Activity of Preparation of Dossier Amount to Manufacture u/s 10B: ITAT allows Deduction [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of Strides Shasun Ltd. v. The ACIT held that the activity of preparation of dossier amounts to manufacture under Section 10B of the Income Tax Act.

The issue before the present Tribunal was against disallowing the claim of deduction made by the assessee u/s 10B of the Income Tax Act on export profit earned by its unit. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) disallowed the deduction on the ground that the appellant is merely granting the license to manufacture products by utilizing the Dossier and the activity of preparation of dossier cannot be treated as manufacture or production of an article or thing.

The facts of the case are that the assessee is engaged in the business of manufacturing and trading of pharmaceuticals and claimed deduction u/s 10B of the Act on its 3 eligible units. The AO held against the assessee that the activity comprises of development of a ‘process’ which is neither an article of thing but only a method of manufacturing. Furthermore, the immediate source of the free being for granting of the license and the dossier being only a process and not the source of the receipt of the fee was disallowed. Hence appeal before the present Tribunal.

The assessee stated that the unit is permitted to make use of imported capital goods. Further, the product development activities include collecting and correlation of various data inputs by conducting stability studies and bio-equivalent studies. The compilation of data is essential for the Dossier. The counsel was of the view that based upon the same; it is incorrect to state that selling of Dossier is ‘license to manufacture’.

The AO on the other hand noted that the immediate source of the fee being paid for granting of the license and the dossier being only a process and not the source of the receipt of the fee, the deduction is not allowable.

The Tribunal after hearing both the parties was of the view that Research and Development (R&D) is a process of continuous production and development and it at any time around 150 products are in different stages of development. Furthermore, focusing on the development activity carried out along with details of production of a product at every stage, the major activity involved in creating is manufacturing which starts from the R&D Facility and ultimately takes place in the plant and hence is ultimately sold in the markets. The tribunal relying upon the decision of various courts of law held that the assessee is entitled to deduction as it has established that the relevant conditions of Section 10B that there must be a production of article or thing and export of such article or thing and consideration thereof brought into India within the time permissible under the foreign exchange regulations are fulfilled and accordingly allowable.