Millipore India Pvt Ltd V. Assistant Commissioner of Income-Tax, Circle 12(1)

ITA/648/2007

AI Insights

The case involves multiple income tax appeals filed by M/s Millipore India Pvt Ltd against the orders of the Assistant Commissioner of Income-Tax and the Commissioner of Income Tax (Appeals), which were subsequently upheld by the Income Tax Appellate Tribunal. The appeals primarily challenged the deductions allowed under Section 80IA of the Income Tax Act, 1961, for the assessment years 1996-97 to 2002-03. The main contention was whether the income from the sale of spare parts and the manufacturing of water filters constituted eligible business activities under Section 80IA. The tribunal directed a detailed reassessment to differentiate between income from trading and manufacturing activities, which the High Court upheld.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 812394 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 19-11-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: K R PRASAD
• Keywords: Assessment Year; Deduction; Income Tax; Industrial Undertaking; Manufacturing activity; Reassessment
• Section: 80IA; 260A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 19TH DAY OF NOVEMBER, 2012 PRESENT THE HON’BLE MR.JUSTICE K. SREEDHAR RAO AND THE HON’BLE MR.JUSTISCE B.V.PINTO INCOME-TAX APPEAL NO.648/2007 C/W INCOME-TAX APPEAL NOS.650/2007, 647/2007, 454/2008, 673/2007, 668/2007 AND 649/2007 IN ITA NO.648 OF 2007 BETWEEN M/S MILLIPORE INDIA PVT LTD 50A, 2ND PHASE RING ROAD,PEENYA BANGALORE-560 058 REPRESENTED BY ITS DIRECTOR MR.SUBHASH BAGARIA ... APPELLANT (BY SRI. K R PRASAD, ADV.) AND THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 12(1), 14/3, RASTROTHANA BHAVAN 4TH FLOOR, NRUPATHUNGA ROAD OPP. RBI, BANGALORE ... RESPONDENT (BY SRI.K V ARAVIND, ADV.) 2 THIS I.T.A FILED U/S. 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 27.4.2007 PASSED IN ITA N0S.3079/B/04 & ITA 2980/B/04 FOR THE ASSESSMENT YEAR 2000-01, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, IN ITA NO.3079/B/04 & 2980/B/04 DATED 27-04-2007 IN ANNEXURE-D AND CONSEQUENTIALLY CANCEL THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III VIDE ITANO.150/DCIT12(1)/CIT(A)- III/02-03 DATED 26-07-2004 IN ANNEXURE-C AND CANCEL THE ASSESSMENT ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME-TAX, CIRCLE-12(1), BANGALORE VIDE ORDER DATED 22-02-2003 IN ANNEXURE-B, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO.650 OF 2007 BETWEEN M/S MILLIPORE INDIA PVT LTD 50A, 2ND PHASE RING ROAD,PEENYA BANGALORE-560 058 REPRESENTED BY ITS DIRECTOR MR.SUBHASH BAGARIA ... APPELLANT (BY SRI. K R PRASAD, ADV.) AND THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 12(1), 14/3, RASTROTHANA BHAVAN 3 4TH FLOOR, NRUPATHUNGA ROAD OPP. RBI, BANGALORE ... RESPONDENT (BY SRI K V ARAVIND, ADV.) THIS I.T.A FILED U/S. 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 27.4.2007 & 30-04-2007 PASSED IN ITA N0S.1666 & 1483/B/05 FOR THE ASSESSMENT YEAR 2002-03, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, IN ITA NOS.1666 & 1483/B/05 DATED 27-04-2007 & 30-04- 2007 IN ANNEXURE-D & D1 AND CONSEQUENTIALLY CANCEL THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III VIDE ITA NO.13/C 12(1)/CIT(A)- III/04-05 DATED 8-9-2005 IN ANNEXURE-C AND CANCEL THE ASSESSMENT ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME-TAX, CIRCLE-12(1), BANGALORE VIDE ORDER DATED 22-02-2005 IN ANNEXURE-B, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO.647 OF 2007 BETWEEN M/S MILLIPORE INDIA PVT LTD 50A, 2ND PHASE RING ROAD,PEENYA BANGALORE-560 058 REPRESENTED BY ITS DIRECTOR MR.SUBHASH BAGARIA ... APPELLANT (BY SRI. K R PRASAD, ADV.) 4 AND THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 12(1), 14/3, RASTROTHANA BHAVAN 4TH FLOOR, NRUPATHUNGA ROAD OPP. RBI, BANGALORE ... RESPONDENT (BY SRI.K V ARAVIND, ADV.) THIS I.T.A. FILED U/S.260-A OF I.T.ACT 1961 ARISING OUT OF ORDER DATED 27-04-2007 PASSED IN ITA NO. 54/BANG/2005 FOR THE ASSESSMENT YEAR 1996-97, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, IN ITA NO. 54/BANG/2005 DATED 27-04-2007 AND CONSEQUENTIALLY CANCEL THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III VIDE ITA NO.40/C 12(1)CIT(A)-III/04-05 DATED 29-04-2004 AND CANCEL THE ASSESSMENT ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 12(1) BANGALORE VIDE ORDER DATED 30-03-2004, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO.454 OF 2008 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C.R. BUILDING QUEENS ROAD, BANGALORE 5 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 12(1) C R BUILDING QUEENS ROAD BANGALORE. ... APPELLANTS (BY SRI.K V ARAVIND, ADV.) AND M/S MILLIPORE INDIA PVT LTD 50A, 2ND PHASE RING ROAD,PEENYA BANGALORE-560 058 ... RESPONDENT (BY SRI.K R PRASAD, ADV.) THIS ITA FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 27-04-2007 PASSED IN ITA NO. 54/BNG/2005, DATED 23/11/2007, FOR THE ASSESSMENT YEAR 1996-97, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 54/BNG/2005,DATED 23-11-2007 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(1),BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO.673 OF 2007 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C.R. BUILDING QUEENS ROAD, BANGALORE – 560 001 6 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 12(1) C R BUILDING QUEENS ROAD BANGALORE. ... APPELLANTS (BY SRI.K V ARAVIND, ADV.) AND M/S MILLIPORE INDIA PVT LTD 50A, 2ND PHASE RING ROAD,PEENYA 2ND PHASE BANGALORE-560 058 ... RESPONDENT (BY SRI.K R PRASAD, ADV.) THIS ITA FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 27-04-2007 PASSED IN ITA NO. 2980/BNG/2004 , FOR THE ASSESSMENT YEAR 2000-01, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 2980/BNG/2004,DATED 27-04-2007 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 12(1),BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO 668 OF 2007 BETWEEN 1. THE COMMISSIONER OF INCOME TAX C.R. BUILDING QUEENS ROAD BANGALORE – 560 001 7 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 12(1) C R BUILDING QUEENS ROAD BANGALORE. ... APPELLANTS (BY SRI.K V ARAVIND, ADV.) AND M/S MILLIPORE INDIA PVT LTD 50A, RING ROAD PEENYA 2ND PHASE BANGALORE-560 058 ... RESPONDENT (BY SRI.K R PRASAD, ADV.) THIS ITA FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 27-04-2007 PASSED IN ITA NO. 55/BNG/2005 , FOR THE ASSESSMENT YEAR 2001-02, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 55/BNG/2005,DATED 27-04-2007 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(1),BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO 649 OF 2007 BETWEEN M/S MILLIPORE (INDIA) PVT LTD 50A, 2ND PHASE RING ROAD,PEENYA BANGALORE-560 058 8 REPRESENTED BY ITS DIRECTOR MR.SUBHASH BAGARIA ... APPELLANT (BY SRI. K R PRASAD, ADV.) AND THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 12(1), 14/3, RASTROTHANA BHAVAN 4TH FLOOR, NRUPATHUNGA ROAD OPP. RBI, BANGALORE ... RESPONDENT (BY SRI.K V ARAVIND, ADV.) THIS I.T.A FILED U/S. 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 27.4.2007 PASSED IN ITA N0S.167/B/05 & ITA 55/B/05 FOR THE ASSESSMENT YEAR 2001-02, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, IN ITA NO. 167/B/05 & ITA NO.55/B/05 DATED 27-04-2007 IN ANNEXURE-D AND CONSEQUENTIALLY CANCEL THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-III VIDE ITA NO.10/C 12(1)/CIT(A)-III/04-05 DATED 3-11-2004 IN ANNEXURE-C AND CANCEL THE ASSESSMENT ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME-TAX, CIRCLE-12(1), BANGALORE VIDE ORDER DATED 22-02-2005 IN ANNEXURE-B, IN THE INTERESTOF JUSTICE AND EQUITY. 9 THESE ITAs ARE COMING ON FOR FINAL HEARING THIS DAY, SREEDHAR RAO J., DELIVERED THE FOLLOWING:- J U D G M E N T The provisions of Section 80IA of Income Tax Act, 1961 (hereinafter called as ‘the Act’ for brevity) is relevant for the assessment year in question i.e., 2000-01 are reproduced herein for convenient reference. The Proviso reads thus:- “80-IA.: Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases.-(1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6). From 1-4-1996: Finance Act, 1995 : The Finance Act, 1995, has made an amendment in sub-section (1) of section 80-IA, wef. 1-4-96 (i.e., for the assessment year 1996- 97 and subsequent years). 10 In sub-section (1), for the words and brackets “operation of a ship (such business being hereinafter referred to as the eligible business)”, the words and brackets “operation of a ship or developing, maintaining and operating any infrastructure facility (such business being hereinafter referred to as the eligible business)” have been substituted. From 1-4-1997 : Finance (No.2) Act, 1996 : Extension of tax holding to scientific and industrial research and development : The Finance (No.2) Act, 1996, has amended section 80-IA, viz., after the words “infrastructure facility”, the words “or scientific and industrial research and development” are to be inserted. The effect of the amendment is to extend the tax holiday to companies engaged in scientific and industrial research development. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an 11 industrial undertaking which is formed as a result of the re- establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufacutures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-clause (b) of clause (iv) which begins to manufacture or produce in article or thing during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 1998, apply as if the words “not being any article or thing specified in the list in the Eleventh Schedule” had been omitted ; From 1-4-1994 : Finance Act, 1994 : Extension of concession to large scale industries in backward 12 areas. The Finance Act, 1994, inserted with effect from April 1, 1994, the following in the proviso to clause (iii) of sub-section (2) : “or an industrial undertaking referred to in sub-clause (b) of clause (iv) which begins to manufacture or produce an article or thing during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March 1998”. The effect of the amendment is to extend the concession given to small scale industries to industries other than small scale industrial undertakings even if they produce the low priority items specified in Schedule XI, provided they are located in the backward State mentioned in Schedule VIII. In other words, even if a large industrial undertaking manufactures a low priority commodity mentioned in Schedule XI in a backward State it will be entitled to the relief of extra deduction from its taxable profits. (iv)(a) in the case of an industrial undertaking not specified in sub-clause (b) or sub-clause (c), it begins to manufacture or produce articles or things or to operate such plant or plants, at any time during the period beginning on the 1st day of April, 1991, and ending on the 31st day of March, 1995, or such further period as the Central Government may, by notification in the Official Gazette, specify with 13 reference to any particular industrial undertaking ; (b) in the case of an industrial undertaking located in an industrially backward State specified in the Eighth Schedule or set up in any part of India for the generation, or generation and distribution, of power, it begins to manufacture or produce articles or things or to operate its cold storage plant or plants or to generate power at any time during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 1998 ; 2. In the present case, Sub-sections 2 and 3 of Section 80IA of the Act is germane for consideration in the context of the following facts of this case: (a) The assessee is a manufacturer of water filter to be used in the industrial production and processing. The water filter consists of parts and components which are partly imported and partly manufactured indigenously. The assessee with the mix of imported parts and the indigenous parts, manufactures water filters and sell the same. 14 According to the assessee, the said sale amounts to manufacture or production of an article or of a thing, which attracts explanation to the Section. (b) The assessee at the time of sale gives a warranty for a certain period and also enters into a service contract for a certain period. In the warranty clause, the assessee would disown his responsibility to replace some of the parts which are gone out of order free of cost and in respect of such parts, he will collect the value. The assessee also sells the spare parts and also sell them to its customers during the period of service contract and collects the value. 3. The assessee for the assessment years 1993- 1994 to 1998–99, submitted returns and claimed exemption in respect of the income from the sale of spare parts. The Assessing Officer for the said assessment years, accepted the returns and granted the deduction but for 15 the assessment year 1999-2000, disallowed the deduction and reopening the assessment years 1996-97 to recall the deduction given earlier. 4. The Commissioner of Income Tax (Appeals) on broad analysis without going into the details of bifurcation of the sale of indigenous spares and imported spares, granted deduction to an extent of 50% of what is permitted in law, since the accounts were reflecting the consolidated figures, the assessee had not kept separate accounts for trading and manufacturing activity. 5. The Appellate Tribunal has modified the order of the Commissioner of Income Tax (Appeals) and directed that the reassessment to be done by going into the details of receipt from trading and manufacturing activity and allocating the expenses on the said basis. The assessee aggrieved by the order of the Commissioner of Income Tax (Appeals) has filed these appeals. 16 6. In respect of ITA Nos.647/2007 and 454/2008, it is the contention that the issue of reopening the assessment is not permissible merely by a change of opinion. 7. Sri K.V.Aravind, learned Counsel for the Income Tax Department, submits that in the returns the assessee has not furnished the accounts truly and correctly. The fact that the assessee had not kept any separate accounts for trading and manufacturing and furnishing, consolidated accounts would itself disclose that the true and correct particulars have not been furnished. Therefore, the respondent is entitled to reopen the assessment. 8. With regard to correctness of the details of the receipts from trading and manufacturing, it becomes just and necessary to probe into accounts to bifurcate the income from trading and manufacturing to ascertain the expenses to be allocated in order to appreciate to what 17 extent the assessee would be entitled for deduction under Clause 3 of Sub-section 2 of S.80IA of the Act. 9. It is the contention of the assessee that the exemption given initially in the first year is accepted and the same should be continued for further years is a question left open to be canvassed before the Assessing Officer. The question whether making of water filter amounts to industrial and manufacturing activity is also kept open for consideration. In that view of the matter, the order of the Tribunal is upheld. The Assessing Officer shall take note of the observations made above while making assessment and granting deductions. Sd/- JUDGE Sd/- JUDGE nvj "