A two-judge bench of the Supreme Court, on Thursday held that a manufacturer of ‘polyurethane foam’ used for manufacturing of car seats would be eligible for income tax deduction under section 80-IB of the Income Tax Act, 1961.
The assessee is manufacturing ‘polyurethane foam,’ which is ultimately used as automobile seat and claimed deduction under Section 80-IB of the Income Tax Act. The Assessing Officer disallowed the deduction under Section 80-IB of the IT Act by observing that the nature of the business of the assessee is “manufacturer of polyurethane foam seats” which falls under entry 25 to the Eleventh Schedule of the IT Act and therefore the assessee shall not be entitled to deduction under Section 80-IB.
The assessee contended that different sizes of polyurethane foam are used as automobile seats and therefore the end product can be said to be the automobile seat which is different than the polyurethane foam and therefore the same does not fall under entry 25 to the Eleventh Schedule of the IT Act.
On appeal, High Court has allowed the plea of the assessee and specifically observed and held that what is manufactured and sold by the assessee is polyurethane foam which is manufactured by injecting two chemicals, namely, Polyol and Isocyanate and the polyurethane foam which is manufactured by the assessee is used as ingredient for manufacture of automobile seats.
Upholding the order of the High Court, the bench comprising Justice M R Shah and Justice M M Sundresh observed that the assessee is manufacturing polyurethane foam and supplying the same in different sizes/designs to the assembly operator, which ultimately is being used for car seats.
“The assessee is not undertaking any further process for end product, namely, car seats. The polyurethane foam which is supplied in different designs/sizes is being used as ingredient by others, namely, assembly operators for the car seats. Merely because the assessee is using the chemicals and ultimately what is manufactured is polyurethane foam and the same is used by assembly operators after the process of moulding as car seats, it cannot be said that the end product manufactured by the assessee is car seats/automobile seats. There must be a further process to be undertaken by the very assessee in manufacturing of the car seats. No further process seems to have been undertaken by the assessee except supplying/selling the polyurethane foam in different sizes/designs/shapes which may be ultimately used for end product by others as car seats/automobile seats,” the Supreme Court observed.
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