TaxTMI 
TaxTMI 
2020 (12) TMI 674
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....ed in manufacturing activity and was formed by splitting up of existing company? 2. The factual background in which the aforesaid substantial question of law arises for our consideration needs mention. The assessee is engaged in contract research related activities. The assessee filed the return of income for Assessment Year 2005-06, in which it declared income of Rs. 8,07,40,434/-. During the course of assessment proceedings, it was noted by the Assessing Officer that tax audit report filed by the assessee mentioned it to be engaged in the business of providing contract research services in the field of molecular biology and synthetic chemistry. The assessee had categorized its receipts under two heads viz., contract research fees and sale of compounds. The contract research fees received for Assessment Year 2005-06 was mentioned as Rs. 55,66,99,000/-. The receipt on sale of compounds was Rs. 9,49,83,000/-. The assessee had two separate and distinct units. The assessee was claiming deduction in respect of Unit-I since, 1999-00 and the same was allowed to the assessee till the year 2002-03. The assessee started claiming deduction under Section 10B of the Act in respect of Unit-II ....
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....earch work including intellectual property embedded therein and unless export benefits were derived from manufacture of articles or things, an assessee would not be eligible for claiming deduction under Section 10B of the Act and the only exception was with regard to computer software. 6. It is contended that the work done by the assessee is not different from works contract, under which a particular research is carried out, tested and finally handed over in to-to to the client and the aforesaid activity of the assessee does not amount to manufacture / production and research activity per se cannot be treated as manufacturee. It is also pointed out that the assessee had no ownership on the compounds and the money received is in the nature of fees for services provided and not for any manufacture. It is also urged that the assessee did not comply with the mandatory conditions prescribed under Section 10B of the Act viz., manufacture / production of any article or thing and not being formed by transfer to a new business of machinery or plant previously used for any purpose. While inviting our attention to the agreement, it has been contended that the agreement does not contain any s....
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....ion 10B of the Act. It is also urged that Unit-I had started claiming benefit of deduction under Section 10B of the Act for a period from 1999-00 till 2002-03 which had admittedly being allowed by the revenue and therefore, the revenue cannot be permitted to take different stand for subsequent years. It is urged that concurrent findings of fact are recorded in favour of the assessee and even in the memo of appeal no perversity in respect of aforesaid concurrent finding of fact has been pleaded. It is also urged that the Commissioner of Income Tax (Appeals) had recorded a finding regarding splitting up of the business of the units in favour of the assessee and while pointing out to the memo of appeal filed by the revenue before the tribunal, it is submitted that the aforesaid finding has not been assailed before the tribunal, therefore, there is no need for remand of the matter to the tribunal. Learned Senior counsel has taken us through the order passed by the Commissioner of Income Tax (Appeals) as well as the order passed by the tribunal and has placed reliance on decisions in 'T.SATISH U.PAI VS. COMMISSIONER OF INCOME-TAX', (1979) 1 TAXMAN 123 (KAR.), 'COMMISSIONER O....
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....Act viz., (i) Manufacture or production of any article or thing or computer software; (ii) not being formed by the splitting up, or the reconstruction, of a business already in existence; (iii) not being formed by the transfer of a new business of machinery or plant previously used for any purpose. 10. In the backdrop of aforesaid statutory provision, facts of the case in hand may be adverted to. The Commissioner of Income Tax (Appeals) in paragraph 4.4 has held that assessee is 100% export oriented undertaking, which has been recognized by the Board appointed under the Industries (Development and Regulation Act, 1951. In paragraph 4.18, it has been held by the Commissioner of Income Tax (Appeals) that there was no transfer of old plant and machinery to Unit-II and there was no formation of unit as transfer of old plant and machinery. In paragraphs 4.33 to 4.38, the Commissioner of Income Tax (Appeals) has examined the issue of manufacture / production of any article or thing and after referring to various decisions has recoded a finding that the activity of the assessee amounts to manufacture / production of articles or things. The Commissioner of Income Tax (Appeals) has r....
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....ection 10B of the Act. 11. The tribunal has taken note of contract research agreement executed between the assessee and SYNGENE. The end result of the research work undertaken by the assessee could be one among of the following three alternatives: (i) A specialty compound which is useful and to be used by the clients as a building block for other compounds of use in industry. (ii) A specialty compound which turns out to be no good, due to lack of required properties. (iii) No compound but only certain research documentation in the nature of experimental records and laboratory notebooks, showing the results of the research which in turn show that has been empirically achieved. 12. The tribunal has held that in respect of first two contingencies, undoubtedly, there is a production or manufacture in the nature of a compound. However, in respect of third contingency by placing reliance on the decision of the Supreme Court in 'CIT VS. M.C.BUDHI RAJA AND CO.', 204 ITR 412, it has held that even in respect of third contingency, it can be held that the assessee is engaged in the activity of production. Thus, the order passed by the Commissioner of Income Tax (Appeals) has b....