I-T Act finally defines 'manufacture'; Double benefits for Voluntary Retirement Scheme denied

By TIOL News Service

NEW DELHI, JULY 07, 2009: ON Income tax front, too many legal battles have been fought over the definition of 'manufacture'. Since the I-T Act had no statutory definition of 'manufacture' the judiciary had to often debate and depend on stretched definition of 'manufacture' under various other tax laws. However, the Budget 2009 has finally done the needful. Manufacture has been defined finally.

Sec. 2(29BA) – “manufacture” defined for the first time in I.T. Act. This amendment may take care of the situation created in the background of the recent decision of Supreme Court in India Cine Agencies (2008-TIOL-214-SC-IT). In that decision it was held that conversion of jumbo rolls of photographic films into small flats and rolls will amount to manufacturing activity.

Only change in non-living article, object or thing is recognized as manufacture. Apex court in Venkateswara Hatcheries ( 2002-TIOL-709-SC-IT ) have already held that hatching of eggs is not manufacturing activity and hatcheries are not industrial undertaking. Transformation to a new and distinct object, article or thing having a different name, character and use, is mandatory as per the new definition. The new object, article or thing should have different chemical composition or integral structure.

Another important change proposed in the I-T Act is going to hurt the salaried employees taking VRS.

Henceforth deduction under section 89(1) and exemption under section 10(10C) cannot be availed for the amount received / receivable at the time of availing VRS. Both sections 10(10C) and 89 amended accordingly.

FBT in new avtar

Receipt of sweat equity shares / securities are now made part of perquisites received by salaried employees. It is taxable in the year of allotment / transfer of such shares / securities to the employee and the fair market value on the date of exercising option by the employee will be treated as value of perquisite from which the cost actually paid or recovered from the employee will be deducted.

Amount of contribution to any approved superannuation fund by the employer is also treated as perquisite if the contribution exceeds Rs. 1 lakh.

Value of fringe benefit or amenity prescribed will also be treated as perquisite (Sec. 17)