Summary
A Pune company moulded polyurethane foam, made from polyol and isocyanate, into shapes used by assemblers for car seats. It claimed the Section 80-IB deduction for A.Y. 2003-04, arguing that its end product was automobile seats and not polyurethane foam. Polyurethane foam is listed in entry 25 of the Eleventh Schedule. The ITAT allowed the claim, but the Karnataka High Court reversed it. The Supreme Court upheld the High Court. The assessee only made foam in different sizes and designs and supplied it to assembly operators, who made the seats. It undertook no further process itself. Its product therefore fell within entry 25, and Section 80-IB(2)(iii) barred the deduction. Vinbros and Hindustan Petroleum did not assist it.
Issues
- Whether an assessee that manufactures polyurethane foam in seat shapes for use by assembly operators is entitled to deduction under Section 80-IB, or is barred because it produces an article in entry 25 of the Eleventh Schedule.
Provisions considered
- Section 80-IB(2)(iii) and Eleventh Schedule, entry 25, Income Tax Act, 1961The deduction is unavailable to an undertaking manufacturing an article listed in the Eleventh Schedule; polyurethane foam made and sold in different designs falls within entry 25. (¶¶ 7, 10)
Held
- What the assessee manufactures and sells is polyurethane foam in different sizes, designs and shapes made by injecting two chemicals; it is used by others as an ingredient in car seats, and the assessee undertakes no further process to make the seats. (¶ 8)
- Since the article manufactured is classifiable under entry 25 of the Eleventh Schedule, Section 80-IB(2)(iii) disentitles the assessee to the deduction; the High Court rightly restored the assessment order, and Vinbros and Hindustan Petroleum are distinguishable. (¶¶ 9, 10)
Result
Civil Appeal No. 8260 of 2022 dismissed, upholding the Karnataka High Court judgment dated 25.02.2014 in ITA No. 623 of 2007 and the disallowance of the Section 80-IB deduction for A.Y. 2003-04; no costs.