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Deduction U/s 80IC can be claimed, despite no chemical change in composition of the raw material during manufacturing process
DCIT Vs. Legancy Foods Pvt. Ltd. (ITAT Delhi), ITA No. 3643/Del/2013, Date of Order: 22.08.2014
assessee had set up a unit at Baddi in Himachal Pradesh for packaging of Horlics, Boost for Glaxo Smithkline Consumer Healthcare Ltd. The assessee filed its return of income claiming deduction u/s 80IC of Rs. 6,59,69,287/- @ 100% on the profits of the eligible business alleging that it was engaged in the activity of manufacturing of Horlics & Boost. The AO disallowed the claim of deduction u/s 80IC, inter alia, by observing that in from 3 CD of the audit report the nature of business was shown as "rendering services of job work" (packaging of Horlics, Boost for M/s Glaxo Smith Kline Consumer Healthcare Ltd.), which was not the manufacturing activity as defined in sec. 2(29BA) of the I.T. Act. In doing so the AO rejected the explanation of the assessee that the claim was allowed from the starting of business in 2005-06 and in scrutiny assessments for A.Y. 07-08 & A.Y 08-09.
The assessing officer disallowed the claim of deduction u/s 80IC by observing that assessee was not engaged in manufacturing activity. Therefore, the main issue involved is whether the activity carried on by the appellant was a manufacturing activity. To examine whether the assessee had to fulfill the conditions contemplated u/s 80IC, it is imperative to take note of the relevant statutory provisions. Sub-section (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub- section (2) has further sub-sections and in the case of the assessee, the clause applicable is 80IC (2) (b) which provides that assessee has begun or begins to manufacture any article or thing, which are not specified in Thirteenth schedule. It means assessee should not manufacture any article. or thing which is specified in thirteenth schedule. Apart from this, the activity of manufacture should commence between the period 7th day of Jan 2003 and ending on Ist April 2012. It should be at the place notified by the Board in accordance with the scheme.
Admittedly the assessee was registered with the excise department. In the audit report of the excise department the assessee has been shown to be engaged in the manufacture of Malt Based Foods, falling within chapter 19 of CETA attracting central excise duty.
In our considered opinion the ld. CIT(A) in coming to the conclusion that assessee was engaged in the activity of manufacturing and production, eligible for deduction u/s 80IC, has drawn support from various judicial pronouncements and elaborately taken into consideration the facts of the case. It is also not disputed that assessee has already been allowed deduction u/s 80IC in earlier years from A.Y. 2005-06 to A.Y. 2008-09. No change in facts for the assessment year in question has been brought on record. In this view of the matter we see no reason to interfere in the order of CIT(A) on the issue in question. Accordingly, order of CIT(A) is upheld.
Shares cannot be treated as stock instead of investment for mere non-receipt of dividend
CIT Vs. CNB FINWIZ LTD (Delhi High Court), ITA. No. 1241/2011, Date of Order: 06/08/2014
The respondent-assessee had submitted that their total turnover was Rs.4697.23 crores, as against investment in shares of Rs.2.95 crores. In the previous assessment years they were maintaining dual portfolio of investment (capital asset) and stock-in-trade (trading asset). The gains from investment were shown as "short-term capital gains", whereas the profits earned from sale of shares were shown and treated as "business income" in the earlier years.
The Tribunal, in view of the reasons given in paragraph 6 of their order dated 13th May, 2011, accepted the submission of the respondent-assessee. We deem it appropriate to reproduce the said paragraph:-
"6. We have heard both the parties and gone through the material available on record. The assessee had filed minutes of the meeting of Board of Directors of the CNB Fi nwiz Ltd. held on 1 2th October, 2004 and 1 9th October, 2004. In meeting dated 12th October, 2004 it was resolved that an application for purchase of 20,25,000 shares at the rate of Rs.62/- in the Initial Public Offer of equity shares of NTPC should be made for the purpose of investment. Shri Chand Rattan Bagri, the Director of the company was authorized for applying for shares of NTPC by opening depository account in the name of IL & FS services. In Board meeting dated 19th October, 2004 it was resolved that equity shares of State Bank of India may be purchased from secondary market for a sum not exceeding Rs.1,50,00,000/- for the purpose of investment. Again as per minutes of the meeting held on 28th January, 2005 it was resolved to purchase 25,00,000 shares of Dena Bank for the purpose of investment in the Initial Public Offer. The assessee had filed photo-copy of investment register for the relevant period. On perusal of register of investment it is seen that the assessee has acquired shares of NTPC as per Board resolution dated 12th October, 2004 and shares of State Bank of India on different dates from secondary market. The shares of Dena Bank has been purchases by making application in public offer as per Board‟s resolution. The acquisition of these shares in the investment register has been shown out of surplus funds. These shares were credited in Demat account and have been sold during the year except 25,000 shares of NTPC. Therefore, from the Board resolutions and entries in the books of accounts it is proved that these shares were held as investments and not as stock-in-trade. The assessee had also received dividend from the shares which were held as stock-in-trade. Merely because the dividend has not been received from shares held as investments, the nature of such shares cannot be treated as stock-in-trade. The assessee has maintained investment portfolio as well as trading portfolio. The shares in the investment portfolio have been held in Demat account. Therefore, profit on sale of shares will be assessable under the head „short term capital gain‟ and not as business income. The assessee‟s case is squarely covered by the decision of Hon‟ble Bombay High Court in the case of Gopal Purohit Vs. JCIT (supra). In view of the above discussion, it is held that the profits earned on sale of shares held as investment will be assessable under the head „short term capital gains‟ and not as „business income‟. We, therefore, decide this issue in favour of the assessee."
Respondent assessee, though a member of Bombay Stock Exchange and National Stock Exchange, had maintained two portfolios. One relating to investments and other relating to stock-in-trade. Profits and losses from investments were shown as "capital gains" either long-term or short-term and profits and losses from "stock-in-trade" were shown as "business income". This position was also accepted in earlier assessment years i .e. 2002-03 onwards. The respondent-assessee had turnover of more than Rs.4697.23 crores, whereas investment in shares in comparison was a small amount of Rs.2.95 crores. The assessee had declared "business income" of Rs.63.77 crores in respect of transactions as a member of the stock exchanges and as a result of carrying on trade in shares. The shares held as investment were kept in a separate portfolio. The said shares related to only three companies. Shares of Dena Bank and NTPC were purchased in the initial public offer as has been recorded in paragraph 6 above. This was the stand of the respondent-assessee before the lower authorities. Shares of State Bank of India were also purchased and kept in the investment portfolio account and not treated as stock in trade. These shares were sold after a gap of 4 months or more.
In view of the facts stated above, we do not think that the order passed by the Tribunal requires any interference. The question of law is accordingly answered in favour of the respondent-assessee and against the appellant-Revenue. The appeal is dismissed. No costs
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