2008 (2) TMI 46 - HC - Income Tax

High Court affirms deduction under Section 80IB for specialized manufacturing process

The Madras High Court upheld the Assessee's entitlement to a deduction under Section 80IB of the Income Tax Act, 1961. The Court affirmed the Tribunal's ... Assessee, mfg. plastic powder out of plastic granules - company claimed deduction u/s 80IB, on the premise that the goods produced by Assessee company is a product of manufacturing activities – tribunal is justified in holding that process employed is a complex one and not merely limited to pulverisation or crushing, hence impugned finished goods are totally different from raw material – deduction available u/s 80-IB Issues:Claim for deduction under section 80IB of the Income Tax Act, 1961 based on manufacturing activities - Tribunal's decision on whether conversion of polymer granules into powder amounts to manufacture for entitlement to benefit of Section 80IB.Analysis:The case involved an Assessee Company engaged in manufacturing plastic powder from plastic granules, claiming a deduction under section 80IB of the Income Tax Act, 1961. The Assessing Officer initially rejected the claim, stating that the activities did not amount to manufacturing. However, the Commissioner of Income Tax Appeals ruled in favor of the assessee, recognizing the goods produced as a result of manufacturing activities. The Revenue's appeal before the Tribunal was dismissed. The central question before the Madras High Court was whether the conversion of polymer granules into powder qualified as manufacturing under Section 80IB.The Court noted that the Tribunal, as the ultimate fact-finding authority, had determined that the Assessee was indeed manufacturing specialized polymer alloys in powder form, not just plastic powders. These polymer alloys had unique technical specifications and were used in various industries for specific applications. The manufacturing process involved combining different polymers with specialized chemicals in specific ratios based on scientific formulations. The Court emphasized that the finished products were distinct from the raw materials, with different technical parameters like melting point, specific gravity, and micron size. The process was complex and went beyond mere pulverization or crushing, involving steps to maintain specific characteristics required for the end products.In its analysis, the Court referenced various legal precedents, including Supreme Court decisions and previous judgments by the Madras High Court. Citing cases like CIT v. N.C.Budharaja and Co., Aspinwall and Co. Ltd. v. CIT, and others, the Court supported the Tribunal's decision in favor of the Assessee. The Court concluded that the Tribunal's finding was correct, warranting no interference in the appeal, and subsequently dismissed the appeal. The judgment upheld the Assessee's entitlement to the benefit of Section 80IB based on the manufacturing process involved in producing specialized polymer alloys from polymer granules.