The Commissioner Of Income Tax,Ward Xiii(2), Chennai v. M/S Deco De Trend5Th Floor, Nelson Towers

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 13.02.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.90 of 2011 The Commissioner of Income Tax,Ward XIII(2), Chennai.... Appellant Vs. M/s Deco De Trend5th Floor, Nelson Towers,117, Nelson Manickam Road,Chennai - 29. ...RespondentAppeal filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal,"A"Bench,Chennaidated08.09.2010passedinI.T.A.No.1043/Mds/2010. Against the Appellate order of the Commissioner of IncomeTax (Appeals) XII, Chennai 600 034, dated 19/03/2010 and madein ITA. No. 227/09-10 for the Assessment Year 2007-08 and Against the Assessment Order of the Income Tax Officer,Business Ward XIII (2), Chennai 600 034, dated 31.12.2009 andmade in PAN/GIR No. AADFD 4304 P for the Assessment Year2007-08. For Appellant : M/s.V.Pushpa Junior Standing Counsel for M/s.M.Swaminathan Senior Standing CounselFor Respondent : Notice served No appearance JUDGMENT (Judgment of the Court was delivered by DR.VINEET KOTHARI, J.) This Appeal has been filed by the Revenue against theorder of the learned Income Tax Appellate Tribunal, Chennai https://hcservices.ecourts.gov.in/hcservices/ dated 08.09.2010 for the Assessment Year 2007-08 whereby thelearned Tribunal held that the Assessee is entitled to benefitunder Section 10B of the Income Tax Act as the activitycarried out by the Assessee of manufacturing and export ofarticles ready to decorate products such as bouquets, and alsohome and office decorations, garlands, potpourris etc. 2.The present Appeal was admitted by a Coordinate Benchof this Court on 08.03.2011 with the following SubstantialQuestions of Law. "(i) Whether on the facts and in the circumstancesof the case, the Tribunal was right in deciding thatthe assessee is entitled for deduction under Section10B contrary to the mandatory provision stipulatedunder the Act? (ii) Whether on the facts and in the circumstancesof the case, the Tribunal was right in not decidingor giving any finding on the claim of the assesseefor deduction of the assessment year 2007-08?" 3.The findings of the learned Tribunal in its orderare quoted below for ready reference."3.2 On going through the impugned assessmentorder for the assessment year 2007-08, it is seenthat all the main issue raised by the appellantregarding the nature of activities carried on by thefirm and the fact of non-violation of the provisionsof Sec.10B(2)(ii) were dealt with the appellateorder for the assessment year 2005-06, cited supra.The facts and circumstances being the same for theassessment year 2007-08 also, the same views holdgood. As regards the other point regarding thepurchases of raw materials as claimed by theappellant firm for the accounting period relevant tothe impugned assessment year, it is seen from acareful reading of the assessment order that thoughthe Assessing Officer had questioned the purchasesas claimed by the appellant firm, no specificdisallowances had been made. So long as theAssessing Officer had accepted the profits as shownby the appellant firm as correct, it is considerednot necessary to deal with this issue separately." 4.The learned counsel for the Appellant/Revenue howeverfairly submitted that the issue has already been decidedagainst the Revenue in the Appeals related to other assessmentyears of the same Assessee and copy of one such judgmentrendered on 2 July, 2013 in Commissioner of Income Tax, Ward-XIII (2), Chennai Vs. Deco De Trend [2013] 37 taxmann.com 33(Madras) is cited at the bar. A Coordinate Bench of this Courtin the said judgment held as under: 4.The learned counsel for the Appellant/Revenue howeverfairly submitted that the issue has already been decidedagainst the Revenue in the Appeals related to other assessmentyears of the same Assessee and copy of one such judgmentrendered on 2 July, 2013 in Commissioner of Income Tax, Ward-XIII (2), Chennai Vs. Deco De Trend [2013] 37 taxmann.com 33(Madras) is cited at the bar. A Coordinate Bench of this Courtin the said judgment held as under: "15. We agree with the contentions made by thelearned senior counsel appearing for the assesseethat the process which the assessee had undertakensatisfies the test of manufacture to qualify forrelief under Section 10B of the Income Tax Act. Asalready narrated in the preceding paragraph, theemphasis of the Revenue is that in the absence ofany definition under the Act as to what'manufacture' is, the decision of the Apex Courtreported in 292 ITR 444 (CIT V. Tara Agencies) wouldsquarely apply. It is contended that every changeis not 'manufacture' and every change in an articleas the result of treatment, per se, would not resultin 'manufacture'. There is no dispute on this broadprinciple. However, it is not denied by the Revenuethat apart from cleaning and grading, the assesseehad taken further processing; that what is purchasedas raw material and what is exported as a productfor export are totally different items. The processthat the assessee had undertaken clearly points outthe irreversible nature of the final end productfrom a raw material purchased and given the abovesaid fact, which the Revenue does not deny, we haveno hesitation in accepting the contention of theassessee that there was, in fact, 'manufacture'. 16. We accept the contention of the assessee inthis regard drawing support from the decision of theApex Court reported in 251 ITR 323 (Aspinwall & Co.Ltd. V. Commissioner of Income Tax (Appeals)) thatthe word 'manufacture' has to be understood incommon parlance, there being no definition of theword 'manufacture' in the Act. Even if one looks atthe definition of 'manufacture', as given underExplanation 3 to Section 10B, as it existed prior toits substitution in 2001, we find, the term wasdefined inclusively that any process or assemblingor recording of programme or disc, tape, perforatedmedia or other information storage device arebrought under the definition of 'manufacture'. Inany event, with the definition of 'manufacture'available as under Explanation 4 to Section 10B ofthe Income Tax Act, inserted by Finance Act, 2003,with effect from 1.4.2004, which defines'manufacture or produce' to include the cutting andpolishing of precious and semi-precious stones, asis relevant for the assessment years underconsideration, the decision relied on by the Revenueis not of any assistance. Learned Standing counselappearing for the Revenue brought to our attention Section 2(29)BA, inserted under the Finance (No.2)Act 2009, with effect from 1.4.2009, which defines'manufacture' to mean a change in a non-livingphysical object or article or thing resulting intransformation of the object or article or thinginto a new and distinct object or article or thinghaving a different name, character and use; orbringing into existence of a new and distinct objector article or thing with a different chemicalcomposition or integral structure. Section 2(29)BA, inserted under the Finance (No.2)Act 2009, with effect from 1.4.2009, which defines'manufacture' to mean a change in a non-livingphysical object or article or thing resulting intransformation of the object or article or thinginto a new and distinct object or article or thinghaving a different name, character and use; orbringing into existence of a new and distinct objector article or thing with a different chemicalcomposition or integral structure. 17. Even though the definition of 'manufacture'under Section 2(29)BA, as amended under Finance Act2 of 2009, with effect from 1.4.2009 and Explanation3 to Section 10B, as it stood prior to the FinanceAct, 2001 are not of any relevance to the case onhand relating to the assessment years 2004-05, 2005-06, 2006-07 and 2008-09, yet, with Explanation 4 toSection 10B of the Income Tax Act, inserted byFinance Act, 2003 with effect from 1.4.2004,defining 'manufacture' or produce' to include thecutting and polishing of precious and semi-preciousstones and the idea of granting exemption/deductionunder Section 10B being clear, the relief underSection 10B of the Income Tax Act cannot be denied.18. In the decision reported in 251 ITR 323(Aspinwall & Co. Ltd. V. Commissioner of Income Tax(Appeals)), the Apex Court observed "the word"manufacture" has not been defined in the Income TaxAct. In the absence of a definition, the word"manufacture" has to be given a meaning as isunderstood in common parlance. It is to beunderstood as meaning the production of articles foruse from raw or prepared materials by giving suchmaterials new forms, qualities or combinationswhether by hand labour or machines. If the changemade in the article results in a new and differentarticle then it would amount to manufacturingactivity." Thus the Apex Court pointed out that ifthe commodity can no longer be regarded as theoriginal commodity but instead is recognized as anew and distinct article, then the activity ofmanufacture can be said to take place.19. The decision relied on by the Revenuereported in 292 ITR 444 (CIT V. Tara Agencies),however, stands on a different footing. There, theassessee was engaged in purchase of differentqualities of tea and blending the same for thepurpose of export. On the question as to whetherthe assessee would be entitled to weighted deductionunder Section 35B(1A) of the Income Tax act, the Supreme Court pointed out on facts that theassessee's activity amounted to processing only andthe activity did not amount to production ormanufacture. Thus the case relied on by the Revenueis distinguishable on facts. 20. Given the admitted fact that what waspurchased by the assessee as raw material andexported goods are totally different items andcommercially known as a different product, going bythe definition 'manufacture' in Explanation 4 toSection 10B of the Income Tax Act, we have nohesitation in agreeing with the contention of theassessee and thereby confirm the order of theTribunal. Supreme Court pointed out on facts that theassessee's activity amounted to processing only andthe activity did not amount to production ormanufacture. Thus the case relied on by the Revenueis distinguishable on facts. 20. Given the admitted fact that what waspurchased by the assessee as raw material andexported goods are totally different items andcommercially known as a different product, going bythe definition 'manufacture' in Explanation 4 toSection 10B of the Income Tax Act, we have nohesitation in agreeing with the contention of theassessee and thereby confirm the order of theTribunal. 21. As regards the splitting up under Section10B(2)(ii) of the Income Tax Act, it is not deniedby the Revenue that the assessee firm is a differentassessable entity from the company. It is notdenied by the Revenue that the mere fact of both theentities carrying on the same business, per se,would not lead to a conclusion that there was asplitting up of a company to a new entity, namely,firm. The Commissioner of Income Tax (Appeals) aswell as the Tribunal had looked into the facts ofthe case and ultimately came to the conclusion thatthe mere presence of three of the Directors aspartners, by itself, would not make the firm as one,split up from the company and both the entities dealin different graded products and they were one andthe same # while the company dealt with low endproducts, the assessee deals with high end products.The Tribunal, as a final fact finding authority, hasalso pointed out that the firm was constituted withthe capital contribution by the partners from theirpersonal funds. Thus, we do not find neither thepresence of the partners not the products dealt withwould be of any guidance to decide the issue raisedby the assessee. So too the workmen working in theassessee's business and in the company. In theabsence of any material to substantiate thecontention of the Revenue that the firm wasconstituted by splitting up of the company, we haveno hesitation in rejecting the plea of the Revenue.Consequently, we have no hesitation in confirmingthe order of the Tribunal. 22. For the reasons we have already given inthe preceding paragraph, the above Tax Case(Appeals) are dismissed. No costs." 5.None appears for the Respondent/Assessee to controvert these submissions. 6.Accordingly, the aforesaid appeal is also disposed ofin same terms and the questions of law are answered in favourof the Assessee and against the Revenue. The Appeal isaccordingly disposed of. There shall be no order as to costs. Sd/-Assistant Registrar (CS-I)//True Copy//Sub Assistant RegistrarSglTo 1.Income Tax Appellate Tribunal, 'A' Bench, Chennai.2.The Commissioner of Income Tax, Ward XIII (2), Chennai.3.The Commissioner of Income Tax, (Appeals) – XII, Chennai 600 034.4.The Income Tax Officer, Business Ward XIII (2), Chennai 600 034.+1cc to Mr.M.Swaminathan, Advocate, S.R.No. 11763T.C.A.No.90 of 2011 PA(CO)GN(18/03/2020)