2009 (1) TMI 768 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80-IB for manufacturing activity.
2. Fulfillment of condition regarding the employment of 10 or more workers.
3. Legality and correctness of the Commissioner of Income-tax (Appeals) order.

Summary:

Issue 1: Deduction u/s 80-IB for manufacturing activity

The Revenue contended that the process of converting higher gauge CC copper wire rod into thinner gauge CC copper wire does not qualify as manufacturing, referencing the decision in CCE v. Technoweld Industries [2003] 155 ELT 209. The Assessing Officer (AO) disallowed the deduction u/s 80-IB, arguing that the activity did not amount to manufacturing as it did not bring into existence a new and different article. The AO focused on the term "manufacture" but overlooked the term "produce" used in section 80-IB. The Commissioner of Income-tax (Appeals) accepted the assessee's contention that the term "produces" has a wider connotation than "manufacture" and allowed the deduction. The Tribunal upheld this view, citing the Supreme Court's interpretation in Vijay Ship Breaking v. CIT [2008] 314 ITR 309 and CIT v. Sesa Goa Ltd. [2004] 271 ITR 331, which distinguished "production" as a broader term than "manufacture". The Tribunal concluded that the assessee's activity of making non-ferrous wires from heavy gauge rods amounts to "production" and is eligible for deduction u/s 80-IB.

Issue 2: Fulfillment of condition regarding the employment of 10 or more workers

The AO also disallowed the deduction on the grounds that the assessee did not employ 10 or more workers on a regular basis, a necessary condition for the deduction u/s 80-IB. The Commissioner of Income-tax (Appeals) found that the assessee was employing more than ten workers in its industrial undertaking. The Tribunal confirmed this finding, noting that the evidence showed the average number of workers employed during the relevant period was 10 or more, and the assessee was using power for production.

Issue 3: Legality and correctness of the Commissioner of Income-tax (Appeals) order

The Revenue argued that the Commissioner of Income-tax (Appeals) order was patently perverse and contrary to law. However, the Tribunal, after considering the rival submissions and precedents, upheld the Commissioner of Income-tax (Appeals) order, confirming that all conditions of section 80-IB were satisfied by the assessee.

In the result, the Revenue's appeal was dismissed.

The order pronounced on January 30, 2009.