The Commissioner Of Income Taxchennai v. M/S.gemini Communication Ltd

In the High Court of Judicature at Madras Dated:13.08.2013 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMANandThe Honourable Ms.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.400 of 2013 The Commissioner of Income TaxChennai. .... Appellant Vs. M/s.Gemini Communication Ltd.,No.1, Dr.Ranga Road,Alwarpet, Chennai – 600 018. .... Respondent APPEAL under Section 260A of the Income Tax Act, 1961 againstthe order dated 9.11.2012 made in I.T.A.No.1619/Mds/2012 on the fileof the Income Tax Appellate Tribunal, Madras 'C' Bench for theassessment year 2006-07 (ITA NO.103/11-12/A.III dated 04.05.2012 onthe file of the Commissioner of Income-Tax (A)-III Chennai againstPAN/GIR No.AAACG2531K dated 14.10.2011 on the file of the AssistantCommissioner of Income-Tax Company Circle II (2) Nungambakkam,(Chennai) For Appellant : Mr.T.RavikumarStanding Counsel for Income Tax----------- J U D G M E N T (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) Following is the substantial question of law raised by theRevenue seeking admission of this Tax Case (Appeal) relating to theassessment year 2006-07: "Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was right inholding that the disallowance of deduction ofRs.8,84,78,097/- made under Section 80 IC is to beallowed?" https://hcservices.ecourts.gov.in/hcservices/ 2. The assessee is engaged in the business of manufacture andservice of communication and networking products, mainly to StateGovernment and Central Government undertakings. It suppliedcommunication device to TNEB and BSNL to the extent of Rs.37.62crores, out of the total sale of Rs.52.61 crores. In order to complywith the purchase order of Tamil Nadu Electricity Board fordecentralization of various collection centres with theadministrative network for the whole State, the assessee is stated tohave purchased imported PCBs, RAMs, high and low transmissionwireless adaptors, wireless antennae components, flash ram software,Red Hat Linux software and other networking components. Using thesecomponents, the assessee redesigned, developed and manufactured asingle product to suit the requirement of the project. As the endproduct was a distinct article and a marketable product, the assesseeclaimed deduction under Section 80 IC of the Income Tax Act. TheAssessing Officer viewed that the assessee was only doing assemblingwork and not manufacture and hence, not eligible for deduction underSection 80IC of the Income Tax Act. Aggrieved by this, the assesseewent on appeal before the Commissioner of Income Tax (Appeals). 3. It is seen from the order of the Commissioner of Income Tax(Appeals) that the assessee had provisional registration fromHimachal Pradesh State Industrial Development Corporation on22.8.2005 and it started its manufacturing/production activity from arented premises in Himachal Pradesh. The assessee constructed itsown factory in the year 2006 and got permanent registrationcertificate on 12.12.2008. The first Appellate Authority pointed outthat after procuring raw materials and designing the product, on thestructured steel panel, an empty chip called E-Prom was fixed at thedesignated place. Subsequently, based on the requirements of high orlow transmission, wireless adaptor was built in on the structuredsteel panel inside the CPU. A software named Red Hat Linux softwarespecifically developed for the TNEB project was then transferred fromthe master data to the empty E-Prom chip. This software loaded chipwas only allowed to access the frequency with the centralizedadministration network of the TNEB and other customers, thus emergedas a distinct and different new product to suit the specificrequirement of the particular customer. The indigenously designedand manufactured product would not be available in the market to anyother person. It is stated that in the course of manufacture, theraw material/inputs used therein underwent several processes and anew commercial product emerged, which was a distinct and separatecommodity, having its own character, use and name. 4. In the background of this, the Commissioner of Income Tax(Appeals), applied the decision of the Apex Court reported in 220 CTR223 (India Cine Agencies V. Commissioner of Income Tax (Appeals) as well as the decisions reported in 2002 (11) LCX 0086 (Titan MedicalSystems Pvt. Ltd. V. Commissioner of Customs) and (2010) 320 ITR 546(SC) (CIT V. Oracle Software India Ltd.,) and allowed the assessee'sappeal on the claim of deduction under Section 80IC of the Income TaxAct. 5. Aggrieved by this, the Revenue went on appeal before theIncome Tax Appellate Tribunal, which agreed with the view of theCommissioner of Income Tax (Appeals). Thus, the Revenue's appeal wasdismissed. Aggrieved by this, the present appeal has been preferredby the Revenue. 6. Learned Standing Counsel appearing for the Revenuecontended that the mere assembling work could not amount tomanufacture. Consequently, the assessee was not entitled fordeduction under Section 80-IC of the Income Tax Act. 7. We do not find that the contention of the Revenue could beaccepted by this Court. It may be of interest to note that underSection 2(29BA) of the Income Tax Act, under Finance (No.2) Act of2009, with effect from 01.04.2009, the definition 'manufacture' wasinserted to mean, a change in a non-living physical object or articleor thing resulting in transformation of the object or article orthing into a new and distinct object or article or thing having adifferent name, character and use; or bringing into existence of anew and distinct object or article or thing with a different chemicalcomposition or integral structure. Even though the said amendmentwould not be of relevance to the assessment year under consideration,namely, 2006-2007, yet, the intention of the Revenue being very clearon the scope of the expression 'manufacture', on the findings of factthat the various materials that had gone into making of the radiofrequency identification device having thus undergone a change andthat they had lost their original identity, we have no hesitation inconfirming the order of the Tribunal. The Revenue has not placed anyfresh material either before this Court or before the Authoritiesbelow that the manufactured item was no different from the inputsthat were used in bringing out a totally different marketableproduct. 8. It may also be pointed out that in the decision reported in220 CTR 223 (India Cine Agencies V. Commissioner of Income Tax(Appeals)), the Apex Court pointed out that conversion of jumbo rollsof photographic films into small flats and rolls in desired sizeswould amount to manufacture or production, eligible for the benefitsunder Section 80 HH and 80-I of the Income Tax Act. Going by thedecision of the Apex Court reported in (2010) 320 ITR 546 (SC) (CITV. Oracle Software India Ltd.,) and applying the same on the factsfound, we have no hesitation in confirming the order of the Tribunal. Hence, we find no question of law arising for consideration to admitthis Tax Case (Appeal). Accordingly, this Tax Case (Appeal) standsdismissed. No costs. -s/d- Deputy Registrar True Copy Sub-Assistant Registrar slTo 1.The Assistant RegistrarIncome Tax Appellate Tribunal, Madras 'C' Bench.Rajaji Bhavan, III floor Besant Nagar, chennai2. The Commissioner of Income-Tax (Appeals) – III, Chennai – 34. 3. The Commissioner of Income-Tax, chennai4. The Assistant Commissioner of Income Tax, Company Circle II (2), Chennai 34.+1 cc to Mr.T.Revikumar, senior standing counsel for Income-Tax(sr.42444) T.C.(A) No.400 of 2013 jrm(co)aa 29/08/2013 https://hcservices.ecourts.gov.in/hcservices/