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TAXAP/1287/2010 7/ 7 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 1287 of 2010
=========================================================
THE
COMMISSIONER OF INCOME TAX CENTRAL-II - Appellant(s)
Versus
SUNILBHAI
S. KAKAD , - Opponent(s)
=========================================================
Appearance
:
MRS
MAUNA M BHATT for
Appellant(s) : 1,
MR SN SOPARKAR, SR COUNSEL WITH MRS SWATI
SOPARKAR for Opponent(s) :
1,
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CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
MS JUSTICE SONIA GOKANI
Date
: 27/09/2011
ORAL
ORDER
(Per
: HONOURABLE MS JUSTICE SONIA GOKANI)
Issue
proposed for consideration of this Court in the present Tax Appeal
is as follows :
“Whether the Appellate Tribunal
is right in law and on facts in deleting the disallowance of
deduction of Rs.72,52,571/- made u/s.80IB of the I.T.Act?
This
Tax Appeal preferred under Section 260-A of the Income Tax
Act(here-in-after referred to as “the Act”) challenges
order of the Income Tax Appellate Tribunal dated 22.1.2010 for the
assessment year 2003-2004. The assessee who is in the business of
assembling of computer and servers and parts providing services etc.
and having business unit at Silvasa and Ahmedabad, filed return of
income declaring its total income at Rs.4,25,882/-.
This
was assessed by the Assessing Officer determining the income of the
assessee respondent at Rs.93,17,200/- after disallowing claims of
deduction under Section 80IB of the Act. Various additions were made
by the Assessing Officer while computing the income of the assessee.
The
assessee respondent challenged this order before the CIT(Appeals)
which partly allowed the appeal of the assessee.
Revenue
further carried the issue in appeal before the Tribunal. Tribunal
dismissed the appeal on the issue of disallowance of deduction under
Section 80IB of the Act and the impugned order of the Tribunal is at
large before this Court by way of proposing afore-mentioned question
of law.
This
Court has heard learned advocate Mrs. Mauna Bhatt for the Revenue
and in response to the notice issued by this Court, learned senior
counsel Shri S.N. Soparkar made his submission for and on behalf of
the assessee respondent.
It
was vehemently submitted by the learned Counsel Mrs. Mauna Bhatt
that the Tribunal has erred in deleting the addition by holding that
the assessee respondent was in the business of manufacturing. It is
further submitted that as rightly observed by the Assessing Officer,
the assessee was merely buying basic items of computer system such
as Monitor, Key board, Mouse, etc. and after adding protection
cover, operating manual and software, it was selling them as
computer system to BSNL and other such companies and also to sister
concerns. Therefore, it cannot be said that new product came into
existence, nor was it emerging that it employed minimum 10 workers
in the manufacturing process so as to fulfill conditions under
Section 80IB(2)(iv).
Learned
senior counsel Shri S.N. Soparkar urged before this Court that in
case of this very assessee for the earlier years, no challenge is
made to the allowance of deduction under Section 80IB by the
Revenue. Moreover, the issue according to the learned counsel is
squarely covered by decision of Apex Court in case of Income-tax
officer, Udaipur v. Arihant Tiles & Marbles(P.) Ltd.
reported in (2010) 186 Taxman 439(SC). It has been urged that the
activity undertaken by the assessee respondent is construed as
activity of ‘manufacture’ or ‘production’ in terms of Section 80IA
and therefore, the Tribunal has correctly upheld the version of the
assessee setting aside the order of the Assessing Officer.
Having
regard to the submissions made by both the sides and having
considered the orders of the adjudicating authorities below, this
Tax Appeal requires no meritorious consideration for the reasons to
be followed here-in-after.
As
can be noted from the order of the Tribunal, the Assessing Officer
was of the opinion that activity of assessee did not fall within the
ambit of manufacture or production. However, CIT(Appeals) allowed
the claim by relying on various judgements on the issue. One of them
is the case of Arihant Tiles & Marbles(P.) Ltd.(supra).
The Tribunal noted that claim for deduction under the provision of
80IB was allowed in case of this very assessee undisputedly in the
year 2001-2002 and the assessee carried
the manufacturing activity and there had been no change in the
manufacturing process nor has any contrary material produced in the
year under consideration. Tribunal noted thus :
“3.3 We
have heard both the parties and gone through the facts of the case.
Undisputedly, claim for deduction u/s.80IB has been allowed in the
A.Y.2001-02, on the ground that the assessee has carried on
manufacturing activity while there has been no change in the
manufacturing process or the articles produced in the year under
consideration. The ld. CIT(A) concluded in the impugned order that
assembling various components by carrying on ‘quality control
through testing equipments. The assessee manufactured computers and
servers which are entirely new and distinct products from the
various components utilized. The same number of workers rendered
their services in earlier year while the assessee is also subject to
Excise duty which shows that the activity carried on by the assessee
is manufacturing. The ld. CIT(A) further opined in the light of
various judicial precedents that the average number of employees
should not be less than ten, and it would suffice if, on an average,
there are at least ten workers employed in the undertaking, even
though the number of workers employed during some part of the
previous year is less than ten. The Revenue have not placed before
us any material controverting the aforesaid findings of of the ld.
CIT(A).
3.31 In
a recent decision in the case of Arihant Tiles and Marbles P
Ltd.(supra), Hon’ble Apex Court while adjudicating an issue as to
whether conversion of marble blocks by sawing into slabs and tiles
and polishing amounts to ‘manufacture or production’ within the
meaning of provisions of sec.80IA of the Act, concluded as under :
“In the case of Commissioner of
Income Tax vs. Sesa Goa Ltd., reported in 271 ITR 331 (SC), the
meaning of the word “production” came up for
consideration. The question which came before this Court was whether
the ITAT was justified in holding that the assessee was entitled to
deduction under Section 32A of the Income Tax Act, 1961, in respect
of machinery used in mining activity ignoring the fact that the
assessee was engaged in extraction and processing of iron ore, not
amounting to manufacture or production of any article or thing. The
High Court in that case, while dismissing the appeal preferred by
the Revenue, held that extraction and processing of iron ore did not
amount to “manufacture”. However, it came to the
conclusion that extraction of iron ore and the various processes
would involve “production” within the meaning of Section
32A(2)(b)(iii) of the Income Tax Act, 1961 and consequently, the
assessee was entitled to the benefit of investment allowance under
Section 32A of the Income Tax Act. In that matter, it was argued on
behalf of the Revenue that extraction and processing of iron ore did
not produce any new product whereas it was argued on behalf of the
assessee that it did produce a distinct new product. The view
expressed by the High Court that the activity in question
constituted “production” has been affirmed by this Court
in Sesa Goa’s case saying that the High Court’s opinion was
unimpeachable. It was held by this Court that the word “production”
is wider in ambit and it has a wider connotation than the word
“manufacture”. It was held that while every manufacture
can constitute production, every production did not amount to
manufacture.”
On
the basis of these observations, the Tribunal has held that while
assembling various components by carrying on quality control through
testing equipments, the assessee manufactured computers and servers
which is a new and distinct product other than the components of
which it is made. Both on the grounds of principle of consistency as
also requirement to follow the ratio laid down by the Apex court,
the Tribunal concurred with the findings of CIT(Appeals) to hold
that it was a new and distinct product which was coming out,
entitling the assessee deduction under Section 80IB of the Act for
the year under consideration.
As
can be noted from the elaborate discussion of both the authorities
who have concurrently held in favour of the assessee that they have
followed the ratio laid down by the Apex which is of-course in
respect of manufacturing of polished slabs and tiles from marble
blocks but, the principles laid down is aptly grasped by both the
authorities who have rightly held that entirely new and distinct
product comes into being which is different from the components
utilised for preparing the new product and when the said process is
carried on employing more than ten workers, there does not appear to
be any error in such conclusion.
It
would be pertinent to note at this stage that this Court in Tax
Appeal No. 12/2010 in case of Commissioner of Income Tax v. Natasha
Industries has taken a similar view when identical question had
arisen for consideration. The issue raised and answered was thus :
“1.
Revenue is in appeal against judgement of the tribunal dated
5.6.2009 raising following questions for our consideration :
“Whether
the Appellate Tribunal is right in law and on facts in holding that
activity carried on by the assessee was manufacturing/production, and
assessee is eligible for benefit u/s.80IB of the Act, though it has
been categorically held by the Assessing Officer in the assessment
order that activity carried on by the assessee was ‘simply
assembling?”
2.
Central issue is whether respondent assessee was carrying on
manufacturing activity so as to enable to take benefit under Section
80IB of the Income Tax Act. CIT(Appeals) as well as tribunal both
concurrently held in favour of assessee after examining evidence on
record. Tribunal in particular, observed that claim of assessee is
based on documentary evidence, fully supported by licenses and
registrations obtained under different statutes such as Central
Excise Act, Sales Tax Act, Directorate of Industries, etc. Copies of
such documents were furnished on record and available with the
Assessing Officer. Tribunal further observed that a perusal of the
process described by the assessee giving details of the component
prescribed and process of manufacture carried out, would reveal that
manufacturing process involves various steps i.e. of assembling and
fixing of CPU, of memory and hard drive, of Optical Disk Drive,
Wireless, Card. etc. Tribunal further found that end result is
cumulative process carried out by an assessee and not the
individualseparate process. Tribunal was of the opinion that entire
process of manufacture is to be considered as a whole in its totality
and not any individual process or steps taken.
3.
We further find that CIT(Appeals) also had on basis of evidence on
record held that activities carried out by the assessee was one of
manufacturing. We are unable to disagree with the view of the
tribunal. Assessee after prescribing several different components and
carrying out detailed process, manufactured computer and thereby
brought into existence the whole new project. Assessee had to obtain
various licenses from different statutory authorities for carrying on
such manufacturing activities. Such licenses and registrations were
also produced on record. We see no infirmity in the view of the
tribunal, confirmed by CIT(Appeals).
4.
We have also perused the definition of term “manufacture”
contained in Section 2(29BA) of the IncomeTax Act which reads as
under
:”manufacture”,
with its grammatical variations, means a change in a nonliving
physical object or article or thing,
(a)
resulting in transformation of the object or article or thing into a
new and distinct object or article or thing having a different name,
character and use; or
(b)
bringing into existence of a new and distinct object or article or
thing with a different chemical composition or integral structure.”
5.
No substantial question of law therefore, arises. Tax Appeal is
therefore,dismissed.”
There
is no reason for this Court to take any other view than already
taken as far as question raised in the present Tax Appeal is
concerned. In light of the discussion held here-in-above, this Tax
Appeal as raises no question of law for determination, the same is
dismissed.
(Akil
Kureshi,J.)
(Ms.
Sonia Gokani,J.)
(raghu)
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