2011 (2) TMI 282 - HC - Income Tax

Court allows appeal, denies deduction under section 80-IB for processing activities.

The court condoned a 151-day delay in appeal filing subject to a cost. The appeal focused on eligibility for deduction under section 80-IB of the ... Condonation of delay - Upon hearing learned counsel for the parties and on a perusal of the application, the delay in refiling the appeal is condoned subject to payment of costs of Rs. 5,000 to the Delhi High Court Legal Services Committee Deduction under section 80-IB - Assessing Officer completed the assessment under section 143(3) on December 27, 2006 and disallowed the deduction amount to Rs. 54,83,360 claimed by the assessee under section 80-IB of the Act - It is noticed that the processing undertaken by the assessee-company cannot be held to be amounting to manufacturing or production of an article or thing and, therefore, the basic condition for eligibility of 80-IB deduction is not found to have been fulfilled and, hence, the deduction claimed under section 80-IB is not found to be allowable - Held that the assessee is engaged in processing and not manufacturing and as such is not eligible for deduction under section 80-IB - the assessee or the Excise Department have been taking the activities as manufacturing, that would be sorted out by the assessee with the Excise Department even to the extent of asking for refund of excise duty, if it was so entitled to - Appeal is allowed Issues Involved:1. Condonation of delay in refiling the appeal.2. Eligibility for deduction under section 80-IB of the Income-tax Act.3. Determination of whether the process undertaken by the assessee amounts to manufacturing or production.Issue-wise Detailed Analysis:Condonation of Delay:2. The application sought condonation of a 151-day delay in refiling the appeal. The court, after hearing the counsel and reviewing the application, condoned the delay subject to a cost of Rs. 5,000 payable to the Delhi High Court Legal Services Committee.Eligibility for Deduction under Section 80-IB:6. The court admitted the appeal on two substantial questions of law: (i) Whether the Income-tax Appellate Tribunal was correct in law in allowing the deduction under section 80-IB to the assessee, and (ii) Whether the process undertaken by the assessee amounts to manufacturing or production of any article or thing so as to be eligible for deduction under section 80-IB.Process Amounting to Manufacturing or Production:8. The assessee, engaged in manufacturing tinned fish and mutton, claimed deductions under section 80-IB for the assessment years 1996-97 to 2003-04. For the assessment year 2004-05, the Additional Commissioner of Income-tax examined the case and directed the Assessing Officer to disallow the deduction of Rs. 54,83,360 under section 80-IB.9. The Commissioner of Income-tax (Appeals) reversed the disallowance, holding that the processes undertaken amounted to 'manufacture' and thus entitled the assessee to the deduction. The Tribunal upheld this decision, leading to the Revenue's appeal.10. The Assessing Officer detailed the processes involved in converting raw fish into tinned fish, concluding that these did not result in a commercially distinct commodity and thus did not qualify as manufacturing or production.11. The Commissioner of Income-tax (Appeals) and the Tribunal, however, considered the processes and judicial precedents, concluding that the activities did constitute manufacturing.12-13. The assessee's counsel argued that the process involved significant transformation, making the raw fish edible and extending its shelf life, thus constituting manufacturing. He cited various judgments to support this view.14-20. The court reviewed several precedents, including CIT v. Relish Foods, Aspinwall and Co. Ltd. v. CIT, and others, which provided differing views on what constitutes manufacturing. The court noted that in similar cases involving food processing, the Supreme Court had often ruled that such activities did not amount to manufacturing.21. Based on the facts and legal precedents, the court held that the assessee's activities were processing rather than manufacturing and thus did not qualify for deduction under section 80-IB. Consequently, both substantial questions of law were answered in favor of the Revenue.22. The court addressed the principle of consistency, noting that previous acceptance of deductions did not preclude re-examination in subsequent years.24. The court dismissed the argument regarding excise duty, stating that any misclassification by the Excise Department did not affect the legal determination under the Income-tax Act.Conclusion:25. The appeal was allowed, and the assessee was found not entitled to the deduction under section 80-IB.