2014 (10) TMI 626 - HC - Income Tax

Ship breaking qualifies as manufacturing for tax deductions under section 80-IA

The High Court affirmed that ship breaking qualifies as manufacturing activity for claiming deductions under section 80-IA of the Income Tax Act. Relying ... Allowability of deduction u/s 80IA – Ship breaking activity amounts to manufacture or not – Held that:- Following the decision in Vijay Ship Breaking Corpn. & Ors. Versus Commnr. of Income Tax, Ahmedabad [2008 (10) TMI 6 - SUPREME COURT] - ship breaking activity gave rise to the production of a distinct and different article and therefore the deduction u/s 80HH and 80-I is required to be given – thus, the order of the Tribunal is upheld – Decided against revenue. Issues:1. Whether ship breaking activity qualifies as manufacturing activity for deduction under section 80-IA of the Income Tax Act.Analysis:The judgment pertains to a Tax Appeal filed by the revenue against the decision of the Income Tax Appellate Tribunal (ITAT) concerning the eligibility of a ship breaking firm for deduction under section 80-IA of the Income Tax Act. The dispute arose when the Assessing Officer rejected the claim of the firm, contending that ship breaking does not constitute manufacturing activity. However, the CIT (Appeals) overturned this decision based on a precedent set by the Bombay High Court, which recognized ship breaking as manufacturing activity.Upon further appeal, the ITAT upheld the firm's claim, asserting that ship breaking results in the production of a new article, thus entitling the firm to the deduction under section 80-IA. The revenue challenged this decision, leading to the current Tax Appeal before the High Court.In the course of the proceedings, the respondent's counsel cited a Supreme Court judgment in the case of Vijay Ship Breaking Corporation, emphasizing that ship breaking indeed gives rise to the production of a distinct article, aligning with the broader definition of 'production' as compared to 'manufacture.' The Supreme Court's ruling in this case supported the eligibility of ship breaking firms for deductions under relevant sections of the Income Tax Act.Considering the arguments presented and the precedent set by the Supreme Court, the High Court concurred with the view that ship breaking constitutes production of a distinct article, warranting the firm's entitlement to deductions under the specified sections. Consequently, the High Court upheld the decision of the ITAT, dismissing the Tax Appeal filed by the revenue.Therefore, the judgment affirms the position that ship breaking activity qualifies as manufacturing activity for the purpose of claiming deductions under section 80-IA of the Income Tax Act, in line with established legal interpretations and precedents, ultimately ruling in favor of the respondent firm and confirming the decision of the ITAT.