1. Revenue is in appeal before the Tribunal against the order of the ld.CIT(A)- XX, Ahmedabad dated 8.7.2011 passed for the Asstt.Year 2008-09.
2. Though the Revenue has taken three grounds of appeal, but its grievance revolves around single issue whereby it has pleaded that ld.CIT(A) has erred in allowing deduction of Rs.44,94,463/- under section 80IC of the Income Tax Act.
3. Brief facts of the case are that the assessee has filed its return of income on 20.9.2008 declaring total income at Rs.2,00,211/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has claimed deduction under section 80IC(2)(a) of the Act of Rs.44,94,462/-. In support of its claim, the assessee has filed a report in Form no.10CCB. The assessee-company was manufacturing electric bike at the relevant time. The ld.AO has disallowed claim of the assessee on ground that the assessee-company was not manufacturing electric bike, rather, it was assembling parts procured from China. Thus, in the opinion of the AO, assembling of the part does not amount to manufacturing of and/or production of any products. Apart from this objection, the ld.AO further doubted the capacity of the assessee to manufacture bike on the ground that plant and machinery of Rs.8,52,348/- only was installed by the assessee, which could not generate a sale turnover of Rs.3,53,78,640/-. The AO has observed that out of the total value of plant and machinery, a conveyor belt with system was having value of Rs.5,61,242/-. In other words, reference to the details of this value was made with intention to demonstrate that turnover of this magnitude cannot be achieved by utilization of small plant & machinery. The AO, thereafter, observed that the assessee failed to give details workers. Accordingly, he disallowed the claim of the assessee.
4. On appeal, the ld.CIT(A) has allowed the claim of the assessee by observing as under:
"4.3 Appellant company is having its Principal place of business at Brahmpuri Building, S.T. Road, Palanpur, Gujarat. Its factory is located in Dehradun. During the year under consideration, it claimed deduction u/s.80-IC of Rs.46,94,674/-. This claim was denied by the AO on the ground that appellant is not engaged in production or manufacture.
4.3(i) The contentions of the Learned AR in brief are as follow. Appellant commenced its activity on 27-11-2006. It is manufacturing Electric Bikes. It registered its brand, design and patents with the Controller General of Patents, Design and Trademarks. It is registered as manufacturing unit with Commercial Tax Office and District Industries Center. It imports spare-parts of electronic bikes from china in completely knocked down (CKD) condition. It assembles the parts at its factory with the help of machinery. Products of the company, i.e. Electric bikes are falling under Chapter 87(entry No. 119091) of Central Excise Duty and Tariff. It enjoys exemption from excise duty by virtue of notification No.50/2003 CE dt. 10-6-2003. It was filing excise returns containing monthly information (regarding the value of production and amount of Excise duty exemption claimed) with the Central Excise Department. It procures the chasis from China in CKD condition as per the design provided by it with its logo. Front Shockers, Tyres & Tubes, Nuts, Bolts and Screws are procured in India. After welding and assembling the bike, accessories are fitted. The resultant product is commercially distinct. The activity squarely falls under section 2(29BA)(a) (which defines manufacture) inserted w.e.f. 01-04-2009. During the course of hearing, the learned AR relied on the cases of CIT v. Chiranjeevi Wind Energy Ltd. (333 ITR 192)(Mad.)(2011) and CIT v. Mahesh Chandra Sharma(308 ITR 222)(P &H).
4.3(ii) Having considered the facts of the case, I am inclined to accept the contentions of the appellant. The design of the bikes was registered with the patent office vide the 'Certificate of Registration of Design' dt. 10-09-2007. 'Electric Bikes' are excisable, but for the exemption given by notification No.50 dt. 10-06-2003. Appellant is filing excise returns monthly. In the case cited at 308 ITR 222(relied on by the AR), Punjab & Haryana High Court held that -"Motorcycle wheel assembled by assessee by using rim, tube, tyre, bearing, drum, spoke, nipple and collar resulted in an article distinct in name, character and use hence 'manufacture' eligible for deduction under s.80-IB; finding arrived at by Tribunal is a finding of fact not giving rise to any substantial question of law."
In the case cited at CIT v. Chiranjjeevi Wind Energy Ltd. [2011] 333 ITR 192 (relied on by the AR), Madras High Court upheld the Tribunal's order (which in turn referred to various latest case- laws cited at India Cine Agencies v. CIT [2009] 308 ITR 98(SC); Vijay Ship Breaking Corpn. v. CIT [2009] 314 ITR 309(SC); CITv. Goetze (India) Ltd. [2010] 321 ITR 431 (Delhi), by observing that-
"Applying the above test to the case on hand, the different parts procured by the respondent - assessee by themselves cannot, be treated as a Wind Mill. Those different paerts bear distinctive names and when assembled together, thereafter it gets transformed into an ultimate product which is commercially known as a "Wind Mill". There can, therefore, be no difficulty in holding that such an activity carried on by the respondent- assessee would amount to "manufacture" as well as "production: of a thing or article as set out in Section 80IB(2)(iii) of the Income-tax Act. In such circumstances, the conclusion of the Tribunal in accepting the plea of the respondent assessee cannot be found fault with. We, therefore, do not find any question of law, much less substantial question of law, to entertain this appeal."
4.3(iii) In view of the above discussion, I hold that the activity of the appellant is one of manufacture or production. Denial of deduction u/s.80- IC is not in accordance with law. AO is directed to allow the deduction. This ground of appeal is allowed."
5. With the assistance of the ld. representatives, I have gone through the record carefully. The dispute is whether assembling of parts for bringing into existence an electric bike amounts to manufacturing or not. The expression "manufacture" has been defined in section 2(29)(B)(a) which read as under:
'(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.' |
6. However, expression "production" has not been defined in the Act. The expression "manufacture" as well as production have fallen for their interpretation and construction not only at the level of ITAT but before the Hon'ble Supreme Court also and the Hon'ble Court has explained both these expressions in detail. A reference to the decision of Hon'ble Supreme Court in the case of ITO v. Arihant Tiles & Marbles (P.) Ltd. [2010] 320 ITR 79/186 Taxman 439, India Cine Agency v. CIT [2009] 308 ITR 98/175 Taxman 361 (SC), CIT v. Sesa Goa Ltd.[2004] 271 ITR 331/[2005] 142 Taxman 16 (SC) and to the following decision of Hon'ble Gujarat High Court can be made :
| (a) |
CIT v. Nee Pharma (P.) Ltd. [1982] 137 ITR 879/10 Taxman 218 (Bom.) |
(b) |
CIT v. Anglo French Drug Co. Ltd. [1991] 191 ITR 92/57 Taxman 8 (Bom.) |
(c) |
CIT v. Prabhudass Kishore Dass Tobacco Products [2006] 282 ITR 568/154 Taxman 404 (Guj.). |
7. Let us bring at home the meaning of expression "manufacture and production" as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court.
8. In the case of India Cine Agency case (supra), Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa Ltd. (supra) and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as "production". The relevant discussion made by the Hon'ble Court reads as under:
'2. As noted above, the core issue is whether activity undertaken was manufacture or production.
3. In Black's Law Dictionary (5th Edition), the word "manufacture' has been defined as, "the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine". Thus by process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which the thing or product is manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. (See Dy. CST (Law), Board of Revenue (Taxes) Coco Fibres [1992] Supp. 1 SCC 290)'.
9. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass.
10. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture. (See Collector of Central Excise v. Rajasthan State Chemical Works [1991] 4 SCC 473).
11. To put it differently, the test to determine whether a particular activity amounts to "manufacture' or not is: Does a new and different good emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314).
12. Apart from the above, the assessee has relied upon the judgment of the Hon'ble Madras High Court as well as Hon'ble Punjab and Haryana High Court discussed by the ld.CIT(A) in the finding extracted supra. In the light of the above, if the activity of the assessee is being examined, then, it would reveal that the parts imported by the assessee from China had undergone a change and new product came to the light. The assessee has produced flow chart giving different stages how the product has undergone changes. This flow chart has been reproduced by the ld.CIT(A) while taking cognizance of the assessee's written submissions. As far as the objection of the AO that the very meager machinery was being used by the assessee is concerned, the case of the assessee is that it requires only tools and not big plant to assemble parts. Similar, section 80IC nowhere laid down condition for employment of specific number of employees. Therefore, that objection of the AO is only irrelevant. Considering the finding of the ld.CIT(A), I do not see any reason to interfere in it. The appeal of the Revenue is dismissed.
13. In the result, the appeal of the Revenue is dismissed.