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2015 (4) TMI 638 - ALLAHABAD HIGH COURT

2015 (4) TMI 638 - ALLAHABAD HIGH COURT - [2015] 376 ITR 514 (All) - Entitled to the benefit under Section 10-B - department submits that most of the activities are "outsourced" and very small part of the manufacture was undertaken by the assessee - Held that:- The assessee is a manufacturer of the 'Ballistic Helmets' and 'Bullet Proof (bullet resistant) Jackets'. Only a part of the manufacturing activities was got done by the assessee from outside agency and that to under the direct control and .....

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existence after the entire process then we are of the view that the assessee is entitled to the benefit of Section 10B of the Act. We set aside the impugned order passed by the Tribunal and restore the order passed by the first appellate authority pertaining to the benefit of exemption under Section 10B of the Income Act.

In the case of CIT vs. Heartland Delhi Transcription Services Pvt. Ltd. reported in (2014 (7) TMI 810 - DELHI HIGH COURT) the Hon'ble Delhi High Court has ruled tha .....

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"continuity" of benefit under section 10 B, even after change in ownership of the 'industrial undertaking'. - Decided in favour of the assessee - Income Tax Appeal Defective No. - 82 of 2015, Income Tax Appeal Defective No. - 81 of 2015, Income Tax Appeal No. - 36 of 2015 - Dated:- 18-4-2015 - Hon'ble Arun Tandon And Hon'ble Dr. Satish Chandra,JJ. For the Appellant : S.K. Garg,Ashsih Bansal For the Respondent : C.S.C. ORDER (Delivered By:- Arun Tandon,J.) 1. These three appeals have bee .....

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all these appeals. For the purpose of adjudication, the facts as on record of Income Tax Appeal No.82 of 2015 are being referred. 4.The 'appellant company' has set up an industrial undertaking at 118-E, Shyam Nagar, Kanpur. It is 100% export unit, as per the certificate granted by the Central Government under Section 14 of the Industries (Development and Regulation) Act, 1951. The assessee, during the period under consideration, was engaged in manufacture of 'Ballistic Helmet' an .....

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es, submitted that the assessee company being '100% EOU' qualifies for exemption on purchase of raw materials meant for manufacturing under section 3B of the Trade Tax Act. Similarly, exemption under Section 10B of the Income Tax Act is allowable to the assessee. 7. On 25.2.2008, a survey under Section 133A was carried out at the factory premises of the assessee situated at 118E, Shyam Nagar, Kanpur. Certain documents and books of account were found and seized. On the spot only 17 machin .....

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t, as maximum machines were installed at another division, doing manufacturing on its behalf. 9. Learned Counsel contended that the survey can have no bearing on the assessment of MKU (Armours) Private Ltd. for the reason that with effect from 1.4.2007, the entire industrial undertaking of the assessee had been transferred to MKU Private Ltd. with the due approval of the authorities concerned. In other words, the manufacturing actually had been "out sourced". It is also the submission .....

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Manish Khandelwal, Director of the company, where it is mentioned the commercial production of the 100% EOU was started w.e.f 1.11.2004. Some "job work process" was carried out from time to time on "out sourcing basis" after obtaining due permission from Superintendent (Customs) Central Excise Division-III, Kanpur. Since the manufactured items, to be exported, were as per the specific requirement of the buyers of the foreign countries so the job work was got done from special .....

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has already verified this fact as mentioned in his order dated 15.7.2010. The C.I.T.(A) found that only a part of the manufacturing activity of 'Ballistic Helmets' and 'Bullet Proof (bullet resistant) Jackets' was out sourced. The entire raw material needed for the job work was procured by the assesee company and sent to the site of the job worker with due permission of the Excise Authorities. The job work was carried out by the job worker, under the supervision of the staff of .....

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cases:- (i). Commissioner of Income-tax Vs. Talwar Khuller (P.) Ltd. [1999] 235 ITR 70 (All); (ii). Commissioner of Income-tax Vs. Prabhudas Kishordas Tobacco Products P. Ltd. [2006] 282 ITR 568 (Guj.); (iii). Liberty Group of Marketing Division Vs. Commissioner of Income Tax [2007] 294 ITR 294 ITR 61 (P&H). Regarding the allegation of splitting up and reconstruction, he placed reliance on the following judicial pronouncements:- (i). CIT Vs. Quality Steel Tubes P. Ltd. [2006] 280 ITR 254 (Al .....

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s known as A.R. Plimsol. In the year 2004-05 it was renamed as MKU Armor Pvt. The assessee has used old machinery. The assessee was not involved in any manufacturing activity. It had "outsourced" the manufactuer of the goods and had no direct supervision and control. The assessee is not entitled to the exemption under Section 10-B of the Income Tax Act. In support of his arguments he relied on the ratio laid down in the following cases:- (i). Commissioner of Central Excise, Chenai II C .....

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tsourced" and very small part of the manufacture was undertaken by the assessee. This is established from the fact that the expenses incurred by way of job charges paid to the outsourcing unit during the period under consideration was 8.5 time more than the expenses incurred on wages and salary of the staff of the assessee. A very small amount was spent on power, fuel and water (i.e. ₹ 5.98 lacs only). The conclusion drawn by the C.I.T.(A) is incorrect and the order passed by the Trib .....

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shall not apply in respect of under-taking 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; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose." 16. From the records, it appears that during the year under consideration, part of the activity con .....

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of the existence of the '100% EOU'. Copies of the agreements executed for the job works connected with manufacture of "Ballistic Helmets" and "Bullet Proof (bullet resistant) Jackets" effecting from 1.4.2006 had been placed before the Tribunal, which form part of paper book before us also. In the said agreements, overall flow chart for manufacturing of Ballistic Helmets and Bullet Proof (bullet resistant) Jackets disclosed. Manufacture of Ballistic Helmets involves 14 .....

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#39;outsourcing' was limited to certain well defined 'process' and did not cover manufacturing of the entire products. Looking to very critical and sensitive nature of final products the entire outsourcing was under the control and supervision of the managerial and technical personnel of the assessee company available with it. 18. Under the circumstances the 'outsourcing' was limited only to a part of the overall manufacturing activities as were needed to be carried on for th .....

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fabricate, assemble, process or bring into existence by hand or machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciulture, poultry, sericulture, viticulture and mining" (c). Inserted by the Finance Act 2009 (29BA) "manufacture", with its grammatical variations, mean .....

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ourt it was observed:- "The assessee imported innumerable components of a tractor. These various parts were first assembled together in turn resulted in a tractor. The components imported by the assessee did not have propulsion and could not be called a tractor. The assessee claimed that its activity required labour, skill and management and that it was an industrial undertaking which manufactured or produced articles and was entitled to relief under Sections 80-I and 80-J of the Income Tax .....

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e as a distinct commodity and has a separate market. Furthermore, merely because an assessee gets the work done through contract workers, in other words, enters into a contract with the workers and pays them per piece the relief could not be denied. The test is whether the outside agency works directly under the supervision and control of the assessee, it being immaterial whether the processing is done by the workers employed by the assessee at a place outside the premises of the assessee. In re .....

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H and 80-I" In the case of Commissioner of Income Tax Vs. Penwalt India Ltd. (1992) 196 ITR 813 (Bom) it was observed that:- The assessee would be said to be engaged in the manufacturing activity if he is doing a part of the manufacturing activity by himself and, for rest of it, engages the services of somebody else on a contract other than a contract of purchase. The assessee canvassed orders for supplying, erecting and commissioning sugar and tea machinery. The assessee's activity con .....

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n 80-I of the Income Tax Act, 1961." In the case of Commissioner of Income Tax Vs. Elgi Ultra Industries Ltd. TC(A) Nos.451 of 2006 and 218 & 219 of 2007 dated 10.8.2012 it was observed that the assessee himself is not personally engaged in manufacture, would not disentitle assessee from claiming the relief as one engaged in manufacturing activity, so long as assessee exercises control in work entrusted to job workers and the assessee will be entitled for benefit of manufacturing:- &quo .....

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he assessee. Given the fact that the dyes and the materials were given by the assessee to the job workers, who had merely bestowed their labours, the case of the assesee that it qualify for relief u/s 80IA has to be accepted." In the case of Orient Longman Ltd. Vs. Commissioner of Income Tax, Delhi-II 130 ITR 477 it was observed that:- "That though the assessee as a publisher would not be doing more than the manuscript and preparing the same for printing and book binding, yet the fact .....

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e provision of the Act." In the case of Addl. Commissioner of Income Tax, West Bengal-III Cultta Vs. A. Mukherjee And Co. (P.) Ltd. (1978) ITR 719 Vol 113 it was observed that:- "In order that a publisher of books should be a manufacturer of books it is wholly unnecessary for him to be a book binder himself. A publisher may get the books printed by any printer but the printer is not a manufacturer but a mere contractor." In the case of Commissioner of Wealth Tax, Agra Vs. Mubaraka .....

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co and these were given to local contractors for getting the biris manufactured. The labourers cut the useless portion of tendu leaves from all side and then cut the leaves to small pieces of required size. These pieces were then rolled in the shape of biris. Tobacco was filled and the top portion was closed and the biris were tied up with a thread. The biris were then brought to the factory of the firms and were heated for a short time. They were then packed in bundles of 25 each, wrapped in sp .....

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ot; 19. In the light of above discussion, we are of the view that the assessee is a manufacturer of the 'Ballistic Helmets' and 'Bullet Proof (bullet resistant) Jackets'. Only a part of the manufacturing activities was got done by the assessee from outside agency and that to under the direct control and supervision of the managerial and technical staff available with the assessee. Therefore, even on the basis of such an outsourcing the assessee has to be held to be the 'manuf .....

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y the Tribunal and restore the order passed by the first appellate authority pertaining to the benefit of exemption under Section 10B of the Income Act. 20. Having answered the core issue in favour of the assessee we proceed to deal with the appeals no. defective 81 of 2015 and 36 of 2015 which relates to MKU Private Ltd. for the assessment years 2008-08 and 2009-10. In these two appeals, the Tribunal has held that, since the benefit under Section 10B had not been allowed to predecessor company .....

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en taken over by MKU Private Ltd. with due approval of the competent authoruty as designated under Industries (Development) Regulation Act 1953 and Excise Authorities. The premises of MKU (Private) Ltd., the successor had duly been approved, licenses were surrendered by the former in favour of the later. The name of implementing agency i.e. MKU Private Ltd. was substituted in place of MKU (Armours) Private Ltd., by the authorities. Therefore, it is not a case where part of the machines have been .....

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r:- 21. Allowing deduction under sections 10A and 10B, to the resulting entity in the case of amalgamation or demerger: 21.1 The deduction under sections 10A and 10B, are not allowed to the assessee where the ownership or the beneficial interest in the undertaking is transferred by any means, due to the provisions of the sub-section (9) of section 10A and sub section (9) of section 10B. However, this condition is not applicable in certain cases, such as where a firm or sole proprietary concern i .....

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aking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowable in the hands of the amalgamated or the resulting company. However no deduction shall be admissible under this section to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place. As a consequence, sub-section(9), (9A) and the Explanation below thereto in sections 10A and 10B, become redundant and have .....

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mpteen number of case laws decided by the Hon'ble Apex Court, for example:- (i) Union of India & Another v Azadi Bachao Andolan and another reported in (2003) 263 ITR 706; and (ii) State of Kerla vs. Kurian Abraham Pvt. Ltd. reported in (2008) 303 ITR 284 (SC) 24. Reference may also be had to law laid down in the following judgments:- 1. CIT Vs. Bullet International reported in (2012) 349 ITR 267 (Alld) ".....There is no other provision for disallowance of benefit to assessee under .....

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Tax, Thrissur, JT 2012 (2) SC 493. Paragraph 21 is reproduced below: "21. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, the Board') in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the i .....

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ssioner of Income Tax, W.B. (1999) 4 SCC 599]}." (Page 270) "It is not disputed before us that for the earlier assessment years exemptions have been granted to the undertaking. In this view of the matter, the Tribunal was justified in holding that the assessee is entitled to get exemption under Section 10-A of the Act, 1961. The argument of the learned counsel for the department that since the proprietorship has been converted into partnership, therefore, this disentitles the assessee .....

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nt dated 17th May, 2013. "The main objection of the Assessing Officer is regarding splitting of the business. The Assessing Officer held that assessee company has been formed and has taken over the assets of the existing business by splitting the business of M/s MSSL. While holding such a finding, the Assessing Officer has ignored the fact that it was not a case where a part of plant & machinery or other assets belonging to an undertaking were transferred. The whole undertaking consisti .....

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oftware Technology Park was entitled to relief under s. 10A even though it claimed relief under s.10B and alternatively u/s 10A; prohibition under section 10A(2)(iii) was not attracted as the transfer was not that of plant and machinery alone but of sale of whole business unit. Cases referred to AGS Tiber Chemicals Industries (P) Ltd. Vs. CIT (1997) 141 CIT (Mad) 467: (1998) 233 ITR 207 (Mad) Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj) CIT vs. Bullet International (2012) 349 ITR 267 ( .....

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ation that the deduction contemplated under this provision is relatable to the unit/business/industrial undertaking. Therefore, whosoever is running the unit/industrial undertaking having domain over it, is entitled for deduction as contemplated by Section 80IB of the Act. (Page 512) Insofar sub-section (12) of Section 80IB of the Act is applicable only in the case, where there is an Amalgamation or demerger. That does not mean that a transfer of industrial undertaking by any other mode is not e .....

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