Brief of the case:
Madras High Court held in CIT Vs Funskool (I) Ltd (Madras High Court) that for calculating the cost of the finished product the process of designing or stickering which had been used to design or give a final look to the finished product which was finally sold in the market should also be included in the total cost of final product not under the advertisement cost.
Facts of the case:
Assessee used to manufacture the toys and used to put sticker of “MRF“ on the toys due to which the value of toys got enhanced. Moreover the stickering process involves machines and man power. This all was the manufacturing process of the assessee which includes the stickering process because of which the assessee considered the same to be included in its turnover for calculating the deduction u/s 80HHC.But the revenue was of the view that the above stickering income was not to be included in the turnover but the same should be included in the advertisement charges.
Contention of the assessee:
Assessee was of the view that the stickering process was operated with the help of machines involving manpower due to which the value of the toy got increased. Stickering is one of the processes to manufacture the finished product. So this process is also a manufacturing activity and eligible for deduction u/s 80HHC.
Contention of the revenue:
Revenue was of the view that stickering the tyres and toys was of no consequence as the customer was not bothered about the nature of the sticker .Moreover the income from stickering the toys was not an operational income ,it was an advertisement income. This income did not involve the element of turnover.
Held by High Court:
High Court was of the view that if the stickers were attached on the toys they look more attractive which enhance the price of toys so the income generated from these toys were income from operational activity as the same were attached with the help of machine so the same was operational income .The sale of a final product which was a toy which inbuilt the sticker So, the selling price of toy should be included in the turnover of the assessee. As cost of toy whose selling price was included in the turnover of the assessee also included the cost of attaching the sticker so the same should not be covered in the advertisement charges and the assessee was eligible to deduction u/s 80HHC.