COMMISSIONER OF INCOME TAX - III vs. SAI INFOSYSTEM -INDIA- PVT. LTD.

Facts

The appeals were filed by the revenue against common judgments of the Income Tax Appellate Tribunal (ITAT) for Assessment Years (AYs) 2004-05, 2005-06, 2006-07, and 2007-08. The dispute concerned the eligibility of the assessee, Sai Infosystem - India - Pvt. Ltd., for deduction under Section 80IB of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction, holding that the assessee's activity of assembling computer components was not manufacturing. The Commissioner of Income Tax (Appeals) and the ITAT had ruled in favor of the assessee, a decision the revenue challenged before the High Court.

Held

The High Court held that the assessee's activity of assembling computer items constituted manufacturing, entitling it to deduction under Section 80IB. The Court agreed with the ITAT's reliance on a prior Division Bench judgment in Tax Appeal No. 1287/2010 and Tax Appeal No. 12/2010, which had held similar activities as manufacturing. Regarding the revenue's argument about the number of employees, the Court noted the Commissioner of Income Tax (Appeals)'s finding that the unit employed at least ten persons. As this was a question of fact, the Court found no basis to deny the deduction on this ground. Consequently, the appeals were dismissed, upholding the ITAT's decision in favor of the assessee.

Key Issues

1. Whether the Tribunal was right in law and on facts to delete the disallowance of deduction under Section 80IB of the Income Tax Act, made by the Assessing Officer, by holding the assessee's activity of assembling computer items as manufacturing? (Question of law and fact, concerning Section 80IB). Assessee's Contention: The assessee argued that it buys basic computer items and assembles them, and this activity qualifies as manufacturing. The ITAT relied on a previous Division Bench decision of the High Court in similar cases. Revenue's Contention: The revenue contended that the assessee's activity was simple assembling, not manufacturing, and thus not eligible for deduction under Section 80IB. Additionally, the revenue argued that the assessee did not employ more than ten persons, failing a condition for the deduction.