2018 (6) TMI 1474 - HC - Income Tax

High Court affirms manufacturing status for tax exemption under Section 10B

The High Court upheld the Tribunal's decision, ruling that the assessee's activities qualified as manufacturing under Section 10B of the Income Tax Act. ... Deduction u/s 10B denied - manufacturing / production activity in the course of export or not - finishing activity after procurement of semi-finished garments - Held that:- The fact-finding authorities below noted the functions performed by the assessee. That the functions were performed also gets support from the finding of the Tribunal that the expenses incurred on account of the said functions performed by the assessee were reflected in the books of accounts which were verified by the AO. The Supreme Court, in the judgment in Empire Industries, held that whether there was any manufacture or not would depend on the facts and circumstances of the particular case. Considering the functions performed by the assessee on the garments, it cannot be said that such functions undertaken by the assessee do not come within the meaning of the term ‘manufacture’. Further, nothing is found from the finding on facts by the CIT (A) and the Tribunal which can be termed as perverse. At any rate, when two specialised fora found the activities involved to be a process of manufacture, this court cannot easily interfere therewith. Appeal fails. This court does not interfere with the order of the Appellate Tribunal which has upheld that the claim of the assessee for exemption under Section 10B of the Act. Issues Involved:1. Whether the assessee's activities qualify as 'manufacturing' under Section 10B of the Income Tax Act, 1961.2. Whether the assessee is eligible for deductions under Section 10B of the Income Tax Act, 1961.3. Interpretation of the term 'manufacture' in the context of various statutes and judicial pronouncements.Issue-wise Detailed Analysis:1. Whether the assessee's activities qualify as 'manufacturing' under Section 10B of the Income Tax Act, 1961:The assessee, an exporter of garments, claimed deductions under Section 10B of the Income Tax Act, 1961, which provides benefits to 100% export-oriented undertakings. The Assessing Officer (AO) disallowed the claim, asserting that the assessee did not manufacture or produce any article, as the garments were purchased readymade and exported without significant alteration. The assessee contended that it performed various manufacturing functions such as finishing, labeling, packing, and affixing bar codes, which should qualify as manufacturing under the EXIM policy and other relevant statutes.The Tribunal considered the definitions of 'manufacture' from various sources, including clause 9.32 of the rules and regulations relating to EOUs framed by the Government of India, which includes processes like repacking, labeling, and refurbishing. Additionally, the Tribunal referenced definitions and interpretations from the Central Excise Act and various judicial pronouncements, concluding that the activities performed by the assessee amounted to manufacturing.2. Whether the assessee is eligible for deductions under Section 10B of the Income Tax Act, 1961:The CIT (A) and the Tribunal both upheld the assessee's claim for deductions under Section 10B, finding that the activities performed on the garments constituted manufacturing. The Tribunal noted that the expenses incurred for these processes were duly reflected in the books of accounts and verified by the AO. The Tribunal dismissed the Revenue's appeal, finding no infirmity in the CIT (A)'s order.3. Interpretation of the term 'manufacture' in the context of various statutes and judicial pronouncements:The Revenue argued that the term 'manufacture' should not apply to the assessee's activities, citing judgments such as the Supreme Court's decision in Regional Director, Employees State Insurance Corporation v. Ram Chandar, which stated that manufacturing involves creating a new entity. However, the Tribunal and the High Court considered broader definitions, including those from the EXIM policy and the Central Excise Act, which encompass a wide range of activities as manufacturing.The High Court noted that the definition of manufacture is very wide and includes various functions such as repacking and refurbishing. The court emphasized that the definition should be interpreted in light of the specific facts and circumstances of each case. The court found that the functions performed by the assessee on the garments, as noted by the fact-finding authorities, fell within the meaning of 'manufacture.'Conclusion:The High Court upheld the Tribunal's decision, finding that the assessee's activities qualified as manufacturing under Section 10B of the Income Tax Act. The court dismissed the Revenue's appeal, stating that the functions performed by the assessee on the garments constituted manufacturing and that the assessee was rightly allowed the exemption under Section 10B. The court emphasized that the definition of manufacture is broad and should be interpreted based on the specific activities and processes involved.