Ramachandran Nair, J v. Ita

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN TUESDAY, THE 21ST DECEMBER 2010 / 30TH AGRAHAYANA 1932 ITA.No. 84 of 2009() -------------------- ITA.375/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- M/S. MIDAS POLYMER COMPOUNDS(P) LTD., P.JOHN ZACHARIAH BUILDINGS, KOTTAYAM, REP. BY ITS DIRECTOR MR. ABRAHAM MATHEW. BY ADV. SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES SRI.B.J.JOHN PRAKASH RESPONDENT(S): --------------- THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, KOTTAYAM. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 23/11/2010, THE COURT ON 21/12/2010 DELIVERED THE FOLLOWING: ON 23/11/2010, THE COURT ON 21/12/2010 DELIVERED THE C.R. C .N. RAMACHANDRAN NAIR,BHABANI PRASAD RAY, &P.N. RAVINDRAN, JJ. -------------------------------------------- -------------------------------------------- Dated this the 21st day of December, 2010 JUDGMENT Ramachandran Nair, J. This is an appeal filed by the assessee challenging the order ofthe Income-tax Appellate Tribunal confirming disallowance of it'sclaim for deduction under Section 80IB of the Income Tax Act. Whenthe appeal was taken up before the Division Bench, assessee relied onanother Division Bench judgment of this Court in CIT V. FORBESEWART AND FIGGIS P.LTD., 238 I.T.R. 762, and contended that thesaid decision, though rendered in the context of assessee's entitlementfor investment allowance under Section 32A of the Act, is applicablefor considering eligibility for deduction under Section 80IB of the Actand so much so, appeal should be allowed by following the saiddecision. However, the Division Bench prima facie doubted whetherprocessing of goods done for another party by the assessee could betreated as manufacture or production of any article or thing for thepurpose of deduction under Section 80IB of the Act. Accordingly, for ITA No.84/2009 a detailed consideration of correctness of the said decision, the matterwas referred to the Full Bench. We have heard senior counsel, Sri. S.Ganesh appearing along with Advocate Sri. Joseph Kodianthara for theassessee, and standing counsel appearing for the respondent-revenue. 2. The assessee is engaged in manufacture of precured treadrubber and is also engaged in the job work of mixing of rubber withchemicals, process oil, etc. to make compound rubber for tyremanufacturing companies. The compound rubber is packed and sent totyre companies for use in manufacture of tyres. The assessee claimeddeduction under Section 80IB at 25% of the profit earned from theindustry wherein rubber mixing work was done as a job work for tyremanufacturing companies. The assessing officer held that the job workdone by the assessee by mixing rubber with chemicls, process oil, etc.,to make compound rubber does not amount to “manufacture orproduction of any article or thing” within the meaning of Section 80IBand so much so assessee is not entitled to any deduction. Thedisallowance was confirmed in two level appeals, and against theTribunal's order, the assessee has filed this appeal. 3. The assessee's counsel mainly relied on the decision of theDivision Bench of this Court in CIT V. FORBES EWART AND ITA No.84/2009 FIGGIS P.LTD., 238 I.T.R. 762, and several other decisions,particularly that of the Supreme Court in CIT V. N.C. BUDHARAJAAND CO., (1993) 204 ITR 412 (SC) and CIT V. SESA GOA LTD.,(2004) 271 I.T.R. 331 and contended that these decisions support theclaim of the assessee. Standing counsel appearing for the respondenton the other hand submitted that decision of this Court relied on by theassessee is in respect of investment allowance under Section 32A andthe decisions of the Supreme Court relied on by the assessee are alsonot in the context of Section 80IB of the Act. 3. The assessee's counsel mainly relied on the decision of theDivision Bench of this Court in CIT V. FORBES EWART AND ITA No.84/2009 FIGGIS P.LTD., 238 I.T.R. 762, and several other decisions,particularly that of the Supreme Court in CIT V. N.C. BUDHARAJAAND CO., (1993) 204 ITR 412 (SC) and CIT V. SESA GOA LTD.,(2004) 271 I.T.R. 331 and contended that these decisions support theclaim of the assessee. Standing counsel appearing for the respondenton the other hand submitted that decision of this Court relied on by theassessee is in respect of investment allowance under Section 32A andthe decisions of the Supreme Court relied on by the assessee are alsonot in the context of Section 80IB of the Act. 4. The only question to be considered is whether production ofcompound rubber on job work for the tyre manufacturing companies bythe assessee amounts to “production of an article or thing” qualifyingfor deduction under Section 80IB of the Act. The Division Benchdecision of this Court above referred is clearly on the point, though inthe context of investment allowance under Section 32A, becauseassessee in that case also was engaged in making of compound rubber for tyre manufacturing companies. This Court held that compoundrubber is an article or thing produced by the assessee in their factory entitling it for investment allowance. We notice that Section 80IB isworded in the same way as Section 32A and therefore the Division ITA No.84/2009 Bench decision of this Court squarely applies to the facts of this casealso. It is also seen from the two decisions of the Supreme Court thatSupreme Court has given a wide meaning to the expressions“manufacture or production of any article or thing”, occurring inSections 32A, 80IB, etc. In the SESA GOA LTD.'s case, the SupremeCourt held that processing of iron ore amounts to manufacture orproduction of any article or thing. In N.C. BUDHARAJA AND CO'scase, the Supreme Court held as follows: The word “production” or “produce” when used injuxtaposition with the word “manufacture” takes inbringing into existence new goods by a process which mayor may not amount to manufacture. it also takes in all theby-products, intermediate products and residual productswhich emerge in the course of manufacture of goods. What is made clear by the Supreme Court is that even production ofintermediary products is sufficient to entitle the assessee for deductionavailable to new industrial unit. Compound rubber produced by theassessee on job work for the tyre manufacturing companies is anintermediary from which tyre is manufactured. If processing of ironore which is only raw material for producing iron therefrom, amountsto manufacture or production of any article or thing, then we see noreason why compound rubber cannot be treated as an article produced ITA No.84/2009 by the assessee though for the tyre manufacturing company undercontract. In other words, there is nothing in the Section to indicate thatarticle or thing produced or manufactured should be final product initself. So much so, the activity of the assessee in their new industrialunit, which is mixing rubber with chemicals, process oil, etc., makingcompound rubber, is covered by Section 80IB of the Act. We noticethat the Tribunal has disallowed the claim by following the decision ofthe Supreme Court in CIT V. K. RAVINDRANATHAN NAIR, 295I.T.R. 228. What was considered in that case was assessee'sentitlement to treat processing charges received as part of export profitfor the purpose of deduction under Section 80 HHC of the act. We donot think the said decision has any application to the facts of this case.We therefore hold that assessee is entitled to deduction under Section80IB in respect of profit derived by the industrial unit where compoundrubber is made. 5. Assessee has raised another issue that is whether interestearned by the new industrial unit qualifies for deduction under Section80IB of the Act. Deduction under Section 80IB is admissible on theprofit earned by the new industrial unit. Even though it is stated thatinterest received is from the tyre manufacturing companies for belated ITA No.84/2009 payment of charges for job work done, details are not placed before us.If interest is assessable as business income then only it qualifies fordeduction under Section 80IB of the Act as part of profit earned. Onthis issue, we feel the decision of the Supreme Court in K.Ravindranathan Nair's case referred above applies. We thereforeremand this issue for the assessing officer to reconsider the same withreference to the facts and court decisions. In the result appeal is allowed as stated above. (C.N.RAMACHANDRAN NAIR)Judge.Judge. (BHABANI PRASAD RAY) Judge. (P.N. RAVINDRAN) Judge.