9911796707
TMI Blog1998 (9) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-I of the Act on 25 per cent of the admissible amount: 2. allowing deduction under s. 80G; 3. reducing the disallowance under s. 37(2A) by Rs. 1,37,882 and; in 4. directing the AO to recompute the interest chargeable under s. 215 after excluding the disallowance confirmed under s. 80-I and 43B of the Act. 4. The assessee is an Indian company engaged in the production of drugs, tablets, injections, liquids, ophthalmic solutions, etc. It purchases its own raw materials for the said purpose and has claimed that the formulation of the various components of the finished products, tablets, injections, etc. is done by the assessee. Mixing of raw materials and the blending is done in accordance with the instructions and supervision of the assessee at its factory premises by its own technical staff. Thereafter the tablets and injections, etc. are prepared at their premises by Torrent Laboratories (P) Ltd. and Asoj Soft Capsules (P) Ltd. and after testing and investigation of the finished products, these are packed and packing activity is carried on by the assessee at its factory and godown. 5. For the first time the assessee claimed deduction under s. 80-I for the asst. yr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstalled by the assessee and the earlier two processes were carried on by sister concern of the assessee allegedly under the supervision and control of the assessee. Accordingly the AO denied the claim of deduction under s. 80-I to the assessee. 8. On appeal, the learned CIT(A) partly accepted the plea of the assessee and held that the assessee has carried out the process of formulation throughout the year. However, the process of actual manufacture was carried out by it on a small scale for only a part of the year and the process of packing for almost 50 per cent of the year because the machineries purchased and installed by the assessee in the assessment year under consideration did not work for the entire year. Accordingly the CIT(A) directed the AO to allow relief under s. 80-I to the assessee of 25 per cent of the admissible amount during the assessment year under appeal. 9. The Revenue as well as the assessee both are aggrieved with the above decision of the CIT(A). The assessee has challenged the action of the CIT(A) on the ground that having held that the assessee is entitled to deduction under s. 80-I, there was absolutely no justification for restricting the claim t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of certain chemicals which regulate time-limit for release of drugs at an appropriate time after it is consumed. Bulk drugs are tested before they are converted into tablets, injections and other smaller units. On the basis of the above formulation of the bulk drugs, processes are carried out and medicines prepared are immediately packed on being produced in order to retain its intensity and applicability for use before any climatic phenomena affects the usefulness of the medicines. After preparation of the medicines in small units packing is required to be carried out as required by Drugs and Cosmetics Act, 1940 and the various Government agencies monitoring the medicinal field which require various items to be mentioned on the packing of the medicine like Lot No. with specific indication of batch of medicine manufactured, maximum retail price, date of manufacture and expiry, details of important compositions of various drugs included in the medicine; whether the medicine can be sold on prescription only or it is a OTC medicine; any specific direction/side effects of the medicine and immediate steps required to be taken in case of side effects and reversal medication to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suspension, the bulk drug is mixed with syrup base for easy and convenient use. 3. Packing of the finished product in smaller units. It was submitted that in fact the bulk drugs purchased did not suffer any process of transformation from one commodity to another and the raw material, being bulk drugs purchased by the assessee-company, retained their properties and identity and the final product only has perhaps a change of shape and it remained the same as the raw material which is the bulk drugs. The learned Departmental Representative referred to the case of drug Diclomax-50, which is being sold under the brand name of Diclofenic Sodium. It was submitted that both the bulk drug as well as the drug sold on the counter by a retail chemist are essentially the same. It was further submitted that the assessee-company does not own any machinery which is utilised in the so-called manufacturing process, but it only uses the machinery for making strips, tablets etc. Accordingly it was submitted that in view of the decision of the Supreme Court in the case of CIT vs. N.C. Budharaja Co. Anr. (1993) 114 CTR (SC) 420 : (1993) 204 ITR 412 (SC) the assessee cannot be said to be a man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , injections, etc. to the stage of making them marketable are carried on by the assessee at its own factory with the exception of the preparation of the tablets, injections, etc. which process is done at the premises of Torrent Laboratories (P) Ltd. and Asoj Soft Capsules (P) Ltd. But even that process is done under the technical staff of the assessee in accordance with the requirements laid down under the Drugs and Cosmetics Act, 1940. Accordingly it was submitted that the assessee is entitled to deduction under s. 80-I of the Act. Reliance was placed on the following decisions: (1) CIT vs. Anglo-French Drug Co. (Eastern) (1991) 95 CTR (Bom) 176 : (1991) 191 ITR 92 (Bom); (2) CIT vs. Neo Pharma (P) Ltd. (1982) 27 CTR (Bom) 223 : (1982) 137 ITR 879 (Bom); (3) Addl. CIT vs. A. Mukherjee Co. (P) Ltd. (1978) 113 ITR 718 (Cal); (4) CIT vs. Rajmohan Cashews (P) Ltd. (1990) 185 ITR 472 (Ker); (5) Orient Longman Ltd. vs. CIT (1981) 130 ITR 477 (Del); (6) CIT vs. Penwalt India Ltd. (1991) 96 CTR (Bom) 20 : (1992) 196 ITR 813 (Bom); and (7) Addl. CIT vs. Chillies Export House Ltd. 1978 CTR (Mad) 230 : (1978) 115 ITR 73 (Mad). 14. As regards the submissions made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the asst. yr. 1987-88 the assessee installed machineries worth Rs. 10,80,760 between the period 2nd Dec., 1985, onwards to 16th June, 1986 on different dates, the accounting period of the assessee being the year ending 30th June, 1986, which indicates that partly the working of preparing tablets, etc. was also being carried out by the assessee as "Cadmack-35 station rotary tablet machine" valuing Rs. 1,40,313 was installed by the assessee in its rented premises on 25th Jan., 1986. It is also noticed that the assessee paid electricity expenses in respect of its factory amounting to Rs. 20,989 and has also used the spare parts of machinery valuing Rs. 30,657. The assessee has also employed requisite number of employees as prescribed under s. 80-I(2)(iv). It has also paid factory rent of Rs. 12,000 and these factors are quite apparent from the statement of accounts furnished along with the return and have not even been doubted by the Departmental authorities. Thus it is clear that the assessee has been getting its products manufactured earlier through associate concerns under its supervision and control but almost from the middle of the accounting year relevant to the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant belonged and not by the assessee. Even on these facts the Hon'ble High Court held that although the plant and machinery employed for the purpose of manufacture belonged to Pharmed and the services of certain employees of Pharmed were also utilised in that process, the manufacturing activity was really that of the assessee and as such the assessee was an industrial company entitled to the concessional rate of tax. Similar is the view of the Bombay High Court in the case of CIT vs. Anglo-French Drug Co. (Eastern) Ltd. wherein the High Court followed its earlier decision in the case of CIT vs. Neo Pharma (P) Ltd. Reliance of the Departmental Representative on the case of CIT vs. N.C. Budharaja Co. rather supports the case of the assessee because in the said decision at p. 415 of 204 ITR the Hon'ble Supreme Court held that "The test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity". Applying the above test to the facts of the case we have no hesitation in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses are for conference and paid to the various organisers of the conference and not to the hotels or clubs or restaurants. Even if the expenses are paid for lunch or dinner in the conference, they are admissible. Reliance in this connection has been placed on the Tribunal judgment in the case of Trichy Distilleries Chemicals Ltd. vs. ITO (1990) 36 TTJ (Mad) 620. It has been argued by the learned counsel that once the payment is made to the organisers of the conference, the funds get mingled with other funds raised by such organisers. The appellant does not have any control over the destination of the funds contributed by it. In the circumstances, even if the conferences are spending a part of their funds on lunch or dinner, no disallowance can be made in the hands of the appellant as the expenses have been incurred exclusively for business to promote medicines." "5. I have carefully gone through the assessment order, the submissions made, the details of the expenses and the judgment of the Tribunal relied on by the appellant. I agree with the basic proposition that where the contribution has been made directly to the conference or the organisers, ultimately, the disposal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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