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts technical specifications and drawings and after inspection it was assembled with a Hammer Mill using support and frame; it works to reduce pollution by trapping dust generated by the Hammer Mill. After testing it is disassembled from the Hammer Mill and dispatched as Cyclone Separator with support and embedded frame. For details please refer to the Appendix 4 6. (a) Bucket Elevator Parts (b) Chain for the Bucket Elevator The equipment mentioned in the Column "A" of this table were purchased by assessee as per its technical specifications and drawings and after inspection they were assembled together to make a bucket elevator, the elevator was tested for Conformance with the design parameters and thereafter disassembled to shippable size for shipment. For details please refer to Appendix 5 7. (a) Bags of Dust Collector. (b) Sequential Timer (c) Solenoid Valve The equipment mentioned in the Column "A" of this table were purchased by assessee as per its technical specifications and drawings and after inspection they were assembled together to make Oust Collector, the Oust Collector was tested for conformance with the design Parameters and thereafter disassembled f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res into service element and export value of goods etc. No such attempt of bifurcation was made before the Tribunal or before us. 13. We have referred to Explanation 2 clause (iii) which defines the term export turnover' to mean consideration in respect of export by the undertaking of articles or things and excludes freight, telecommunication, insurance charges attributable to delivery of articles and lastly expenses incurred in foreign exchange in providing technical services outside India. Thus, expenses for providing technical services incurred outside India in foreign exchange are to be excluded from export turnover. In other words, expenses incurred in providing technical services outside India but not incurred in foreign exchange, form part of the turnover and are not to be excluded. This is inspite of the fact that under sub-section (1) and (2) there is direct reference to profits and gains derived from export of articles or things or computer software by 100% export oriented unit. The profits are to be computed with respect to export turnover under sub-section (4) in respect of such articles, things or computer software in proportion to the total turnover of the business c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect. It is apparent that the respondent assessee did not self-manufacture or produce most of the articles or things which were exported and used for setting up the plant. The assessee had undertaken detailed engineering drawings and as per the specification and drawings, the actual manufacture and production work was outsourced. Throughout the said process, inspection was carried out and only after approval, the goods were dispatched. The goods were re-inspected, checked, assembled and disassembled, before they were exported out of India. Only upon satisfactory performance and ensuring that there was perfect matching, the goods were exported. We are in agreement with the findings recorded by the Tribunal that the aforesaid activities qualify and should be treated as manufacture or production of goods by the assessee himself. On the said aspect we would like to reproduce our finding in ITA 141/2002, Commissioner of Income Tax Vs. Harig India Limited, Dated 22.12.2014,which read :- 10. The next aspect or the question is whether the assessee was engaged in manufacture or processing of jewellery or was merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jee and Co. (P) Ltd. (1978) 113 ITR 718 (Cal.), that a publisher who got the manuscript for publication prepared after getting them printed and bound from third parties, was engaged in manufacturing activity. This was inspite of the fact that the assessee did not possess or own any printing press. This, it was held, was not necessary as long as printing and binding was done under the supervision of the assessee. It was not necessary that the assessee should own a printing press or be a book binder himself, provided that the assessee who had acted as a publisher and got the book printed and bound from a binder who was only acting as a contractor of the assessee. In the said case, the High Court was examining whether the assessee was engaged in manufacture or processing of goods. The same view has been taken by the Bombay High Court in the case of CIT v. Neo Pharma Private Ltd. [1982] 137 ITR 879 (Bom.), CIT vs. Acrow India Ltd. [1991] 188 ITR 485 (Bom.) and CIT vs. Anglo French Drug Co. (Eastern) Ltd. (1991) 191 ITR 92 (Bom.). In these cases, it has been held that assessee was not a trader but a manufacturer/processor engaged in manufacturing and processing activities, when these ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted by Finance Act 2003 with effect from 1st April, 2004, the term "manufacture or "produce it stands elucidated would include cutting or polishing of precious or semi-precious stones. The aforesaid definition reflects and illustrates the legislative intent behind granting exemption/deduction under Section 10B and the wide scope the legislature wanted to bestow. Polishing or cutting of gem stones does not require elaborate machinery and can be done with minimal tools and a small investment. A Division Bench of this Court in Commissioner of Income Tax versus Lovlesh Jain, Income Tax Appeal No. 1223/2011, decided on 20th December, 2011, with reference to Sections 10A and 10B of the Act went into the question whether conversion of standard gold into ornaments would amount to ""manufacture" or "production". It was held as under:- 10. The word "manufacture can be given, both a wider as well as a narrower connotation. In wider sense, it simply means to make, fabricate or bring into existence an article or product either by physical labour or by mechanical power. Given a narrower connotation it means transforming of the raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12A. Clause (f) gives an inclusive definition of the term 'manufacture'. According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes 'manufacture' no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. 13. The term manufacture has been defined by the Black Law Dictionary (5th Edition) as under: 'Manufacture : The process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labor or machine. 14. The word 'manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or material (in modern use, on a large scale) by the application of physical labour or mechanical power. " This is the most generic meaning in its application to industry or industrial undertaking or establishments. (2) There is also another more limited meaning which is found referred to in the authorities as meaning the transforming of raw material into a commercial commodity or a finished product which has a separate identity (Commissioner of Income tax v. Ajay Printery Pvt. Ltd.(1)). This shade of meaning is more appropriately used in the past participle "manufactured". See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is "fabricated from raw material". In Aswathanarayana v. Dy Commercial Tax Officer (1) at page 801 one finds a useful compilation of meaning attached to the word "manufacture" from various dictrionaries and other sources. Similarly, the word "produce" with reference to its meaning in industry or political economy has two different senses. In vol. 8 of the Oxford Dictionary, at page 1422, the two meaning are given as follows: "To ITA 1223/2011, 67/2010 and 458/2010 Page 12 bring fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary of the English Language (Deluxe Encyclopaedic Edition), is as follows: "Produce.-To bring forth into existence; to bring about; to cause or effect, esp. intellectually or creatively; to give birth to; to bear, furnish, yield; to make accrue; to bring about the performance of, as a movie or play; to extend, as a line. To bring forth or yield appropriate offspring, products, or consequences." 14. In Income Tax Officer versus Arihant Tiles and Marbles Private Limited, [2010] 320 ITR 79 (SC), it was observed that cutting of marble blocks into slabs or tiles per se may not amount to "manufacture" but the activity would constitute "production". Further, when one refers to the word "production", it means a process plus something in addition thereto. Every manufacture can qualify as production but every production need not amount to manufacture. The original marble block does not remain a block when it becomes slab or a tile and undergoes polishing, etc. and, therefore, amounts to production and qualifies for deduction under Section 80IA of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wellery is a wearable item and is used by both men and women. This process has been referred to above in paragraph 6.4, while adverting to the factual matrix in the case of Shashi Kant Mittal. Jewellery/ornaments in common parlance or in commercial terms has a distinct identity, treated as a new article and not the same as raw or standard gold in the form of bricks, biscuits or bars. As a result of the said processing, a commercially different saleable product comes into existence. Jewellery has a distinctive name, character and use. It can no longer be regarded as the original commodity, has separate consumers and is a new commercial commodity. The activity of the respondent assessee amounts to "manufacture or production" and, therefore, qualifies for deduction under Section 10A/10B." 17. The aforesaid passage refers to a number of decisions on the said subject. However, we would like to refer to the judgment of the Supreme Court in Commissioner of Income Tax versus Oracle Software India Limited, (2010) 320 ITR 546, in which the controversy was whether the assessee was a manufacturer and thus entitled to deduction under Section 80 IA. The Supreme Court interpreted the term "manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratiocination is obdurate and deflates the object and purpose of Section 10B of the Act. Such narrowness and curtailment should not be accepted. Export of goods and things can take various forms and Section 10B accepts and admits such interpretation. 19. In CIT versus Gwalior Rayon Silk Manufacturing Company Limited, (1992) 196 ITR 149 (SC), it was held that an expression used in taxing statute should be ordinarily understood in the sense it harmonises with the object of the statute to effectuate the legislative intention. If the language is plain and unambiguous, one can look fairly at the language used and interpret it to give effect to the legislative intent. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach. Contextual meaning has to be ascertained and given effect to. 20. The Kerala High Court in Girnar Industries versus Commissioner of Income Tax, (2011)338 ITR 277 (Kerala) with reference to Section 10A of the Act referred to the definition of the term "manufacture" in Chapter IX of Exim Policy clause 9.30 and noted that the definition of the term "manufacture" contained in Section 2(r) of the Speci ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
