The Commissioner Of Income-Tax, Panchkula v. M/S Haryana State Electronics Development Corporation Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 302 of 2008 Date of Decision: 20.4.2011 The Commissioner of Income-tax, Panchkula ....Appellant. Versus M/s Haryana State Electronics Development Corporation Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 302, 303, 304, 316 and361 of 2008, as according to learned counsel for the parties, commonquestions of law and facts are involved therein. For brevity, the factsare being taken from ITA No. 302 of 2008. 2.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 10.8.2007 passed by the Income Tax Appellate Tribunal,Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “theTribunal”) in ITA No. 368/Chandi/03, relating to the assessment year2000-01. ITA No. 302 of 2008 3.The appeal was admitted by this Court vide order dated18.9.2008 for determination of the following substantial question of law:- “Whether in the facts and circumstances of the casethe ITAT was right in holding that the activity of theassessee of manufacturing of identity cards amountsto 'manufacture' and the undertaking of the assesseeis an 'industrial undertaking' for the purpose ofSection 80-IA of the Act, and the assessee is eligiblefor benefit u/s 80-IA of the Act?” 4.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the assessee filed its return for theassessment year 2000-01 on 29.11.2000 declaring an income ofRs.1,30,31,964/- which was processed on 25.1.2001. It claimeddeduction of Rs.21,68,157/- under Section 80-IA of the Act.Proceedings under Section 148 of the Act were initiated. TheAssessing Officer disallowed the claim of the assessee vide order dated5.12.2002. Feeling aggrieved, the assessee took the matter in appealbefore the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 7.3.2003 upheld the order of the AssessingOfficer and dismissed the appeal. Being dissatisfied, the assesseeapproached the Tribunal by way of an appeal. The Tribunal vide orderdated 10.8.2007 allowed the appeal holding that the assessee waseligible for benefit under Section 80-IA of the Act. The revenue haschallenged the said order in the present appeal. 5.We have heard learned counsel for the parties. 6.The issue involved in this case is regarding allowability of deduction under Section 80-IA of the Act. The various grounds takenfor declining the claim of the assessee are:- (i)No manufacturing or production activity resulting inany article or thing is undertaken which would termthe assessee as an “industrial undertaking” and,thus, not entitled to deduction under Section 80-IA ofthe Act; (ii) The voter identity card being prepared by theassessee could not be termed as “goods”; thepreparation of photo identity card was taken asservice provided to a particular customer and theidentity card was not for general public use; (iii) the product of the assessee can be classified as“photography apparatus and goods” which iscovered in the Eleventh Schedule of the Act. In viewof Section 80-IA(2)(iii) of the Act, an industrialundertaking which manufactures or produces, anyarticle or thing specified in the list in EleventhSchedule of the Act is not entitled to deduction underSection 80-IA of the Act. (ii) The voter identity card being prepared by theassessee could not be termed as “goods”; thepreparation of photo identity card was taken asservice provided to a particular customer and theidentity card was not for general public use; (iii) the product of the assessee can be classified as“photography apparatus and goods” which iscovered in the Eleventh Schedule of the Act. In viewof Section 80-IA(2)(iii) of the Act, an industrialundertaking which manufactures or produces, anyarticle or thing specified in the list in EleventhSchedule of the Act is not entitled to deduction underSection 80-IA of the Act. 7.Section 80-IA provides for deduction to an assessee whosegross total income includes any profits and gains derived from anybusiness of an industrial undertaking. The assessee is required to fulfillall the conditions enumerated in sub-section (2) to be eligible fordeduction under Section 80-IA of the Act. However, sub-clause (iii)thereof provides that the article or thing manufactured or produced by the assessee should not fall in Eleventh Schedule of the Act. Therelevant portion thereof reads thus:- “it manufacturers or produces any article or thing, notbeing any article or thing specified in the list in theEleventh Schedule, or operates one or more coldstorage plant or plants, in any part of India: Provided that the condition in this clause shall, inrelation to a small scale industrial undertaking or anindustrial undertaking referred to in sub-clause (b) ofclause (iv) which begins to manufacture or producean article or thing during the period beginning on theIst day of April, 1993 and ending on the 31[st] day ofMarch, 2000, apply as if the words “not being anyarticle or thing specified in the list in the EleventhSchedule” had been omitted.” 8.In order to adjudicate the issue relating to the assesseebeing an “Industrial Undertaking” or not and whether it carries on anymanufacturing activity, it would be expedient to notice the details ofactivities undertaken by the assessee, which are as under:- “(a)Data from the voter list is entered into the computer,such data includes name, age, sex and address ofthe voters constituency-wise in bilingual.such data includes name, age, sex and address ofthe voters constituency-wise in bilingual. (b)Photography of the individual voter-wise is carriedout with the help of cameras, attendant equipmentviz. TV, VCR, generator, monitor, video tapes etc.out with the help of cameras, attendant equipmentviz. TV, VCR, generator, monitor, video tapes etc. (c)Feeding the data from video tapes to the computer machine for onward processing of Identity Cards. (d)Application of hologram of the State on each suchcard and appending the signatures of the issuingauthority etc. (e)Printing and lamination of the Identity Cards. (f)Miniature Printing for onward transmission to theElection Department.”Election Department.” 9.In addition to the above, the final photo identity card whichis prepared by the assessee is a completely new product from the datafrom which it is started. Further, the assessee had installed variouscomputers and other plant and machinery for the preparation of identitycard. 10.Learned counsel for the assessee had placed heavyreliance on the Supreme Court judgment in Income Tax Officer v.Arihant Tiles and Marbles (P) Ltd. [2010] 320 ITR 79 (SC) whereinsawing marble blocks into slabs and tiles and polishing was held to bemanufacture or production for purposes of Section 80-IA(2) of the Act.The Apex Court analyzing the legal position and in view of the judgmentin CIT v. N.C. Budhiraja & Co. [1993} 204 ITR 412 (SC) explained thescope of “manufacture” and “production” as follows:- 9.In addition to the above, the final photo identity card whichis prepared by the assessee is a completely new product from the datafrom which it is started. Further, the assessee had installed variouscomputers and other plant and machinery for the preparation of identitycard. 10.Learned counsel for the assessee had placed heavyreliance on the Supreme Court judgment in Income Tax Officer v.Arihant Tiles and Marbles (P) Ltd. [2010] 320 ITR 79 (SC) whereinsawing marble blocks into slabs and tiles and polishing was held to bemanufacture or production for purposes of Section 80-IA(2) of the Act.The Apex Court analyzing the legal position and in view of the judgmentin CIT v. N.C. Budhiraja & Co. [1993} 204 ITR 412 (SC) explained thescope of “manufacture” and “production” as follows:- “It was held that the word “manufacture” and theword “production” have received extensive judicialattention both under the income-tax as well as underthe Central excise and the sales tax laws. The testfor determining whether “manufacture” can be said tohave taken place is whether the commodity, which is subjected to a process can no longer be regarded asthe original commodity but is recognized in trade as anew and distinct commodity. The word “production”,when used in juxtaposition with the word“manufacture”, takes in bringing into existence newgoods by a process which may or may not amount tomanufacture. The word “production” takes in all theby-products, intermediate products and residualproducts which emerges in the course ofmanufacture of goods.” 11.Applying the aforesaid tests, it was concluded by the ApexCourt as under:- “We are of the view that blocks converted intopolished slabs and tiles after undergoing the processindicated above certainly result in emergence of anew and distinct commodity. The original block doesnot remain the marble block, it becomes a slab ortitle. In the circumstances, not only is theremanufacture but also an activity which is somethingbeyond manufacture and which brings a newproduct into existence and, therefore, on the facts ofthese cases, we are of the view that the High Courtwas right in coming to the conclusion that the activityundertaken by the respondents-assessees didconstitute manufacture or production in terms ofsection 80-IA of the Income-tax Act, 1961.” 12.It would be appropriate to examine the facts of the presentcase in the light of settled legal enunciation noticed hereinabove. Theassessee for preparation of photo identity cards has to process thedata, print the same on the cards, put hologram containing the Stateemblem, take photograph of the voter, match the photo with voter'sdata, affix the same on the cards and laminate the cards and take outthe master copy duly laminated, consisting 40 miniatures per page ofthe above cards for the Election Department. The aforesaid activityinvolves making of a new final product from the data with which itstarted and would, thus, amount to manufacture or production of anarticle or thing. Once it is held that the assessee was manufacturing orproducing an article or thing, necessarily it has to follow that theassessee is an “Industrial Undertaking” and covered under theprovisions of Section 80-IA of the Act. 13.The aforesaid view has the acceptance of the legislativeintent as Finance (No.2) Act, 2009 effective from 1.4.2009 hasinserted Section 2(29BA) in the Act which defines “manufacture” asunder:- “(29BA) “manufacture“, with its grammaticalvariations, means a change in a non-living physicalobject or article or thing,- (a)resulting in transformation of the object orarticle or thing into a new and distinct object or articleor thing having a different name, character and use;or (b) bringing into existence of a new and distinctobject or article or thing with a different chemical composition or integral structure.” 13.The aforesaid view has the acceptance of the legislativeintent as Finance (No.2) Act, 2009 effective from 1.4.2009 hasinserted Section 2(29BA) in the Act which defines “manufacture” asunder:- “(29BA) “manufacture“, with its grammaticalvariations, means a change in a non-living physicalobject or article or thing,- (a)resulting in transformation of the object orarticle or thing into a new and distinct object or articleor thing having a different name, character and use;or (b) bringing into existence of a new and distinctobject or article or thing with a different chemical composition or integral structure.” 14.The benefit of deduction under Section 80-IA of the Act wassought to be denied on the plea that the assessee was renderingservices to a particular customer and the identity card was not forgeneral public use. The Tribunal had repelled the said objection asnoticed in paras 12 and 13 of its order as under:- “12.Another objection is that the voter identity cardcannot be understood as 'goods'. It is argued by theRevenue that the manufacture of photo identity cardsis a service provided by the assessee to a particularcustomer and the product so manufactured orproduced are not for use by general public. In thisconnection a reference can be made to the decisionof the Bombay High Court in the case of EmiratesCommercial Bank Ltd., 262 ITR 55. In this judgment,the Hon'ble Bombay High Court was dealing with theclaim of deduction u/s 32A in respect of computersinstalled in the office premises of the bank. Indenying the claim, the Revenue contended beforethe Hon'ble High Court that in order to attract Section32A(2)(b)(iii), there should be existence of plant &machinery in an “industrial undertaking” for thepurposes of business of 'manufacture' or 'production'of any article or thing. It was argued that theassessee was a banking business and could not beconstrued as an “industrial undertaking”. In this context, the Hon'ble High Court noted that thecomputers were used to process the customer's dataand the out-put which resulted from the computersconsisted of management reports. That even a bankwould constitute an “industrial undertaking” in thesense that although it was rendering services, still inthe course of its business, it produces articles andthings. It was, therefore, concluded that theconditions of Section 32A(2)(b)(iii) are satisfied. TheHon'ble High Court specifically noted that the natureof service rendered by the bank to its customersinvolved the work of data processing and on thebasis of such processing, information was providedto the customers. 13.In our view the parity of reasoning weighingwith the Hon'ble Bombay High Court in the case ofEmirates Commercial Bank Ltd. (supra) clearlyapplies in the instant case for the purposes ofconstruing the eligibility of assessee's industrialundertaking for the purposes of benefits u/s 80-IA ofthe Act. In Section 32A(2)(b)(iii) the reference is toan 'industrial undertaking' for the purposes ofbusiness of construction, manufacture or productionof any article or thing. Similarly in Section 80IA(2)(iv)(a) also the reference is to an industrial undertakingwhich manufactures or produces articles or things. In fact according to the Hon'ble High Court, the dataprocessing itself tantamounts to meeting the criteriaof “manufacture”. The instant case of the assesseestands on a better footing inasmuch as the assesseeproduces a tangible production in the shape of photoidentity cards. Therefore, in our view the aforesaidobjection taken by the Revenue does not help itsstand of denying relief u/s 80-IA to the assessee.” 15. Learned counsel for the revenue could not demonstratethat the approach of the Tribunal in this respect was perverse orerroneous in any manner. fact according to the Hon'ble High Court, the dataprocessing itself tantamounts to meeting the criteriaof “manufacture”. The instant case of the assesseestands on a better footing inasmuch as the assesseeproduces a tangible production in the shape of photoidentity cards. Therefore, in our view the aforesaidobjection taken by the Revenue does not help itsstand of denying relief u/s 80-IA to the assessee.” 15. Learned counsel for the revenue could not demonstratethat the approach of the Tribunal in this respect was perverse orerroneous in any manner. 16.Lastly, Schedule XI prescribes negative list which in termsof clause (iii) of sub-section (2) of Section 80-IA denies benefit to anassessee in respect of manufacture or production of items which fallsthereunder. Entry 10 of Schedule XI reads “photography apparatus andgoods”. The manufacture of identity cards cannot be described asphotography apparatus and goods. In fact, the assessee is taking theaid of photographic apparatus and goods for manufacturing orproducing identity cards. The Tribunal while adjudicating the aforesaidissue in favour of the assessee had recorded as under:- “14.The Assessing Officer has also taken anobjection that the product of the assessee can beclassified as photography apparatus and goods andthe same is covered in the Eleventh Schedule of theAct. Therefore, the assessee's undertakingmanufacturing such goods is not eligible for benefits u/s 80-IA. Section 80-IA(2)(iii) provides for denial ofdeduction to an industrial undertaking whichmanufactures or produces any article or thingspecified in the list in Eleventh Schedule of the Act. 15.We have perused the Eleventh Schedule andthe relevant entry reads as “photography apparatusand goods”. We are unable to uphold the stand ofthe revenue for the reason that it is nobody's casethat the assessee is engaged in manufacture ofphotographic products and goods. At best it can besaid that the assessee is utilizing photographicapparatus and goods in its process of manufacturing.By no stretch can it be said that the assessee ismanufacturing photographic products and goods.Therefore, said objection of the Assessing Officer isalso not tenable.” 17.No fault could be pointed in the conclusion of the Tribunalwhile adjudicating the aforesaid ground. In view of the above, we donot find any substance in the objections raised by the revenue.Accordingly, the question of law is answered against the revenue and infavour of the assessee. 18.The appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL)JUDGE IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 303 of 2008 Date of Decision: 20.4.2011 The Commissioner of Income-tax, Panchkula ....Appellant. Versus M/s Haryana State Electronics Development Corporation Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 302 of 2008 (The Commissioner of Income-tax,Panchkula v. M/s Haryana State Electronics DevelopmentCorporation Ltd). (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL) JUDGE IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 304 of 2008 Date of Decision: 20.4.2011 The Commissioner of Income-tax, Panchkula ....Appellant. Versus M/s Haryana State Electronics Development Corporation Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. in ITA No. 302 of 2008 (The Commissioner of Income-tax,Panchkula v. M/s Haryana State Electronics DevelopmentCorporation Ltd). (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL) JUDGE IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 304 of 2008 Date of Decision: 20.4.2011 The Commissioner of Income-tax, Panchkula ....Appellant. Versus M/s Haryana State Electronics Development Corporation Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 302 of 2008 (The Commissioner of Income-tax,Panchkula v. M/s Haryana State Electronics DevelopmentCorporation Ltd). (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL) JUDGE IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 316 of 2008 Date of Decision: 20.4.2011 The Commissioner of Income-tax, Panchkula ....Appellant. Versus M/s Haryana State Electronics Development Corporation Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 302 of 2008 (The Commissioner of Income-tax,Panchkula v. M/s Haryana State Electronics DevelopmentCorporation Ltd). (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL) JUDGE IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 361 of 2008 Date of Decision: 20.4.2011 The Commissioner of Income-tax, Panchkula ....Appellant. Versus M/s Haryana State Electronics Development Corporation Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Senior Standing Counsel,for the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 302 of 2008 (The Commissioner of Income-tax,Panchkula v. M/s Haryana State Electronics DevelopmentCorporation Ltd). (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL) JUDGE