2012 (11) TMI 426 - AT - Income Tax

Tribunal Rules Tissue Culture as 'Manufacture' under Income Tax Act

The Tribunal found that the Commissioner of Income Tax had not correctly interpreted the law and that the assessee's tissue culture activity qualified as ... Exemption u/s 10B - Revision u/s 263 - denial of claim as activity of producing plants through tissue culture does not amount to manufacturing - Held that:- There is no specific definition of word 'manufacture or produce' u/s 10B, thus that definition of 'manufacture' contained in the corresponding provisions of section 10AA would also apply qua the assessee's case vis-a-viz its manufacturing activity. The modern day technology of tissue culture is a multifaceted activity with the help of latest biotechnological tools, wherein from one mother plant the manufacturer/producer can get thousands of plant within a short span of time, with limited space and minimum other requirements. The definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. We conclude, in the light thereof, that the assessee's business activity of tissue culture is 'manufacture or produces' within the meaning of section 10B(2)(i) of the 'Act' and Commissioner of Income Tax had wrongly held that since assessee's produce is 'plant', which is a lively object, therefore, it is covered by section 2(29)BA). Assessing Officer in finalizing the assessment had rightly granted the assessee deduction under section 10B of the 'Act'. It was one of the 'possible view' as per law, which could not be revised by CIT under section 263 of the Act. Consequently, once we have held that the assessee's unit is entitled to be treated to be a qualifying unit under the provision of section 10B(2)(1) of the 'Act', our conclusion is that the order of the Commissioner of Income Tax revising the assessment does not withstand the test of the law. - Decided in favor of assessee. Issues Involved:1. Jurisdiction and legality of the Commissioner of Income Tax's order under section 263.2. Eligibility of the assessee's claim for exemption under section 10B of the Income Tax Act, 1961.3. Definition and applicability of the term 'manufacture' in the context of section 10B.Issue-wise Detailed Analysis:Jurisdiction and Legality of the Commissioner of Income Tax's Order Under Section 263:The Commissioner of Income Tax issued a notice to the assessee under section 263 of the Income Tax Act, proposing to revise the assessment order finalized by the Assessing Officer. The main contention was that the Assessing Officer had allowed an exemption under section 10B without properly examining whether the assessee's activity of producing tissue culture plants qualified as 'manufacture' or 'production' of an article or thing. The assessee argued that the Commissioner of Income Tax's order was not justified and cited various legal precedents to support their claim. The Tribunal examined whether the Commissioner had rightly exercised jurisdiction under section 263 and concluded that the Assessing Officer had adopted a 'possible view' as per law, which could not be revised by the Commissioner under section 263.Eligibility of the Assessee's Claim for Exemption Under Section 10B:The assessee claimed an exemption under section 10B for its unit engaged in the production and export of tissue culture plants. The Commissioner of Income Tax disputed this claim, arguing that live plants could not be considered as 'articles or things' for the purposes of section 10B. The Tribunal examined the detailed process of tissue culture provided by the assessee, which involved multiple steps such as initiation, multiplication, and transplanting. The Tribunal concluded that the assessee's activity did qualify as 'manufacture' or 'production' within the meaning of section 10B(2)(i) of the Act, thereby making the assessee eligible for the exemption.Definition and Applicability of the Term 'Manufacture' in the Context of Section 10B:The Tribunal noted that the term 'manufacture' was not specifically defined in section 10B for the relevant assessment year. However, it referred to the definition provided in section 2(29BA) of the Act, which was incorporated with retrospective effect from 01.04.2009. The Tribunal also considered the definition of 'manufacture' in section 2(r) of the Special Economic Zones Act, 2005, which includes activities such as agriculture, horticulture, and floriculture. The Tribunal concluded that the assessee's tissue culture activity fell within the ambit of 'manufacture' as defined in these provisions, despite the retrospective application of section 2(29BA).Conclusion:The Tribunal held that the Commissioner of Income Tax had not proceeded on the correct factual and legal interpretation of section 2(29BA) of the Act. It concluded that the assessee's tissue culture activity amounted to 'manufacture' or 'production' within the meaning of section 10B(2)(i) of the Act. Consequently, the Tribunal nullified the Commissioner's order dated 30.03.2012, thereby allowing the assessee's appeal and reinstating the original assessment order dated 25.11.2009.