TMI Blog2010 (6) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... painting , polishing , spraying , antiquing and packing , etc. Such processes are carried out by various artisans in the assessee s factory. Such finished wooden handicraft items so processed, manufactured and produced in the assessee s factory by various artisans displays the Indian art and craftsmanship. The handmade handicraft wooden articles or things so manufactured/produced displays the Indian art, traditional culture and heritage and are purchased by foreign buyers only because of attractive artistic value of such articles. From the activities carried out by the assessee it is clear that the said activities would come within the meaning of the words manufactures or produces articles or things which are of artistic value, thus, the assessee satisfied the main condition for entitle to deduction under sections 10BA and 80-IB of the Act in respect of the respective articles/goods. As regards conditions stipulated in sub-section (2)( d ) of section 10BA that ninety per cent or more of its sales during the previous year relevant to the assessment year are by way of exports of the eligible articles or things. We find that the CIT(A) calculated eligible items only in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsolidated order. 2. A common ground is raised in these appeals, which is related to deduction under sections 10BA and 80-IB of the Act. 3. To dispose of these appeals, we refer to the facts from the year 2005-06 in ITA No. 2923/M/08. 4. Briefly the facts of the case are that the assessee firm was engaged in the business of making and export of wooden and iron handicraft artistic items at Jodhpur. The assessee submitted its return of income declaring total income at Rs. 4,58,780 after claiming deduction under section 10BA amounting to Rs. 1,43,75,541 and deduction under section 80-IB at Rs. 1,54,929 on manufacture and export of handicraft items. The Assessing Officer held that the business of the assessee was the same as that of assessment year 2004-05 and therefore, the findings for assessment year 2004-05 were squarely applicable for the assessment year under consideration. The Assessing Officer concluded that the assessee had been making purchases from the local artisans and craftsmen at low price, and selling those products abroad at a very high price and siphoning away the profit which should have actually gone to those artisans and craftsmen. The business of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under sections 10BA and 80-IB mainly on three grounds, namely, (1) the Assessing Officer alleges that the assessee s business activities cannot be considered as manufacturing, (2) the assessee did not employ more than 20 skilled employees, and (3) deduction under section 10BA cannot claim on DEPB license income and duty drawback. The learned AR referred the relevant sections and submitted that on plain reading of these sections, it is clear that Legislature did not intend or stress upon the manufacturing in very deep and technical sense. The learned AR submitted that even the title of the section says special provisions in respect of export of certain articles and things . This section merely requires an assessee to export a wooden handicraft item having artistic value. The learned AR submitted that requirement of manufacturing and production by the assessee for the entitlement of exemption under section 10BA has to be understood in the context of the specific language and other requirement of the said provision. The learned AR in support of his contention relied upon the judgment of Hon ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sultan Sons Rice Mill [2005] 272 ITR 181 (All.). 8. As regards DEPB, the learned AR submitted that there are two types of sections allowing deduction on certain income one is where some formula is prescribed to claim deduction such sections are 80HHC and others. The learned AR submitted that where the profit derives from export out of India shall be the amount which bears to the profit of business of the undertaking the same proportionate as the export turnover in respect of such articles nears to total turnover of the business carried on. The learned AR further submitted that other types of section are where there is no formula prescribed but merely stated that income attributable to such undertaking such sections are various sub-sections of section 80-I, 80-IA, 80-IB, 80-IC. The learned AR submitted that question of interpretation comes into picture. In the judgment of Hon ble Supreme Court in the case of Liberty India and Sterling Food where no such specification is being given in the section. The learned AR drew our attention to the provisions of section 10BA(4), which define the amount eligible for deduction. The learned AR submitted that the assessee s case fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... things of artistic value where main raw material is wood. The learned AR submitted that so far as the point of view of section 10B one need to examine whether the products manufacturing by the assessee itself or others whereas in case of section 10BA such examination cannot be restricted if the manufacturing activity carried out by the assessee results in the articles or things having artistic value. The learned AR further submitted that in case of Kwal Pro Exports ( supra ), the ITAT relied upon the decision of ITAT Third Member in the case of Arihant Tiles Marbles (P.) Ltd. v. ITO [2006] 10 SOT 225 (Jodh.) where the benefit under section 80-I has been denied by holding that activities of the assessee do not amount to manufacture. The learned AR submitted that the said 3rd Member decision has been reversed by the Hon ble Rajasthan High Court in Arihant Tiles Marbles (P.) Ltd. v. ITO [2007] 295 ITR 148 holding that the assessee was engaged in sawing marble blocks into slabs and tiles after purchasing blocks. It was manufacture of an article. The Hon ble Supreme Court validates the decision of Hon ble Rajasthan High Court in ITO v. Arihant Tiles Marbles (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to the deduction under this section : Provided further that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years. (2) This section applies to any undertaking which fulfils the following conditions, namely : ( a )it manufactures or produces the eligible articles or things without the use of imported raw materials; ( b )it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; ( c )it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of this clause as they apply for the purposes of clause ( ii ) of sub-section (2) of that section; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999 (42 of 1999), and any Rules made thereunder or any other corresponding law for the time being in force; ( b )"eligible articles or things" means all handmade articles, or things, which are of artistic value and which requires the use of wood as the main raw material; ( c )"export turnover" means the consideration in respect of export by the undertaking of eligible articles or things received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things outside India; ( d )"export out of India" shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance of any customs station as defined in the Customs Act, 1962 (52 of 1962)." 11.1 There are a number of provisions under Income-tax Act providing for tax concessions for export of goods and services. Section 10BA was inserted in the Income-tax Act, 1961 by Taxation Laws (Amendment) Act, 2003 with effect from 1-4-2004. This section makes special provisions for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Fateh Granite (P.) Ltd. [2010] 314 ITR 32 (Bom.), has examined these words as under : "The expression "manufacture" or "production" is different expressions and the word "production" has a wider meaning as explained by the Apex Court in Sesa Goa Ltd. ( supra ). In our opinion, the word "production" under section 10B considering similar expression in section 80-IB will have to be given this wider meaning. Considering that the expressions are not defined in the Act but the expressions are used in the same Act. The only difference between section 80-IB and section 10B is that section 10B is applicable to a 100 per cent EOU, whereas section 80-IB can be in respect of any unit. In our opinion, therefore, the expression "production" will have the same meaning as in Sesa Goa Ltd. ( supra ) and consequently, the question framed is devoid of merits." 11.3 The Apex Court in the case of Vijay Ship Breaking Corpn. v. CIT [2010] 314 ITR 309 wherein after examining the words manufacture and production confirmed the order of ITAT wherein it was held that ship breaking activity gave rise to the production of a distinct and different articles, therefore, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike description as that of exported goods on which it carried out machine work in case of wooden articles such as smoothening and shaping the structures. The surfaces and the edges of wooden items and then engraving, embossing, fixing metallic parts and accessories and thereafter polishing and painting thereof has also been done. The assessee has also fixed artistic parts thereon to give it a commercial look making it completely distinct in character and use. Likewise in metallic items, the assessee carried the activities such as smoothening of the surfaces and corners, nickel and copper plating by way of job work from outside, fixing artistic accessories, structures and parts thereon to make them fascinating and marketable commodity which was different both in character and use than what these items were originally purchased by the assessee. Merely because some job work has been got done from outside, would not take away the assessee from the scope and meaning of manufacture of articles or products by him. The activity carried out by the appellant thus was not that of giving mere feather touches. Even though the original material did not lose its identity completely yet a differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression manufacture involves the concept of changes effected to the basic raw material resulting in the emergence of, or transformation into, a new commercial commodity. But it is not necessary that the original article or material should have lost its identity completely. All that is required is to find out whether as a result of the operation in question, a totally different commodity has been produced having its own name, identity character and end use." 20.6 Hon ble Apex Court in the case of CIT v. N.C. Budharaja Co. [1993] 114 CTR (SC) 420 : [1993] 204 ITR 412 (SC) has observed as follows : "The test for determining whether manufacture can be said to have taken place is, whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity." 20.7 In a recent judgment by Authority for Advance Ruling in the case of Ramit Kumar Sharma, In re [2009] 221 CTR (AAR) 621 : [2009] 18 DTR (AAR) 209 : [2009] 309 ITR 344 (AAR), it has been expressed that the essence of manufacturing is that what is made shall be a different thing from that out of which it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 of 1981) section 2(1)]. The word production may designate as well a thing produced as the operation of producing (as) production of commodities or the production of a witness. Manufacture includes any art process or manner of producing, preparing or making an article and also any article prepared or produced by manufacture Patents and Designs Act, (2 of 1911) section 2(10). Manufacture includes any process ( i ) incidental or ancillary to the completion of a manufactured product; and (impugned order) which is specified in relation to any goods in the section or chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, or, and the word manufacture shall be construed accordingly and shall include not only a person who employees hired labour in the production or manufacture of excisable goods but also any person who is engaged in their production or manufacture on his own account. ( iii ) which is specified in relation to any goods by the Central Government by notification in the Official Gazette as amounting to manufacture Central Excise Act, (1 of 1944) section 2( f )." 20.11 In Arihant Tiles Marbles (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these appeals are thus allowed." 11.7 We may state here that the judgment of Rajasthan High Court in the case of Arihant Tiles Marbles (P.) Ltd. ( supra ) has been upheld by the Apex Court in the case of Arihant Tiles Marbles (P.) Ltd. ( supra ). 11.8 We may also state some important observations of the Apex Court made in the case of Arihant Tiles Marbles (P.) Ltd. ( supra ), read as under : "Before concluding we would like to make one observation. If the contention of the Department is to be accepted, namely, that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognized by various Government authorities as manufacture. To say that the activity will not amount to manufacture or production under section 80-IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax, etc., because the activity did not constitute manufacture. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties along with the photographs of various processes so carried out at the factory premises of the assessee in the year under consideration viz., assessment year 2004-05 and also during assessment proceedings for assessment year 2003-04. The various processes so carried out by the assessee at its factory premises through their own employed workers/artisans as well as through contract workers/artisans inter alia including the process of sanding , handcarving , fitting , staining , painting , polishing , spraying , antiquing and packing , etc. Such processes are carried out by various artisans in the assessee s factory. Such finished wooden handicraft items so processed, manufactured and produced in the assessee s factory by various artisans displays the Indian art and craftsmanship. The handmade handicraft wooden articles or things so manufactured/produced displays the Indian art, traditional culture and heritage and are purchased by foreign buyers only because of attractive artistic value of such articles. From the activities carried out by the assessee it is clear that the said activities would come within the meaning of the words manufactures or produces articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections providing similar deduction for profits from export of other goods and the difference can be seen. In section 10A, deduction is for FTZ and the said section is for software which begins to manufacture software from assessment year 1981-82 or transfer for FTZ 1994-95 or thereafter (electronic hardware industry). Section 10B is for software for 10 years starting from assessment year 1994-95. Section 10C is for industrial undertakings in North East, which start production on or after 1st April, 1998. Similarly sections 80-I, 80-IA, 80-IB and 80-IC which provide for deduction of certain percentage of profits of different undertakings also provide that this benefit is available for certain specified period from the date on which the manufacture is started. As against all these provisions, it is significant to note that there is no mention about the commencement of manufacture or production for grant of relief under section 10BA. This section is available for assessment years 2004-05 to 2009-10. To put it otherwise, the existing undertakings were not excluded from claiming the benefit under section 10BA. This explanation of the assessee was not considered by the assessing autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvisors, one spray man, 22 labours, 2 carpenters, 2 helpers, 1 watchman and other employees. Out of the above workers only 2 carpenters, 1 spray man, 11 labours and 2 helpers could have participated in the job work of assembling polishing etc., in the factory. As such only 16 persons are involved in processing the items which also violates the provisions of sub-clause ( e ) of clause (2) of section 10BA." 11.13 The objection of Assessing Officer and CIT(A) are that the only 16 workers involved in processing the items. In the light of various decisions cited by the learned AR, the order of CIT(A) is not sustainable. The assessee satisfied the conditions laid down in sub-section (2)( e ) of section 10BA as 71 workers were employed. In this year the assessee also claimed deduction under section 80-IB on iron items. The Assessing Officer rejected assessee s claim under section 80-IB on the ground that the assessee is not manufacturer. As per detailed discussion made by us in above Paras we find that the assessee satisfied all the conditions including that the assessee is manufacture/produce the articles. In the light of that finding the claim of assessee is allowed. 11.14 As re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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