2014 (7) TMI 261 - HC - Income Tax

High Court affirms Section 80IB deduction for computer assembly as manufacturing

The Commissioner of Income Tax Central-II Versus Sunilbhai S. Kakad

The Commissioner of Income Tax Central-II Versus Sunilbhai S. Kakad - [2014] 365 ITR 427 Issues:1. Disallowance of deduction under Section 80IB of the Income Tax Act.Analysis:The Tax Appeal challenges the order of the Income Tax Appellate Tribunal for the assessment year 2003-2004, where the Assessing Officer disallowed the deduction under Section 80IB of the Act for the assessee involved in the business of assembling computers and servers. The CIT(Appeals) partly allowed the appeal, leading the Revenue to appeal further before the Tribunal. The Tribunal upheld the deletion of the disallowance, prompting the present appeal before the High Court.The main contention raised by the Revenue was that the assessee was not engaged in manufacturing but merely assembling computer components, which did not meet the conditions for claiming deduction under Section 80IB. However, the senior counsel for the assessee argued that the activity should be considered as manufacturing based on precedents and the decision in the case of Incometax officer v. Arihant Tiles & Marbles(P.) Ltd. The Tribunal concurred with the CIT(Appeals) that the process undertaken by the assessee resulted in the creation of a new and distinct product, satisfying the conditions for claiming the deduction.The Tribunal's decision was supported by the fact that the assessee had been allowed the deduction in previous years, and there was no change in the manufacturing process. The Tribunal emphasized the importance of consistency and cited relevant judgments to establish that the activity of the assessee should be considered as manufacturing under Section 80IB. The High Court found no error in the conclusions reached by the lower authorities and dismissed the Tax Appeal.In a similar case previously considered by the High Court, it was held that the activity of assembling various components to manufacture computers constituted manufacturing under Section 80IB. The Tribunal and CIT(Appeals) in that case had also relied on documentary evidence and licenses obtained by the assessee to support the manufacturing claim. The High Court upheld the decision, emphasizing that the entire process of manufacture should be considered as a whole to determine eligibility for the deduction.The High Court referred to the definition of 'manufacture' under the Income Tax Act, highlighting the transformation of objects into new and distinct articles as a key factor. Based on the comprehensive analysis of the facts and legal principles involved, the High Court concluded that no substantial question of law arose in the present Tax Appeal and upheld the decision to dismiss the appeal.In summary, the High Court affirmed the Tribunal's decision to allow the deduction under Section 80IB for the assessee engaged in assembling computers and servers, considering the activity as manufacturing based on established legal principles and precedents.