Kerala High Court
Commissioner Of Income-Tax vs Marwell Sea Foods on 16 March, 1987
Equivalent citations: [1987]166ITR624(KER)
Author: T. Kochu Thommen
Bench: T. Kochu Thommen
JUDGMENT T. Kochu Thommen, J.
1. The following three questions have been, at the instance of the Revenue, referred to us by the Income-tax Appellate Tribunal, Cochin Bench :
" 1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to get deduction of purchase tax on the goods purchased and not sold in the year?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in allowing relief under Section 80HH to the asses-see holding that the assessee is producing an article ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and facts in granting relief to the assessee under Section 80HH especially when the assessee is only doing processing of raw fish and that too in another concern ? "
2. The assessee's claim for deduction of the purchase tax paid during the relevant year in respect of the prawns said to have been produced and exported by the assessee was disallowed by the Income-tax Officer to the extent of Rs. 12,696. The claim was, however, allowed by both the appellate authorities as an expenditure allowable under Section 37 of the Income-tax Act, 1961 (the "Act"). We see no reason to doubt the correctness of that finding. Question No. 1 is accordingly answered in the affirmative, that is, in favour of the assessee and against the Revenue.
3. The assessee claimed that it was entitled to the deduction allowed under Section 80HH of the Act. The claim was disallowed by the Income-tax Officer on the ground that the business of the assessee was not one in which either manufacture or production was involved so as to attract the provisions of that section. However, the decision of the Income-tax Officer was reversed by the Appellate Assistant Commissioner and that decision was confirmed in appeal by the Tribunal.
4. The assessee is an exporter of prawns. They buy prawns which they process and ultimately export. The contention of the Revenue is that the prawns are only processed and that does not involve either manufacture or production. What the section requires, the Revenue's counsel points out, is manufacture or production.
5. Counsel for the assessee refers to Section 33 of the Act and submits that, for the purpose of that section, "processed (including frozen)" prawns are treated as manufactured or processed commodities. He contends that, for the purpose of Section 80HH of the Act also, processed or frozen prawns must be understood in that sense.
6. Section 80HH of the Act allows deduction in respect of profits and gains from a new industrial undertaking or hotel business in backward areas. The legislative intent is to encourage new industries in backward areas with a view to the progress of those areas. Section 80HH of the Act is only one of the several sections of the Income-tax Act which are meant to subserve that object. Section 33 of the Act is of course not specially meant for backward areas, although the development rebate allowed under that section is meant for a new ship or new machinery or plant. With a view to encouraging new industry, wherever located, the Legislature has by Section 33 of the Act allowed the benefit of development rebate for a certain number of years and subject to certain conditions. Clause B of that section reads.
" 33. Development rebate.--(1).....
(B) in the case of machinery or plant,--
(i) where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule,--....."
(emphasis* supplied)
7. It is important to remember that Clause (B) of Section 33 of the Act is attracted only where machinery or plant is installed for the business of "construction, manufacture or production" of articles mentioned in the Fifth Schedule. Those scheduled articles include "processed (including frozen) fish and fish products", which, for the purpose of Section 33, of the Act come within the words "construction, manufacture or production."
8. Section 80HH, in so far as it is material, reads :
"Section 80HH.(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :--
(i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area;.....
(iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power....."
(emphasis* supplied)
9. It is significant that like in Section 33, so also in Section 80HH, the words "manufacture" or "produce" appear. While both the words appear in Clause (i) of Sub-section (2) of Section 80HH, only the word "manufacturing" appears in Clause (iv) of that sub-section. Counsel for the Revenue submits that the legislative intent is to exclude production process from the ambit of the section, because Clause (iv) of Sub-section (2) does not refer to production but only to "manufacturing process". Therefore, counsel says, production which does not involve a manufacturing process is excluded.
10. The benefit of Section 80HH is available whenever a new industrial undertaking is started in a backward area and that undertaking begins to manufacture or produce articles. The fact that Clause (iv) of Sub-section (2) refers to the manufacturing process alone does not mean that production process is excluded. Every manufacturing process naturally involves production process, for the object of manufacture is the production of goods.
11. The question really is whether or not the prawns in question are articles produced or manufactured by the assessee so as to attract the benefit of the section. It is true that ordinarily the process by which the prawns are prepared for the market is not referred to in common parlance as manufacture or production. But it must be borne in mind that Section 80HH confers a benefit on the new industry for the ultimate development of backward areas.
12. There is substance in the contention that, if processed or frozen fish and fish products are regarded as articles "manufactured" or "produced" for the purpose of the development rebate, it was the legislative intent to attribute the same meaning to the identical expression appearing in another provision of the same statute, the object of which is to confer a benefit on the newly established industrial undertaking with a view to the advancement of the backward areas.
13. In this context, we must refer to the finding of the Appellate Assistant Commissioner (at page 8 of the paper book) which was confirmed in appeal by the Tribunal. There is a detailed description of the process by which prawns are prepared for export. One of the vital stages of this process is beheading, peeling and deveining of the prawns. Both the appellate authorities understood the various stages through which prawns are prepared for export as processes involving production or manufacture. The Tribunal having affirmed the finding of the Appellate Assistant Commissioner, we should be extremely slow to doubt the correctness of that finding unless it is perverse. In our view, the finding is not only not perverse, but it is perfectly in harmony with the legislative intent as disclosed by the scheme of the relevant provisions of the statute. Accordingly, we answer question Nos. 2 and 3 in the affirmative, that is, in favour of the assessee and against the Revenue.
14. We direct the parties to bear their respective costs in this tax referred case.
15. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.