Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 1/10 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 13.02.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.90 of 2011 Commissioner of Income Tax, Ward XIII(2), Chennai. Appellant Vs. M/s Deco De Trend 5th Floor, Nelson Towers, 117, Nelson Manickam Road, Chennai - 29. Respondent Appeal filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, "A" Bench, Chennai dated 08.09.2010 passed in I.T.A.No.1043/Mds/2010. For Appellant : M/s.V.Pushpa Junior Standing Counsel for M/s.M.Swaminathan Senior Standing Counsel For Respondent : Notice served No appearance Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 2/10 JUDGMENT (Judgment of Court was delivered by DR.VINEET KOTHARI, J.) This Appeal has been filed by Revenue against order of learned Income Tax Appellate Tribunal, Chennai dated 08.09.2010 for Assessment Year 2007-08 whereby learned Tribunal held that Assessee is entitled to benefit under Section 10B of Income Tax Act as activity carried out by Assessee of manufacturing and export of articles ready to decorate products such as bouquets, and also home and office decorations, garlands, potpourris etc. 2.The present Appeal was admitted by Coordinate Bench of this Court on 08.03.2011 with following Substantial Questions of Law. "(i) Whether on facts and in circumstances of case, Tribunal was right in deciding that assessee is entitled for deduction under Section 10B contrary to mandatory provision stipulated under Act? (ii) Whether on facts and in circumstances of case, Tribunal was right in not deciding or giving any finding on claim of assessee for deduction of assessment year 2007-08?" Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 3/10 3.The findings of learned Tribunal in its order are quoted below for ready reference. "3.2 On going through impugned assessment order for assessment year 2007-08, it is seen that all main issue raised by appellant regarding nature of activities carried on by firm and fact of non- violation of provisions of Sec.10B(2)(ii) were dealt with appellate order for assessment year 2005-06, cited supra. facts and circumstances being same for assessment year 2007-08 also, same views hold good. As regards other point regarding purchases of raw materials as claimed by appellant firm for accounting period relevant to impugned assessment year, it is seen from careful reading of assessment order that though Assessing Officer had questioned purchases as claimed by appellant firm, no specific disallowances had been made. So long as Assessing Officer had accepted profits as shown by appellant firm as correct, it is considered not necessary to deal with this issue separately." 4.The learned counsel for Appellant/Revenue however fairly submitted that issue has already been decided against Revenue in Appeals related to other assessment years of same Assessee and copy of one such judgment rendered on 2 July, 2013 in Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 4/10 Commissioner of Income Tax, Ward-XIII (2), Chennai Vs. Deco De Trend [2013] 37 taxmann.com 33 (Madras) is cited at bar. Coordinate Bench of this Court in said judgment held as under: "15. We agree with contentions made by learned senior counsel appearing for assessee that process which assessee had undertaken satisfies test of manufacture to qualify for relief under Section 10B of Income Tax Act. As already narrated in preceding paragraph, emphasis of Revenue is that in absence of any definition under Act as to what 'manufacture' is, decision of Apex Court reported in 292 ITR 444 (CIT V. Tara Agencies) would squarely apply. It is contended that every change is not 'manufacture' and every change in article as result of treatment, per se, would not result in 'manufacture'. There is no dispute on this broad principle. However, it is not denied by Revenue that apart from cleaning and grading, assessee had taken further processing; that what is purchased as raw material and what is exported as product for export are totally different items. process that assessee had undertaken clearly points out irreversible nature of final end product from raw material purchased and given above said fact, which Revenue does not deny, we have no hesitation in accepting contention of assessee that there was, in fact, 'manufacture'. Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 5/10 16. We accept contention of assessee in this regard drawing support from decision of Apex Court reported in 251 ITR 323 (Aspinwall & Co. Ltd. V. Commissioner of Income Tax (Appeals)) that word 'manufacture' has to be understood in common parlance, there being no definition of word 'manufacture' in Act. Even if one looks at definition of 'manufacture', as given under Explanation 3 to Section 10B, as it existed prior to its substitution in 2001, we find, term was defined inclusively that any process or assembling or recording of programme or disc, tape, perforated media or other information storage device are brought under definition of 'manufacture'. In any event, with definition of 'manufacture' available as under Explanation 4 to Section 10B of Income Tax Act, inserted by Finance Act, 2003, with effect from 1.4.2004, which defines 'manufacture or produce' to include cutting and polishing of precious and semi-precious stones, as is relevant for assessment years under consideration, decision relied on by Revenue is not of any assistance. Learned Standing counsel appearing for Revenue brought to our attention Section 2(29)BA, inserted under Finance (No.2) Act 2009, with effect from 1.4.2009, which defines 'manufacture' to mean change in non- living physical object or article or thing resulting in transformation of object or article or thing into new Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 6/10 and distinct object or article or thing having different name, character and use; or bringing into existence of new and distinct object or article or thing with different chemical composition or integral structure. 17. Even though definition of 'manufacture' under Section 2(29)BA, as amended under Finance Act 2 of 2009, with effect from 1.4.2009 and Explanation 3 to Section 10B, as it stood prior to Finance Act, 2001 are not of any relevance to case on hand relating to assessment years 2004-05, 2005-06, 2006-07 and 2008- 09, yet, with Explanation 4 to Section 10B of Income Tax Act, inserted by Finance Act, 2003 with effect from 1.4.2004, defining 'manufacture' or produce' to include cutting and polishing of precious and semi-precious stones and idea of granting exemption/deduction under Section 10B being clear, relief under Section 10B of Income Tax Act cannot be denied. 18. In decision reported in 251 ITR 323 (Aspinwall & Co. Ltd. V. Commissioner of Income Tax (Appeals)), Apex Court observed "the word "manufacture" has not been defined in Income Tax Act. In absence of definition, word "manufacture" has to be given meaning as is understood in common parlance. It is to be understood as meaning production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If change made Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 7/10 in article results in new and different article then it would amount to manufacturing activity." Thus Apex Court pointed out that if commodity can no longer be regarded as original commodity but instead is recognized as new and distinct article, then activity of manufacture can be said to take place. 19. decision relied on by Revenue reported in 292 ITR 444 (CIT V. Tara Agencies), however, stands on different footing. There, assessee was engaged in purchase of different qualities of tea and blending same for purpose of export. On question as to whether assessee would be entitled to weighted deduction under Section 35B(1A) of Income Tax act, Supreme Court pointed out on facts that assessee's activity amounted to processing only and activity did not amount to production or manufacture. Thus case relied on by Revenue is distinguishable on facts. 20. Given admitted fact that what was purchased by assessee as raw material and exported goods are totally different items and commercially known as different product, going by definition 'manufacture' in Explanation 4 to Section 10B of Income Tax Act, we have no hesitation in agreeing with contention of assessee and thereby confirm order of Tribunal. 21. As regards splitting up under Section 10B(2)(ii) of Income Tax Act, it is not denied by Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 8/10 Revenue that assessee firm is different assessable entity from company. It is not denied by Revenue that mere fact of both entities carrying on same business, per se, would not lead to conclusion that there was splitting up of company to new entity, namely, firm. Commissioner of Income Tax (Appeals) as well as Tribunal had looked into facts of case and ultimately came to conclusion that mere presence of three of Directors as partners, by itself, would not make firm as one, split up from company and both entities deal in different graded products and they were one and same # while company dealt with low end products, assessee deals with high end products. Tribunal, as final fact finding authority, has also pointed out that firm was constituted with capital contribution by partners from their personal funds. Thus, we do not find neither presence of partners not products dealt with would be of any guidance to decide issue raised by assessee. So too workmen working in assessee's business and in company. In absence of any material to substantiate contention of Revenue that firm was constituted by splitting up of company, we have no hesitation in rejecting plea of Revenue. Consequently, we have no hesitation in confirming order of Tribunal. 22. For reasons we have already given in Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 9/10 preceding paragraph, above Tax Case (Appeals) are dismissed. No costs." 5.None appears for Respondent/Assessee to controvert these submissions. 6.Accordingly, aforesaid appeal is also disposed of in same terms and questions of law are answered in favour of Assessee and against Revenue. Appeal is accordingly disposed of. There shall be no order as to costs. (V.K.J.) (R.S.K.J.) 13.02.2020 Index: Yes/No Speaking Order : Yes/No Sgl To Income Tax Appellate Tribunal, 'A' Bench, Chennai. Judgment in TCA No.90/2011 dated 13.02.2020 (The Commissioner of Income Tax V. M/s.Deco De Trend) 10/10 DR.VINEET KOTHARI, J. And R. SURESH KUMAR, J. Sgl T.C.A.No.90 of 2011 13.02.2020 Commissioner of Income-tax, Ward XIII(2), Chennai v. Deco De Trend