Tribunal deems cleaning human hair as manufacturing eligible for tax exemption

The Tribunal ruled in favor of the assessee, holding that the activity of cleaning and sorting human hair constituted manufacturing eligible for exemption under section 10B of the Income-tax Act. The Tribunal emphasized the significant chemical treatments and changes in structure involved in transforming the raw material into exportable human hair. The finished products were deemed distinct from the raw material, with excise duty and sales tax paid on the product, indicating manufacturing activity. The Tribunal partially allowed the appeals filed by the Revenue for statistical purposes.

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Issues involved:
The judgment involves the issue of whether the activity of the assessee qualifies as "manufacturing" and is eligible for exemption under section 10B of the Income-tax Act.

Details of the judgment:
The Appellate Tribunal ITAT Chennai heard six appeals by the Revenue against orders of the Commissioner of Income-tax (Appeals)-VI, Chennai for the assessment years 2001-02 to 2006-07. The common issue was whether the activity of the assessee qualifies as "manufacturing" for exemption under section 10B. In a previous round of litigation, the Tribunal remanded the matter to the Commissioner of Income-tax (Appeals) to consider if the assessee had set up a new industrial unit and to adjudicate on the claim under section 80HHC. The Commissioner of Income-tax (Appeals) in the impugned order held that the assessee had set up a new industrial unit and the activity amounted to manufacture, making the assessee eligible for deduction under section 10B.

The Tribunal remitted the issue of setting up a new industrial unit back to the Commissioner of Income-tax (Appeals) for further consideration. Regarding the manufacturing activity, the Departmental representative argued that the process of cleaning and sorting human hair did not constitute manufacturing eligible for exemption under section 10B. The representative contended that there was no physical or chemical change in the product, as the end product remained human hair. In contrast, the assessee's counsel argued that the various processes applied to the hair transformed it into exportable human hair, involving significant chemical treatments and changes in structure. The Tribunal noted that the finished products were exported after undergoing multiple processes and were distinct from the raw material. Citing relevant Supreme Court decisions, the Tribunal ruled in favor of the assessee, emphasizing that excise duty and sales tax were paid on the product, indicating manufacturing activity.

In conclusion, the Tribunal partially allowed the appeals filed by the Revenue for statistical purposes. The judgment was pronounced on March 31, 2010.

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