2015 (12) TMI 1704 - AT - Income Tax

Gold Conversion into Ornaments: Tribunal Affirms Deduction Eligibility

The Tribunal dismissed the Revenue's appeal, affirming the assessee's eligibility for deduction under Section 80IB of the Income Tax Act. It held that the ... Entitlement to deduction u/s 80-IB - scope of manufacture - denial of claim as conversion of 24 Kt Gold into 22 Kt Gold does not amount to manufacture - Held that:- The activity for converting gold bricks, biscuits or bars, into jewellery amounts to “production or manufacture of a new article. The gold, silver or platinum in bar, biscuits or brick form, is converted by manual labour and by the use of implements/tools or by machinery, culminating into an entirely new article/thing called jewellery or ornaments. Jewellery is a wearable item and is used by both men and women. 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 - Decided in favour of assessee. Issues involved:1. Interpretation of Section 80IB of the Income Tax Act regarding deduction eligibility.2. Determination of whether the conversion of 24K gold into 22K gold amounts to manufacturing for the purpose of claiming deduction under Section 80IB.3. Application of judicial precedents in similar cases to the current scenario.Detailed Analysis:1. The appeal before the Appellate Tribunal ITAT Amritsar involved the interpretation of Section 80IB of the Income Tax Act for the assessment year 2010-11. The Department challenged the order of the ld. CIT(A), Jammu, questioning the deletion of additions made by the Assessing Officer under Section 80IB of the Act. The primary issue was whether the CIT(A) was correct in law in deleting the addition made by the AO u/s 80IB of the Act.2. The core issue revolved around whether the conversion of 24K gold into 22K gold by adding copper and silver constitutes 'manufacture' for the purpose of claiming deduction under Section 80IB. The Department contended that this conversion did not amount to manufacturing and, therefore, the assessee was not entitled to the deduction. The Assessing Officer disallowed the deduction claimed by the assessee, leading to the appeal.3. The Tribunal analyzed various judicial pronouncements to determine the applicability of the conversion process to the definition of 'manufacture.' The Tribunal referred to past decisions, including the case of ITO, Ward-2(3), Jammu vs. Sh. Sanjay Jain, where it was established that the conversion of gold into ornaments amounted to 'manufacture.' The Tribunal highlighted the definition of 'manufacture' inserted in the Income Tax Act, emphasizing the transformation of the object into a new and distinct article with different characteristics. The Tribunal upheld the decision of the ld. CIT(A) based on the precedent set by the Hon'ble High Court and ITAT, Mumbai Bench, concluding that the assessee was engaged in 'manufacture' and entitled to the deduction under Section 80IB.In conclusion, the Tribunal dismissed the appeal of the Revenue, citing the consistent application of legal principles and precedents in determining the eligibility of the assessee for the deduction under Section 80IB. The judgment reaffirmed the position that the conversion of gold into ornaments constituted 'manufacture' as per the relevant legal definitions and established case law, thereby upholding the decision of the ld. CIT(A) in favor of the assessee.