Trading or Manufacturing

[CABIJENDERKUMAR BANSAL]

Dear All

My client is a LLP (Say X) and brand owner of a bumper item. It has owned some moulds related to bumper manufacturing.

Due to lower space, it has provided moulds to a sister concern (say Y) on delivery challan for manufacturing of bumpers with the following facts:

- Y itself procures raw material for the manufacture of bumpers and with that raw material produces bumpers as per specification by X and sells it to X at a reduced price to give the benefit of cost of moulds provided.

- X purchases the bumpers from Y and affixes few screws on it which are necessary to sell it further and paste its brand sticker, pack it and sells it to its customers.

Now my queries are as under:

1) Since mould owner is X and it is used by Y, who is eligible for the depreciation?

2) And what will be the nature of the business activity of the X to be shown and presented in financial statements like purchases from Y are semi-finished goods or complete trading goods or it can also be raw material purchase by any means?

3) Sale by X is of manufacturing sale or trading sale or any other term can be used like contract manufacturing?

Regards

AI Summary

LLP X and Sister Concern Y: Depreciation Claim, Business Classification, and Sales Type Clarification under Section Queries An LLP, referred to as X, owns moulds for bumper manufacturing but lacks space, so it provides these moulds to a sister concern, Y, on a delivery challan. Y procures raw materials, manufactures bumpers according to X's specifications, and sells them back to X at a reduced price, considering the mould cost. X then adds screws, brands, packs, and sells the bumpers. The queries raised are about who can claim depreciation for the moulds, how X should classify its business activity in financial statements (as purchasing semi-finished goods, trading goods, or raw materials), and whether X's sales should be classified as manufacturing or trading sales.