Manufacture of Herbal Products eligible for Income Tax Deduction: Madras HC [Read Judgment]

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A two-judge bench of the Madras High Court has held that the manufacture of the herbal products would be eligible for deduction under Section 80IA of the Income Tax Act, 1961. The provision allows deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.

The assessees are the manufacturers of a herbal product namely, Bandruff which is sold in the market for further process of adding perfume by the buyers of this product. The assessee’s claim for deduction under Section 80IA was rejected by the Assessing Officer by holding that the electricity consumption was lower. It is also seen that some of the processes are got done from outsiders.

The Revenue argued that the Assessing Authority has found a personal inspection of the factory premises that the Assessee had neither purchased any new plant or machinery nor did it have a factory as such and that most of the work was carried out manually and therefore, the Assessee was not entitled to the said deduction under Section 80IA of the Act.

A division bench comprising Justice Vineeth Kothari and Justice C V Karthikeyan held that the manufacture of a herbal product Bandruff by a manual process with the use of some chemicals and small machinery can also amount to manufacture or production of a different commercial article which is the basic requirement under Section 80IA of the Act.

“The purpose of the said provision is to encourage industrialisation and investment in an industry. The purchase of plant and machinery, and consumption of electricity are not mandatory requirement as was thought by the learned Assessing Authority in the present case. The learned Tribunal after describing the said manufacture / production process of the herbal product was, in our opinion, perfectly justified in holding that the same amounted to manufacture of a different commercial article and that therefore, the Assessee was entitled to the deduction under Section 80IA of the Act,” the bench said.

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