Madras High Court
Commissioner Of Income-Tax vs Orient Marine Products Pvt. Ltd. on 1 September, 1994
Equivalent citations: [1995]214ITR44(MAD)
JUDGMENT Thanikkachalam, J.
1. At the instance of the Department, the Tribunal referred the following questions for the assessment year 1978-79 for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to relief under section 80J of the Income-tax Act, 1961, for the assessment year 1974-75 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to higher development rebate at 20 per cent. in respect of the machinery installed by it as per section 33(1)(b)(B)(i)(b) of the Income-tax Act for the assessment years 1974-75 ?
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee should be treated as an 'industrial company' within the meaning of section 2(8)(c) of the Finance Act, 1974, and that the rate of tax to be adopted should be 55 percent. and not 65 per cent. as adopted by the Income-tax Officer ?"
2. The business of the assessee consists of processing of frog legs, lobsters, shrimps and prawns. The assessee has claimed relief under section 80J of the Income-tax Act (hereinafter referred to as the "Act"), on the basis of capital employed of Rs. 35,621. According to the Income-tax Officer, the assessee is not entitled to any relief under section 80J of the Act. On appeal, the Appellate Assistant Commissioner pointed out that according to section 80J(4)(iii), the provisions of section 80J will apply only in the case of industrial undertakings which derived profits from operating cold storage plant or plants. According to the Appellate Assistant Commissioner, the assessee is not manufacturing or producing articles. The Appellate Assistant Commissioner pointed out that the assessee does only processing. Before the Appellate Assistant Commissioner it was submitted that the assessee is operating one or more cold storage plants in India and hence the provisions of section 80J apply to them. However, considering the facts arising on this aspect, the Appellate Assistant Commissioner came to the conclusion that the assessee is not deriving profits and gains from operating cold storage plants. Thus, in his opinion, the provisions of section 80J will not apply to the case of the assessee. Accordingly, the order of the Income-tax Officer was confirmed. Aggrieved with that the assessee filed an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal was of the view that the carrying on of the business of processing of lobsters, shrimps and prawns would amount to undergoing various processes made with the use of the cold storage plant. Therefore, according to the Tribunal, the assessee is entitled to deduction under section 80J of the Act.
3. Before us, learned standing counsel appearing for the Revenue contended that the activities of the assessee do not involve manufacturing activities and, therefore, the provisions of section 80J cannot be made applicable to the assessee. It was further submitted that mere using of the cold storage plant alone would not amount to manufacturing any article. Therefore, according to learned standing counsel, mere processing of lobsters, shrimps and prawns would not amount to manufacturing. There was no representation on behalf of the assessee. This issue is directly covered by a decision of the Calcutta High Court in CIT v. Union Carbide India Ltd. [1987] 165 ITR 550, wherein the Calcutta High Court has held as under (headnote) :
"The operations consisted of cleaning, peeling, packing and freezing the shrimps without which the same were not marketable and as a result of such processing, a new commercial product came into existence. Moreover, in view of item 30 in Schedule V of the Income-tax Act, 1961, which item covered processed (including frozen) fish and fish products, a person who owned machinery or plant engaged in the manufacture or production of processed fish (including frozen) and fish products was entitled to development rebate under section 33 at a higher rate. If for the purpose of higher development rebate under the said section, processed fish (including frozen) and fish products were the result of production or manufacture, on analogy it should be held that for the purpose of section 80J, such items should be capable of being produced or manufactured. Therefore, the Deep Sea Fishing Division of the assessee was an 'industrial undertaking' within the meaning of section 80J and entitled to relief under the section."
4. A similar issue came up for consideration before the Kerala High Court in the case of CIT v. Marwell Sea Foods [1987] 166 ITR 24, wherein the Kerala High Court held that "the processing of prawns amounts to manufacture or production of articles within the meaning of section 80HH and a new industrial undertaking set up in a backward area for the processing of prawns is entitled to special deduction under section 80HH". Considering the acts arising on this aspect in the light of the judicial pronouncement cited supra, we hold that the assessee's activities in processing shrimps, frog legs, prawns and lobsters would amount to manufacturing activities as contemplated under section 80J(ii) of the Act. In that view of the matter, we hold that the Tribunal was correct in allowing the deduction claimed by the assessee under section 80J(ii) of the Act. Accordingly, we answer question No. 1 referred to us in the affirmative and against the Department.
5. In so far as question No. 2 is concerned, the facts leading to question No. 2 are that the Income-tax Officer restricted the development rebate to 15 per cent. when the assessee claimed development rebate at 20 per cent. The Income-tax Officer has taken the view that since the assessee is not doing manufacturing it is entitled to development rebate only at the lower rate of 15 per cent. On appeal, the Appellate Assistant Commissioner pointed out that the goods of the assessee are covered by item 50 of Schedule V of the Income-tax Act which speaks of process (including frozen fish and fish products). Therefore, the Appellate Assistant Commissioner held that under section 33(1)(b)(B)(i)(b) of the Act, the assessee is entitled to development rebate at 25 per cent. The Income-tax Officer was directed to allow development rebate at 25 per cent. subject to the other conditions envisage in sections 33 and 34 of the Act. On appeal, the Income-tax Appellate Tribunal confirmed the order passed by the Appellate Assistant Commissioner in allowing development rebate at 25 per cent. Before us, learned standing counsel for the Department submitted that since the assessee is not engaged in manufacturing activities, the assessee is not entitled to development rebate at 25 per cent. None was present on behalf of the assessee. The fact remains that the assessee is doing business in processing sea foods like lobsters, shrimps, frog legs and prawns. Under section 33(1)(b)(B)(i)(b) of the Act, the assessee is entitled to development rebate at 25 per cent. of the cost of machinery and plant where the machinery and plant are installed for the purpose of the business of construction, manufacture or production of any one or more of the articles specified in the list in the Fifth Schedule to the Act. Item 30 of Schedule V relates to the process of fish and fish products. The business of the assessee admittedly consists of processing of lobsters, frog legs, shrimps and prawns. Therefore, the assessee is entitled to development rebate at 25 per cent. Accordingly, we hold that the order passed by the Income-tax Appellate Tribunal granting development rebate at 25 per cent. is in order. Accordingly, question No. 2 is answered in the affirmative and against the Department.
6. The facts leading to question No. 3 are that the assessee claimed that it is an industrial company entitled to the rate of tax at 55 per cent. as against 65 per cent. adopted by the Income-tax Officer in the assessment. The Appellate Assistant Commissioner pointed out that the assessee is doing processing of fresh water shrimps, lobsters, frog legs, etc., and since the assessee is doing processing, clearly the assessee's case comes within the definition of "industrial company" and the rate of tax is only 55 per cent. The Income-tax Officer was directed to recompute the tax at the rate of 55 per cent. On appeal, the Income-tax Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner in granting relief to the extent of 55 per cent. Before us, learned standing counsel for the Department submitted that if a company is mainly engaged in the business of manufacture and processing of goods, it would qualify itself to be described as an industrial company under section 2(8)(c) of the Finance Act, 1974, and the tax should be levied at a concessional rate of 55 per cent. But, according to the Department, the assessee is not engaged in the manufacturing activities. In view of the decisions relied on the CIT v. Union Carbide India. Ltd. and CIT v. Marwell Sea Foods , we have already held that the assessee is a manufacturing company engaged in the business of selling sea foods. Therefore, when the assessee-company is engaged in the manufacture of sea food, they are entitled to the tax at the rate of 55 per cent. in view of the provisions contained in section 2(8)(c) of the Finance Act, 1974. Accordingly, we hold that the order passed by the Tribunal in upholding the order of the Appellate Assistant Commissioner in granting the concessional rate of tax at 55 per cent. is in order. In that view of the matter, we answer question No. 3 referred to us in the affirmative and against the Department. There will be no order as to costs. Counsel's fee is fixed at Rs. 1,000.