Facts of the Case:

In the case of Commissioner of Income Tax-IV vs M/S. Faith Biotech Pvt. Ltd., the Revenue filed appeals against the respondent-assessee concerning Assessment Years 2006-07, 2008-09, and 2009-10. The common issue raised was whether the respondent was involved in the manufacturing of goods to qualify for deductions under Section 80-IC of the Income Tax Act, 1961. The Assessing Officer initially disallowed the deduction claims made by the respondent, asserting that the activities did not constitute "manufacturing." However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (Tribunal) found in favor of the respondent.

Issues Involved:

  1. Whether the respondent-assessee was engaged in the manufacture of goods and could claim deductions under Section 80-IC of the Income Tax Act, 1961.
  2. The qualification of the assembly of air purifiers as a manufacturing process under the legal definition of "manufacture."

Petitioner’s Arguments:

The petitioner (Revenue) argued that the respondent did not carry out actual manufacturing activities. It was asserted that the respondent was merely assembling parts without substantial machinery, as evidenced by the minimal fixed asset value and low purchases of tools. The Revenue contended that this assembly did not meet the statutory definition of manufacturing under the Income Tax Act.

Respondent’s Arguments:

The respondent (M/S. Faith Biotech Pvt. Ltd.) contended that the air purification system manufactured was an entirely new product, which involved various technological processes, including ozone gas, electrostatic precipitation, and UV germicidal irradiation. They explained the assembling process and clarified that the final product was a distinct, new commodity with unique characteristics and utility.

Court Order/Findings:

The Court, agreeing with the findings of the Commissioner of Income Tax (Appeals) and the Tribunal, dismissed the appeals. The Court concluded that the air purification systems manufactured by the respondent were indeed distinct from the individual components used. The Court found no substantial question of law in the matter, thereby ruling in favor of the respondent.

Important Clarification:

The Court emphasized that manufacturing, under Section 2(29BA) of the Income Tax Act, involves the transformation of an article into a new and distinct product, which was precisely what the respondent had accomplished. The respondent had shown that despite the limited value of tools and machinery, the air purifiers produced were a completely different product in terms of name, character, and use.

Section Involved:

  • Section 80-IC: Deductions related to income derived from industrial undertakings in specified areas.
  • Section 2(29BA): Defines "manufacture" under the Income Tax Act

 Link to download the order -Case Document: ITA Nos. 509/2014, 510/2014 & 515/2014 – Commissioner of Income Tax-IV vs M/S. Faith Biotech Pvt. Ltd. (12th September 2014)

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