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2016 DIGILAW 989 (GAU)

Torsa Machines Ltd v. Commissioner of Income Tax

2016-11-08

HRISHIKESH ROY, L.S.JAMIR

body2016
JUDGMENT : Heard Mr. R. Goenka the learned counsel appearing for the appellant. Also heard. Also heard Mr. S. Sarma, the learned standing counsel for the IT Department, Representing the respondent. 2. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'IT Act') was admitted on the following substantial question of law, as framed by the Court on 19.6.2014: "Whether on facts and the circumstances of the case, the Tribunal was justified in law in holding that income received by the assessee during the assessment year in question from services/erection charges of plants and accessories was not a part and parcel of the income which it derived from their manufacturing activities from eligible undertakings/enterprises and, hence, they were not entitled to claim deduction available to them under Section 80IC of the Income Tax Act, 1961?" 3. The appellant is engaged in the business of manufacturing of Stone Crushing Plants and Accessories and they filed the return of income for the assessment year 2007-08 on 31.10.2007, disclosing certain income and claiming deduction under Section 80 IC of the IT Act. However, the deduction of claim towards the service and erection charge for a sum of Rs.11,57,601/- was declared to be ineligible for deduction, under Section 80 IC by the Assessing Officer on 29.12.2009 (Annexure-A). He opined that earnings from service and erection charge is not derived from manufacturing business and thus the deduction claimed under this head is ineligible under Section 80 IC of the IT Act. 4. The aggrieved assessee challenged the decision before the Commissioner of Income Tax (Appeals) Guwahati but, the appellate authority by its order dated 29/11/2010 declared that the service and erection charges are not derived from the business of manufacturing activity of the assessee and thus the earnings under that head is not eligible for deduction, under Section 80 IC of the IT Act. According to the CIT(A), the service and erection charge was merely incidental income attributed to manufacture and thus the order of assessing authority was upheld on 29.11.2010 (Annexure-B) by the appellate authority. 5. According to the CIT(A), the service and erection charge was merely incidental income attributed to manufacture and thus the order of assessing authority was upheld on 29.11.2010 (Annexure-B) by the appellate authority. 5. The above decision of the appellate authority was challenged by the assessee in the Income Tax Appellate Tribunal, Guwahati Bench and the learned Tribunal by the impugned verdict dated 23.12.2013 (Annexure-C) held that income derived from service and erection is not part and parcel of the income derived from the manufacturing activities and thus the assessee was rightly held to be disentitled to deduction, under Section 80 IC, in respect of the service and erection charge. The decision against the assessee by all three forums, is the subject matter of the present appeal. 6.1. The appellant contends that service and erection charge received by the assessee for installment of Stone Crushing machineries at the site of the customer, is directly connected with the income generated from the manufacturing activities and therefore, the disallowance to deduction of the earnings under this head, is contended to be irrational. 6.2. The learned counsel for the appellant, Mr. R Goenka submits that the judgments, which have been the basis for the conclusion drawn by the Assessing Officer and by the higher forums, are wrongly applied in the facts of the present case and therefore, it is argued that the departmental authorities as also the learned Tribunal erred, in answering the issue against the assessee. 7. On the other hand, Mr. S Sarma, the learned standing counsel for the Income Tax Department submits that for any income to be eligible for deduction under Section 80 IC of the IT Act, there must be direct nexus of the earning to the manufacturing activity and unless this connection is established, the issue cannot be answered in favour of the assessee. 8. The Section 80 IC was inserted in the Income Tax Act with effect from 1.4.2004 under the Finance Act 2003 and thereby growth incentives in respect of undertakings in certain special category States, were inserted. For the eligible undertaking, in computing the total income of the assessee, deduction from such a profit and gain is to be allowed, under Section 80 IC. For the eligible undertaking, in computing the total income of the assessee, deduction from such a profit and gain is to be allowed, under Section 80 IC. Here it is not disputed that the business of manufacturing activity of Stone Crushing Plants and Machinery, is entitled for deduction under the special provision of Section 80 IC of the IT Act. Hence, we are to determine whether the amount received by the manufacturer, for erection and servicing of stone crushing plants at the site of the customer, is also entitled to the deduction under the incentive provision. 9. When incentives are provided to industries by way of exemption of Tax, for growth and development of industries in certain areas, the provisions of the Statute should be liberally interpreted so as to advance the objective of enactment. This was the ratio declared by the Supreme Court in Bajaj Tempo Ltd. v. Commissioner of Income Tax reported in (1992) 196 ITR 188 . Therefore, we need to construe the law (if possible) in such a way, which will achieve the goal of the incentive providers, i.e. the legislators. 10. The assessee we are concerned with here, is involved only with manufacturing activity of stone crushing plants and it is not installing or servicing machineries, manufactured by others. The expression "profits and gains" derived from the business as mentioned in Section 80 IC may not cover activities unrelated to the manufacturing but when the manufactured machinery is installed by the manufacturer themselves at the site of the customer, the amount received on this count, should not in our understanding, be excluded from the expression derived from the business, referred to in Section 80 IC of the IT Act. Therefore when the assessee installs/erects the self-manufactured stone crushing plants and service them at the customer's site, the amount received from such service, is nothing but earnings from the business of manufacturing activity. 11. The income derived from erection and commissioning by the manufacturer was also the issue for consideration of the Himachal Pradesh High Court for deduction under Section 80IB of the IT Act. The Division Bench in their judgment of 7.11.2009 while deciding ITA No.39/2006 (Spray Engineering Devices Ltd. v. Asstt. 11. The income derived from erection and commissioning by the manufacturer was also the issue for consideration of the Himachal Pradesh High Court for deduction under Section 80IB of the IT Act. The Division Bench in their judgment of 7.11.2009 while deciding ITA No.39/2006 (Spray Engineering Devices Ltd. v. Asstt. Commissioner of Income Tax and another) after threadbare discussion of the legal issues, declared that when a manufacturer is required by the customer to erect and commission the machinery, the amount received by the manufacturer on this count, is the income derived from the business itself and therefore, the same is eligible for deduction under Section 80 IB of the IT Act. 12. When we examine the judgments referred to by the departmental authorities to answer the issue against the assessee, they are found to be wrongly applied to the facts of this case and the only relevant decision we find, on the issue posed before us, is the decision in Spray Engineering Devices (supra), of the Himachal Pradesh High Court. Therefore we concern with the ratio of this judgment. 13. Let us also benefit by referring to the ratio of Commissioner of Income Tax v. International Data Management Ltd. reported in (2003) 261 ITR 177 where the Bombay High Court was considering entitlement of deduction under Section 80 IC for income, received on account of service and maintenance charge. In the context, the Bombay High Court declared that the income received by the assessee which rendered service and maintenance facilities for the clients, has a direct nexus with the main business activity of the assessee. Thus the issue on entitlement to deduction of earnings on service and maintenance charges, was answered against the department. The ratio of this decision supports our above conclusion. 14. To deny the deduction claimed towards service and erection charge, the CIT (Appeals) for their conclusion against the assessee had relied on this Court's earlier decision in Asst. CIT v. M/s Meghalaya Steels Ltd. reported in 332 ITR Gauhati 91, but, we find that this decision of the Division Bench was subsequently altered by this Court, in the later judgment of 8.4.2013 reported in 358 ITR 551. Therefore the overruled judgment of this Court can't be applied to decide this Appeal. CIT v. M/s Meghalaya Steels Ltd. reported in 332 ITR Gauhati 91, but, we find that this decision of the Division Bench was subsequently altered by this Court, in the later judgment of 8.4.2013 reported in 358 ITR 551. Therefore the overruled judgment of this Court can't be applied to decide this Appeal. That apart, the other judgments on the basis of which the issue was answered against the assessee, are found to be inapplicable on the facts of this case and therefore, in our considered opinion, the authorities in their decision(s) had erred in rejecting the claim of the appellant, under Section 80 IC of the IT Act. 15. For the above discussions and reasoning, we find merit in this challenge and accordingly, the substantial question of law framed by us in the present Appeal is answered in favour of the assessee and against the department. With this declaration, the Appeal stands allowed. Parties to bear their own cost.