1987 (5) TMI 67 - AT - Income Tax

Tribunal grants deductions for manufacturing latex under Income Tax Act

The Tribunal allowed the appeal, granting the assessee deductions under sections 80J and 80HH of the Income Tax Act. The Tribunal held that the process of ... Backward Area, Deductions In Respect, New Industrial Undertaking, Profits And Gains Issues Involved1. Eligibility for deductions under sections 80J and 80HH of the Income Tax Act, 1961.2. Definition of 'manufacturing' or 'producing' for the purpose of sections 80J and 80HH.3. Compliance with the requirement of employing more than 10 workers as per section 80J(4)(iv).Detailed AnalysisEligibility for Deductions Under Sections 80J and 80HHThe assessee, a company engaged in the business of centrifuging rubber latex, claimed deductions under sections 80J and 80HH amounting to Rs. 38,808 and Rs. 60,871 respectively. The Income Tax Officer (ITO) rejected these claims, stating that the assessee did not qualify as an industrial undertaking engaged in manufacturing or producing articles. The CIT(A) upheld the ITO's decision, referencing a previous Tribunal order from the assessee's own case for earlier assessment years. The CIT(A) also examined the provisions of section 80J(4)(iv) and was not convinced that the assessee employed 10 persons in manufacturing operations.Definition of 'Manufacturing' or 'Producing'The assessee argued that the process of centrifuging latex to produce preserved concentrated natural rubber latex constitutes 'manufacturing' or 'producing.' The preserved latex is commercially distinct from normal latex, having a reduced water content and increased rubber content, making it suitable for manufacturing foam beds and other products. The assessee cited various judicial precedents, including decisions from the Special Bench of the Tribunal and High Courts, to support their claim that the process they undertake qualifies as manufacturing.The Tribunal noted that the Central Excises and Salt Act, 1944, under section 3, levies excise duty on all excisable goods produced or manufactured in India. The Government of India had issued a notification exempting preserved latex and other forms of rubber from excise duty, indicating that these were considered manufactured goods. The Tribunal held that this recognition under the Central Excise Act should apply equally to the Income Tax Act, 1961, thereby entitling the assessee to deductions under sections 80J and 80HH.Compliance with Employment RequirementsThe CIT(A) questioned whether the assessee employed more than 10 workers, as required by section 80J(4)(iv). The assessee provided wage records showing that more than 10 workers were employed from September 1979 to February 1980. The Tribunal found this to be substantial compliance with the section's requirements, thus satisfying the employment condition for the deduction.Departmental Representative's ArgumentsThe departmental representative contended that the assessee's activities did not constitute manufacturing or production, comparing it to a launderer cleaning soiled cloth. They also argued that the assessee did not own the product at any stage and only performed centrifuging for others. Additionally, they pointed out that the number of workers employed did not meet the required threshold throughout the entire year.Tribunal's ConclusionThe Tribunal concluded that the assessee's process of centrifuging latex to produce preserved latex qualifies as manufacturing or production, as recognized by the Central Excise Act and supported by various judicial precedents. They also determined that the assessee substantially complied with the employment requirement under section 80J(4)(iv). The Tribunal dismissed the departmental representative's arguments, noting that the cited cases were under sales-tax enactments and not directly applicable to income-tax cases.Final JudgmentThe appeal was allowed, granting the assessee the deductions under sections 80J and 80HH.