TaxTMI 
TaxTMI 
2009 (12) TMI 215
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....or Pharmaceuticals Limited is in the business of manufacturing of pharmaceuticals formulations in bulk drugs and supplying the drugs to the Government hospitals, institutions besides selling the product in domestic and foreign markets. It is claiming depreciation on plant and machinery for benefit under Section 80IA/80IB of the Income Tax Act (in short "Act"). The assessee had carried out trial production from 20th March, 1998. On that basis the Assessing Officer treated assessment year 1998-99 as the initial year for benefit under the aforesaid provision. Since this benefit is allowable for five years, according to the Assessing Officer, this benefit as admissible from assessment years 1998-99 to assessment year 2002-03. The assessee on the other hand was claiming benefit from assessment year 1999-2000 to assessment year 2003-04. The ITA No. 1204/2009 refers to assessment year 2003-04. For this reason, in respect of this assessment year, the benefit was entirely disallowed. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the order of the Assessing Officer but the ITAT has reversed that order holding that since Section 80IA/80IB of the Act being beneficial legislation, ....
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....ction (2) mentions "beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility........" The provision which existed at that time included Sub-section 12 and clause (c) thereof defined "initial assessment year" in the following manner: "(12)......... (c)"initial assessment year" - (1) in the case of an industrial undertaking or cold storage plant or ship or hotel, means that assessment year relevant to the previous year in which the industrial undertaking begins to manufacture of produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning;" 5. The initial assessment year, for the purpose of Section 80IA, is the assessment year relevant to previous year in which the "industrial undertaking begins to manufacture or produce articles or things". In the present case, as noted above, the trial production began on 20th March, 1998 in its Goa plant as per the details given in the audit report furnished by the assessee along with its return of income for assessment year 2003-04 and 2004-05. According to the Asse....
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....roversy, thus, boils down to the limited sphere namely whether, even with the start of trial production, with no commercial production in a particular year, it will be treated as "initial year" for the purpose of Section 80IA/80IB. The CIT(A) held so and this opinion of the CIT(A) did not found favour with the ITAT. The ITAT discussed the matter in the following manner: "The expression "initial assessment year" used in this context is defined in clause (c) of sub-section (12) of section 80-IA, according to which, "initial assessment year" in the case of an industrial undertaking means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. In the present case, the industrial undertaking of the assessee company at Goa had commenced the production on 20.3.1998 and although the same was a trial production, the stand of the Revenue is that there was still commencement of production in the previous year relevant to AY1998-99 making the said year as "initial assessment year" within the meaning given in clause (c) of sub-section 80-IA. The stand of the assessee company, on the other hand, has been that the....
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....roduction will be regarded as beginning to manufacture or produce articles. On behalf of the revenue, the counsel has not contended to that extent, but his submission, however, is that before a finished product is produced by the assessee-company it is necessary to produce some other product at an earlier stage, mere production of that material at an earlier stage will be sufficient to come to the conclusion that the assessee-company had begun or begins to manufacture or produce articles. Reliance was placed by him upon two facts which are not disputed, namely, that the assessee-company commenced production or manufacture of crude penicillin on December 14, 1954, and that in the profit and loss account for the period ending March 31, 1955, there was a closing stock of crude penicillin worth Rs. 16,727. The argument was that sterile penicillin which is a final product saleable in the market can never be produced until first crude penicillin is produced or manufactured and if that be so, mere production or manufacture or crude penicillin will be regarded as beginning of manufacture or production of articles within the meaning of section 15C(2)(ii). The word "articles" used in this ex....
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....have commenced production in 1951 and was not entitled to the benefit of the exemption under s. 15C of the said Act in respect of newly established industrial undertakings, beyond the assessment year 1956-57." 14. The Allahabad High Court took the same view in Himalyan Magnesite Ltd. (Supra) accepting the ratio in Hindustan Antibiotics Ltd. (Supra). That case concerns with Section 80J of the Income Tax Act, 1961 and is in pari materia with Section 80IA/80IB. The only difference is that under Section 80J similar benefit is available to newly established industrial undertakings, ships or hotel business in certain circumstances. 15. The Madras High Court in the case of Additional Commissioner of Income Tax, Madras-II vs. Southern Structurals Ltd., 164 ITR 110, have also hold the line following Hindustan Antibiotics Ltd.(Supra). 16. In view of consistent view taken by various High Courts, we do not find any reason to take a different view and are in respectful agreement with the dicta laid down in the aforesaid judgments. It is more so when even this Court, way back in the year 1984, in Commissioner of Income Tax vs. Food Specialities Ltd., 156 ITR 790, followed the rati....
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....uence dismiss these appeals. ITA No. 160/2008, ITA No. 161/2008 & ITA No. 793/2009 19. Question involved in all these three appeals is same which we have discussed earlier. It also arises under Section 80IA of the Act. The Tribunal has even taken note of judgment of Bombay High Court, Allahabad High Court as well as Madras High Court, holding that there should be regular production and not the trial production. However, on facts the Tribunal decided the case against the assessee. What weighed with the Tribunal was that the assessee had not only produced the goods for trial purposes but there was, in fact, sale of one water cooler and air-conditioner in the assessment year 1998-99 relevant to the previous year/financial year 1997-98. The explanation of the assessee that this was done to file the registration under the Excise Act as well as the Sales Tax Act. This did not find favour with the ITAT. Analyzing the judgment of Himalyan Magnesite Ltd.(Supra) in the context of the case at hand the Tribunal concluded as under: "Coming to the ratio of the case of Himalayan Magnesite Ltd. (supra), the court distinguished between trial production and production of goods or articles.....
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....f obtaining registration of excise ad sales tax was "manufacturing" within the meaning of Section 80IA?" 21. When we carefully examine the ratio laid down in various judgments noted above while dealing with ITA No. 1154/2009, we arrive at irresistible conclusion that the decision rendered by the Tribunal is without blemish and does not call for any interference. The provisions of Income Tax Act use the word "manufacture". Trial production is not regarded as beginning to manufacture or to produce articles because of the reason that the assessee has to produce trial production to verify whether it can be used ultimately in the manufacture of the final article. These are, therefore, "trial runs". The article is tested to find out as to whether it can be launched as a final product in the market or not. Therefore, with mere trial production, the manufacture for the purpose of marketing the goods has not started which starts only with commercial production namely when final product to the satisfaction of the manufacturer has been brought into existence and is now fit for marketing. 22. In Hindustan Antibiotics Ltd.(Supra), the court found that sterile penicillin which was a final prod....