COMMISSIONER OF INCOME TAX Vs. FUNSKOOL (I) LTD

JUDGEMENT

(1.) AGGRIEVED by the order of the Tribunal in allowing the appeal filed by the assessee for the assessment year 2001 -2002 and dismissing the appeal filed by the Revenue for the assessment year 2002 -2003, the Revenue is before this Court by filing the present appeals. This Court, vide order dated 19.11.07, while admitting the appeals, framed the following substantial question of law for consideration : -

(2.) THE brief facts of the case are as follows : -

(3.) THE CIT (Appeals), for the assessment year 2001 -2002, while negatived the contention of the assessee and upheld the order of the Assessing Officer, however, for the subsequent assessment year 2002 -2003, allowed the appeal on the ground that stickering charges arise out of manufacturing activity and forms part of the business profits for the purpose of deduction under Section 80HHC. Aggrieved by the said orders, before the Tribunal, while the assessee preferred appeal in respect of the assessment year 2001 -2002, the Revenue filed appeal in respect of the assessment year 2002 -2003. Before the Tribunal, physical demonstration was made by the assessee showing the toys with stickers as also without stickers and it was submitted by the assessee that the activities are done with the help of various machines involving manpower of the company; that by putting these stickers, the value of the toy is enhanced and as a result it becomes part of the operational income and, therefore, it is eligible for deduction under Section 80HHC. To substantiate their argument, various case laws were cited by the assessee. On the contrary, the stand of the Department before the Tribunal was that stickering on the tyres and toys is of no consequence as the customer is not bothered about what is the nature of the sticker. It was the further stand of the Department that the assessee was receiving this income as advertisement and, therefore, not eligible for the benefit as claimed by them. It was further contended on behalf of the Department that putting the stickers does not involve any element of turnover and, therefore, not entitled for deduction under Section 80HHC. However, on consideration of the entire gamut of facts as also the the case laws relied on by the parties, the Tribunal found that the decision of Bombay High Court in CIT - Vs - Bangalore Clothing Co., 2003 260 ITR 371 was applicable, and accordingly, following the same, held that the activity carried on by the assessee is an operational activity. For better clarity, the relevant portion of the order of the Tribunal is extracted hereinbelow : -