VIJAY KUMAR V. COMMISSIONER OF INCOME TAX

ITA/108/2012

AI Insights

The case revolves around the appellant, Vijay Kumar, who is engaged in the activity of Video Software Generation, specifically editing and supplying audio background sound to films. The core legal issue was whether this activity constitutes 'manufacture' under Section 80-IB of the Income Tax Act, 1961, which would qualify the appellant for certain tax benefits. The Assessing Officer initially disallowed the claim, which was upheld by the Commissioner of Income Tax Appeals and the Income Tax Appellate Tribunal. However, the High Court, referencing decisions from the Supreme Court and recognizing the appellant's activities as a form of manufacture, overturned the previous decisions.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 766087 (HC-JAMMU_AND_KASHMIR)
• Appeal Type: Others
• Pronouncement Date: 08-08-2017
• Assessment Year: misc
• Other Referred Cases: The Gramophone Co. of India Ltd. Vs. The Collector of Customs, Calcutta, Commissioner of the Income Tax Vs. Oracle Software India Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: SUBASH DUTT
• Keywords: Disallowance of claim; Income tax appellate tribunal; Manufacture; Processing of Goods
• Section: 80-IB; 260-A

Judgement Text

" 1 ______________________________________________________________ ITA No. 108/2012 Page 1 of 5 HIGH COURT OF JAMMU AND KASHMIR AT JAMMU ITA No. 108/2012 Date of order: 08.08.2017. Vijay Kumar Vs. Commissioner of Income Tax Coram: Hon’ble Mr. Justice Alok Aradhe, Judge Hon’ble Mr. Justice Sanjeev Kumar, Judge Appearing counsel: For the Petitioner/Appellant(s) : Mr. Subash Dutt, Advocate. For the Respondent(s) : None. i/ Whether to be reported in : Yes/No Press/Media ii/ Whether to be reported in : Yes/No Digest/Journal ` Per Alok Aradhe-J This appeal under Section 260-A of Income Tax Act, 1961 was admitted by this Court on following substantial question of Law, by order dated 07.06.2012 which is reproduced as under: “Whether the Income Tax Appellate Tribunal has erred in sustaining disallowance of claim of Rs. 2,52,340/- under Section 80-IB on the ground that business activity of the appellant was not manufacture or production of articles or things, ignoring the evidence available on records and relying only on the earlier assessment orders of 2001- 2002.” 2. The issue which arises for consideration in this Appeal on admitted facts is, ‘whether the activity of the assessee in editing of supplying the audio of the back ground sound to the film already shot by the customers would amount to manufacture of processing of goods in terms of Section 80-IB of the Income Tax Act, 1961’. The appellant is involved in the activity of the Video Software 2 ______________________________________________________________ ITA No. 108/2012 Page 2 of 5 Generation. He is engaged in the editing of supplying of audio of the back ground sound to the film already shot by the customers. 3. The Assessing Officer by an order dated13.12.2007 inter alia held that the assessee was bringing into an existence a video film and his role being limited to that of editing of supplying the audio/back ground sound. It was further held that there was no article or thing having been manufactured by the assessee as required by the provision of 80-IB of the Act. The claim of the assessee was, thus, disallowed. 4. Being aggrieved the assessee preferred an appeal before the Commissioner Income Tax appeals who vide order dated 27.06.2011 affirmed the order passed by the Assessing Officer. Being aggrieved the assessee preferred an appeal before the Income Tax Appellate Tribunal Amritsar Bench (herein after referred as the Tribunal). 5. The Tribunal vide order dated 14.11.2011 by taking into account the fact that similar issue has been decided in the assessee’s case in respect of assessment year 2001-2002 by the Tribunal itself, dismissed the appeal preferred by the appellant. In the aforesaid factual background the appellant has filed this appeal. 6. Learned counsel for the appellant submitted that the Tribunal grossly erred in dismissing the appeal merely by placing the reliance on an order of assessment passed in respect of the assessee for the assessment year 2001- 2002. It is further submitted that it ought to have been appreciated that the aforesaid order was passed on the ground that assessee was not able to explain that scope 3 ______________________________________________________________ ITA No. 108/2012 Page 3 of 5 of activity undertaken by it and, therefore, the claim of the assessee was disallowed. In support of his submissions learned counsel for the appellant has placed reliance on the decision of the Supreme Court in case of “The Gramophone Co. of India Ltd. Vs. The Collector of Customs, Calcutta, (2000) 1 SCC 549” as well as the decision of the Supreme Court in the case of “Commissioner of the Income Tax Vs. Oracle Software India Ltd, (2010) 320 ITR 0546.” 7. We have considered the submissions made by the learned counsel for the appellant and have perused the record. From perusal of the order passed by the tribunal, we find that an order of assessment was passed in the year 2001-2002 against the assessee, merely on the ground that the assessee was not able to explain the exact scope of activity undertaken by him, which is evidedent from the Paragraph No. 4 of the order passed by the Tribunal. The issue involved in this appeal is no longer res-integra and has already been dealt by the Supreme Court in the case of Commissioner of Income Tax (supra) Paragraph No. 10 of the aforesaid decision which is relevant by the controversy involved in this appeal read as under: In our view, if one examines the above process in the light of the details given hereinabove, commercial duplication cannot be compared to home duplication. Complex technical nuances are required to be kept in mind while deciding issues of the present nature. The term “manufacture” implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it 4 ______________________________________________________________ ITA No. 108/2012 Page 4 of 5 is otherwise not fit, the operation/process falls within the meaning of the word “manufacture”. Applying the above test to the facts of the present case, we are of the view that, in the present case, the assessee has undertaken an operation which renders a blank CD fit for use for which it was otherwise not fit. The blank CD is an input. By the duplicating process undertaken by the assessee, the recordable media which is unfit for any specific use gets converted into the programme which is embedded in the master media and, thus, blank CD gets converted into the programme which is embedded in the master media, and, thus, blank CD gets converted into recorded CD by the afore-stated intricate process. The duplicating process changes the basic character of a blank CD, dedicating it to a specific use. Without such processing, blank CDs would be unfit for their intended purpose. Therefore, processing of blank CDs, dedicating them to a specific use, constitutes a manufacture in terms of s. 80- IA(12)(b) r/w s. 33B of the IT Act. 8. In view of the aforesaid enunciation of Law, as well as on perusal of the record, we find that the activity of Video Software Generation has been recognized as Small Scale Industries by Government of India, Ministry of Industry vide order dated 04.03.1993, as well as 03.11.1993. It is also pertinent to mention the fact that by providing the Audio Software to the Video already shot makes an article fit for use which in turn amounts to manufacture, in view of the Law laid down by the Supreme Court in the case of Commissioner of Income Tax (supra). 9. In view of the preceding analysis, the substantial question of Law framed by this Court vide order dated 07.06.2012 is answered in affirmative and it is held that the activity of the petitioner in supplying the audio of the back ground sound to the film already shot by the 5 ______________________________________________________________ ITA No. 108/2012 Page 5 of 5 customers, amounts to manufacture within the meaning of Section 80-IB of the Income Tax Act and, therefore, the Tribunal erred in upholding the order passed by the Commissioner of Income Tax Act appeals as well as Assessing Officer by which claim of Rs.2,52,340/- for disallowance was sustained. Accordingly, the order passed by the Assessing Officer as well as Commissioner of Income Tax Act appeals as well as the Tribunal is hereby quashed and the claim of the assessee is allowed. 10. In the result, the appeal is allowed. (Sanjeev Kumar) (Alok Aradhe) Judge Judge Jammu 08.08.2017 Shivalee "