TaxTMI 
TaxTMI 
2015 (5) TMI 653
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss, as specified in section 80IB(2)(iv) could be said to be complied with, especially when ten or more workers were actually engaged on only 73 days during the entire year." Though the same question arises for determination in ITA No.51 of 2009, however, the same has been framed differently and reads thus:- ITA No.51 of 2009. "Whether the mandate of section 80IB(2)(iv) is complied with even if 10 or more workers are employed for only 73 days in a year?" The aforesaid substantial questions of law would hereinafter be referred to as questions No.1 to 3. Question No.1. 2. The assessee is engaged in manufacturing of various food products like soya nuggests, besan, vermicelli and instant daliya. It commenced commercial production on 19.03.1999 as per the certificate granted by the Department of Industries. 3. For the assessment year 2000-01 to 2004-05, the assessee filed returns of income claiming the entire profits as deduction under Section 80IB of the Income Tax Act, 1961, (for short the 'Act'). For the assessment year 2003-04, the assessee filed return of income declaring total income at nil after claiming deduction under Section 80IB at Rs. 33.11 lacs. Subsequently, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of grinding. Therefore, these activities do not amount to manufacture and the assessee, therefore, is not entitled to the deduction under Section 80IB. 8. In support of his contention, he has relied upon judgment of Madras High Court in Commissioner of Income-Tax vs. Sacs Eagles Chicory [2000] 241 I.T.R. 319 as affirmed by the Hon'ble Supreme Court vide judgment reported in [2002] 255 I.T.R. 178 titled Sacs Eagles Chicory vs. Commissioner of Income Tax and a judgment of this Court in ITA No. 27 of 2005 titled Mrs. Poonam Arora vs. Income Tax Officer and others, decided on 14.10.2009. 9. In Sacs Eagles Chicory case (supra), the Madras High Court was dealing with the case, wherein chicory roots were being converted into chicory powder by simply grinding them and on such basis it was held that there was no manufacturing activity. Notably the judgment of the Madras High Court was challenged by the assessee before the Hon'ble Supreme Court in case reported as Sacs Eagles Chicory (supra), wherein the Hon'ble Supreme Court observed as under:- "The question to be considered reads thus (see [2000] 241 ITR 319, 320): Whether, on the facts and in the circumstances of the case,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nufacture' was not defined under the Act and came to be introduced, for the first time, by insertion of Section 2 (29BA) of the Finance (No.2) Act, 2009, introduced with effect from 01.04.2009 which reads as follows:- "29BA - "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure." Though, this amendment was introduced only with effect from 01.04.2009 while we are dealing with the assessments prior to 01.04.2009, yet the same would be of relevance since the definition itself apart from being based on the dictionary meaning has embodied in itself the meaning as had been assigned to the word by various judicial pronouncements. 13. What amounts to manufacture has been dealt with in detail by this Court in Commissioner of Income Tax versus Pawan Aggarwal 2014 (3) HLR 1981 and thereafter elaborately discussed in ITA No.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tter, the notice of one month must be held to be invalid and suit for ejectment should have failed on that ground." 15. Applying the aforesaid tests to the instant case, it can conveniently be held that converting gram Dal into Besan will amount to manufacturing process because: i) gram Dal loses its shape and identification as in the case of wheat which is converted into flour; ii) the end product i.e. Besan can be said to be different from that of gram Dal. It is through process of labour and machinery that Besan is produced; iii) Gram Dal and Besan are treated as different commercial products. 16. Indisputably, gram Dal also undergoes same process for being converted into Besan which is undergone by the wheat for manufacturing wheat flour. In view of the aforesaid, it can safely be concluded that conversion of gram Dal into Besan amounts to manufacture and consequently the assessee is entitled to the deduction under Section 80IB(4) of the Income Tax Act. Question No.2. 17. Section 80IB (4) of the Act reads thus:- "Deduction in respect of profits and gains from certain industrial undertaking other than infrastructure development undertaking. 80-IB. (1) Where the gross tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ures, letters and words "31st day of March, [2012) had been substituted: Provided also that no deduction under this sub-section shall be allowed to an industrial undertaking in the State of Jammu and Kashmir which is engaged in the manufacture or production of any article or thing specified in Part C of the Thirteenth Schedule.]" 18. It is vehemently argued by learned counsel for the revenue that, no doubt, the allowance of depreciation was made mandatory under explanation 5 to Section 32(i) (ii) with effect from the assessment year 2002-03. However, the profits eligible for deduction under Chapter VIA including Section 80IB can only be computed after allowing all deductions under Sections 29 to 43A as all these Sections in this Chapter comprise of independent codes of computation. Therefore, the eligible profits in the instant cases were required to be computed yearwise after deducting depreciation and the written down value of assets carried forward in the subsequent years would then change accordingly. The net result would then be that when profits of assessee become taxable in a subsequent year, the claim of depreciation in those years would stand reduced. 19. It is not in d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rior to the date of introduction of the Explanation. The law declared by the Supreme Court cannot be regarded as having merely raised doubts. The interpretation of the relevant provisions of the Act by the Apex Court settles the law, and unless the subsequent amendment to the statute is expressly given retrospective effect, the law laid down by the Apex Court will remain the binding law for the period prior to the amendment. The newly added Explanation takes effect only on and from April 1, 2002, and will not be applicable for prior years." 21. In view of the aforesaid discussion, it is held that the profits eligible for deduction under Section 80IB (4) of the Act though are necessarily to be computed after allowing depreciation under Section 32 of the Act, but the same would apply only from April 1, 2002, when the amendment came into force and will not apply to earlier years. Question No.3. 22. Section 80IB (2) (iv) of the Act reads thus:- "Deduction in respect of profits and gains from certain industrial undertaking other than infrastructure development undertaking. 80-IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owever, when the matter reached in ITAT, the findings recorded by both the learned authorities below were set aside on the ground that for getting relief under Section 80IB, there must be substantial compliance whereby an undertaking must have employed 10 or more workers substantially during the period for which the claim was made and further that there was no hard and fast rule by which one could determine whether there has been substantial compliance because it is for the authority and the Court to decide based on the facts before it. 25. Similar question regarding substantial compliance fell for consideration before this Bench in ITA No.28 of 2009 in case titled Commissioner of Income Tax versus M/s Indus Cosmeceuticals (supra) wherein this Court held as under:- "7.......Further even the finding that there was substantial compliance when there were 13 employees entered in the attendance register is absolutely erroneous in teeth of the findings recorded by A.O. against which findings there was no contradiction or rebuttal on behalf of the assessee. 8. In M/s Amrit Rubber Industries vs. Commissioner of Income Tax, ITA Nos. 32 of 2004 and 33 of 2004 decided on 30.9.2010, this co....