Madras High Court
Chillies Export House Ltd. vs Commissioner Of Income Tax High Court Of ... on 6 November, 1997
Equivalent citations: (1999)156CTR(MAD)496
JUDGMENT M. V. BALASUBRAMANIAN, J.
In pursuance of the directions of this Court in T.C.P. Nos. 61 and 62 of 1983, dated 18th July, 1983, under section 256(2) of the Income Tax Act, 1961 (hereinafter to be referred to Chillies Export House. Ltd. v. CIT (Mad) as 'the Act'), the Tribunal has stated a case and referred the following common question of law for our consideration .
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the petitioner was not an industrial company within the meaning of s. 2(6)(c) of the Finance Act, 1971, and it was not entitled to concessional rate of tax ?
2. This tax case reference relates to the asst. yrs. 1978-79 and 1979-80. The point that is in issue, which is common for both the assessment years, is whether the assessee can be regarded as an industrial company within the meaning of s. 2(6)(c) of the Finance Act, 1971. It is not necessary to burden the judgment with the factual details as the assessee's own case for the asst. yrs. 1974-75, 1976-77, 1977-78 and 1971-72 came up for consideration before the Supreme Court in Chillies Exports House Ltd. v. CIT (1997) 140 CTR (SC) 1 : (1997) 225 ITR 814 (SC) wherein the Supreme Court found that the assessee indulged in the following activities :
"The assessee a public limited company is carrying on the business of sale and purchase of chillies. Chillies are exported to the USSR, the USA and Ceylon. The chillies purchased by the assessee-company are sorted' and graded as per Agmark specification. Better quality chillies are picked up and sorted out for export and before export they are clipped and stemmed and subjected to fumigation under expert technical hands in order to prevent determination and with a view to give better polish and appearance and during that process they are treated with methyl bromide. A substantial part of the goods are exported. According to the assessee it is engaged in the 'business of processing of goods' and so entitled to the concession rate of income-tax as per the Finance Act. The Revenue disputes this claim. According to it, no processing is involved and the goods purchased and exported are chillies and the assessee cannot be considered to be an 'industrial company' carrying on the business of processing of goods."
The apex Court after noticing the fact and its earlier decision in Chowgle & Co. (P) Ltd. v. Union of India (1981) 47 STC 124 (S0 held that the earlier decision of this Court in the assessee's own case in Add), C1T v. Chillies Export House Ltd. 1978 CTR (Mad) 230 : (1978) 115 ITR 73 (Mad) for the assessment year 1971-72 should be set aside and remitted the entire matter to the High Court. The apex Court held that the nature of the enquiry and the line of the enquiry to be conducted to ascertain whether the assessee- company can be regarded as an industrial company what is as under:
"The ultimate conclusion as to whether the assessee was carrying on the business of processing of goods would depend upon the consideration of all relevant materials available in the case. The Madras High Court has eschewed from consideration one important activity carried on in the matter, namely, the activity relating be fumigation by the treatment with methyl bromide on the ground that it was done by another 'Mysore (P) Ltd., Bangalore, on behalf of the assessee. That is an irrelevant or immaterial factor. The sole question is, whether on a consideration of the totality of the activities including the one relating to fumigation by the treatment with methyl bromide which enables the goods to be exported as a marketable commodity, amounted to the business of processing of goods. The High Court had omitted to consider the matter in that perspective. It also does not stand to reason to state that the dictum laid down by the three member Bench in Chowgule & Co. (P) Ltd. v. Union of India (1981) 47 STC 124 (SQ) has been departed from the later decision rendered by another co-ordinate Bench in Delhi Cold Storage (P) Ltd. v. CIT (1991) 98 CTR (SC) 165: (1991) 191 ITR 656 (SQ) . It appears that since in a cold storage there was only an act of preservation without any positive action this Court was inclined to take the view that the company running the cold storage is not an industrial company and no process of fumigation required positive action. The dictionary meaning of the said word is 'to treat (something) contaminated or infected) with fumes or smoke' (Collins English Dictionary). Webster's Comprehensive Dictionary International Edition p. 512, gives the meaning for the words, 'fumigate' thus, 'To subject to smoke or fumes as for disinfection. Archaic-to perfume. Whether 'refrigeration and fumigation' are of the same or similar import, or whether there is any difference, is a matter which requires a close look. It appears that though the goods purchased by the assessee were chillies, it had to undergo a series of activities in order to make it marketable or marketable in the export market-a sensitive market. These and other considerations require proper evaluation an indepth analysis and assistance from technical persons may be required to ascertain how far and to what extent the various activities carried on, by the assessee to render the chillies purchased locally as one of export quality can be termed as 'carrying on the business of processing of goods'. The entire matter requires a second look. A better investigation into the different activities carried on by the assessee which resulted in making the goods fit for export and how far the cumulative effect of those activities will amount to the processing of goods should be arrived at in the light of the various decisions referred to hereinabove. Since such an indepth investigation and analysis of the matter has not been made, we are of the view that the decision in the three instant appeals solely based on the earlier decision of the High Court of Madras, rendered in Add). CIT v. Chillies Export House Ltd. 1978 CTR (Mad) 230 : (1978) 115 ITR 73 (Mad) when such material were not available, cannot stand. We, therefore, set aside the judgments in all appeals and order to remit of the matter to the High Court for a de novo consideration according to law."
3. Admittedly, on the facts of the instant case, no such enquiry has been done by the Tribunal or even by the Income Tax Officer to hold that the assessee- company cannot be regarded as an industrial company.
4. Mr, Janarthana Raja, learned counsel for the assessee as well as Mr. C.V. Rajan, learned counsel for the Revenue fairly submitted that the matter may be remitted to the Tribunal to consider the entire matter de novo. We are also of the opinion that the matter should be examined in the light of the decision of the Supreme Court, cited supra, so that the assessee can have be assistance of the technical experts to show what were the activities carried on by the assessee and whether the activities carried on by the assessee resulted in making the goods fit for export. The nature of the enquiry naturally results in investigation of factual details and we are of the opinion that the matter should be remitted to the Tribunal to consider the matter afresh in the light of the directions give by the Supreme Court in Chillies Exports House Ltd.'s case cited supra. We also make it clear that it would be open to the Tribunal to remit the matter to the assessing officer having jurisdiction to consider the matter in the light of the directions given by the Supreme Court. In the absence of any factual detail, as directed by the Supreme Court, we are not able to render an answer to the question of law referred to us. Accordingly, we return the reference without answering the question of law referred to us with a direction to the Tribunal to consider the question afresh in the light of the decision of the Supreme Court in Chiles Export House Ltd.'s case (supra). It is also made clear that it is open to the Tribunal to remit the matter to the assessing officer having jurisdiction over the case.