Madras High Court
Commissioner Of Income-Tax vs M/S.Kalpana Agencies on 16 February, 2015
Author: R.Sudhakar
Bench: R.Sudhakar, R.Karuppiah
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 16.02.2015 CORAM: THE HONOURABLE MR.JUSTICE R.SUDHAKAR and THE HONOURABLE MR.JUSTICE R.KARUPPIAH Tax Case (Appeal) Nos.2100 to 2102, 2306, 2307, 396 of 2006 and 232 of 2007 Commissioner of Income-Tax Chennai .. Appellant in the above T.C.(A)s versus M/s.Kalpana Agencies Chennai. .. Respondent in the above T.C.(A)s PRAYER: Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961 as against the order dated 20.2.2004, 30.11.2005, 30.11.2005, 06.10.2005 and 25.08.2006 made in I..T.A..Nos.576 & 577/Mds/1996 and 1081/Mds/1997, 1578/Mds/2000, 629/Mds/2000, 185/Mds/2002 & 2840/Mds/2004 on the file of the Income Tax Appellate Tribunal, Madras 'A' Bench for the assessment years 1991-92, 1992-93, 1994-95, 1996-97, 1997-98, 1998-99 and 2001-2002. For appellant : Mr.J.Narayanasamy Standing Counsel for Income Tax For respondent : Mr.R.Vijayaraghavan for M/s.Subbarayar Aiyar Padmanabhan --------- C O M M O N J U D G M E N T
(Judgment of the Court was delivered by R.SUDHAKAR,J.) The above Tax Case (Appeals), filed by the Revenue as against the orders of the Income Tax Appellate Tribunal, were admitted by this Court on the following substantial questions of law:
"T.C.(A)Nos.2100 to 2102/2006 & 232/2007:
1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee was covered by item (x) of the Schedule Twelve and was eligible for deduction under Section 80HHC and
2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the washing, chipping would result in transferring the quartz and feldspar into "processed minerals" under Schedule XII, when the Schedule specifically mentions the said minerals should be pulverized and micronised?
T.C.(A)Nos.2306 2307 and 396 of 2006:
"1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that exporter of manually washed/chipped quartz and feldspar is eligible for the deduction under Section 80HHC?
2. Whether in the facts and circumstances of the case activity of manual washing/chipping of quartz and feldspar would fall under sl.x of 12th sch for the purpose of deduction under Section 80 HHC?"
2. The brief facts, common to all the above Tax Case (Appeals) are as follows:
The assessment involved in the above Tax Case (Appeals) are for the assessment years 1991-92, 1992-93, 1994-95, 1996-97, 1997-98, 1998-99 and 2001-2002 respectively. The assessee is an exporter of ores, quartz, feldspar, etc. He claimed deduction under Section 80HHC of the Income Tax Act in respect of profits retained for export business. The Assessing Officer, while completing the assessment under Section 143(3) of the Income Tax Act denied the benefit as claimed by the assessee and the reasons given by the Assessing Officer in the assessment order in respect of the assessment year 1991-92 (T.C.(A)No.2100 of 2006) is that feldspar exported by the assessee and the consequent benefit under Section 80HHC will be available only if such mineral is exported in the pulverized and micronised form. He rejected the assessee's plea that the goods exported would fall under Serial No.x of the 12th Schedule together with the explanation as a cut and polished mineral. The details of the process as explained by the assessee has been recorded in the assessment order itself. Nevertheless, the Assessing Officer considered the issue on two grounds viz., i) as to whether there was any processing and ii) whether the provisions contained in 12th Schedule would apply to the assessee's case. The Assessing Officer came to the conclusion that the various methods of processing undertaken by the assessee did not qualify for the benefit of Section 80HHC primarily on the ground that Feldspar should be exported in the pulverized and micronised form in terms of Item No.(i) in the 12th Schedule. For better clarity, the reasoning as set out by the Assessing Officer, reads as follows:
iii. The assessee has claimed deduction u/s.80HHC to the tune of Rs.86,09,977/- as per the provisions of sec.80HHC(2)(b). Section 80HHC does not apply to minerals and ores other than the processed minerals and ores as specified in the twelfth schedule. As per 12th Schedule, dealing with processed minerals and ores, deduction u/s. 80HHC is available in respect of Pulverized or micronised barytes, calcite, steatile, prophylite, wollanasonite, zircon, betonite, red or yellow oxide, read or yellow ochre, talc, quartz, feldspar, silica powder, granet, silliminite, fireclay, ballaclay, manganese dioxide ore, etc. The assessee has stated that the name of quartz and feldspar is mentioned in twelfth schedule and hence he will be entitled for deduction u/s.80HHC. He has also given notes on his claim stating that quartz is a mineral which is mined by open cast mining operations. The mining operations are quasi-meachaical. It is also stated by the assessee that drilling is done by compressors and blasted mechanically then chipping is done manually. It is also stated that while other minerals like iron etc., are mined mechanically, and then loaded straight away for export, quartz and feldspar are not exported in the mined form. As such the assessee claimed that it is a partially processed by manual. It was also stated by the assessee that other minerals are sampled for the chemical commodities whereas quartz and feldspar are analysed for the size, selection and purity apart from chemical content. It is also stated by the representative that the existing firm is an exporter of processed minerals falling under item No.(i) to (x) of twelfth schedule and clauses a,e and g of the said explanation to the said schedule are allowable for deduction u/s.80HHC(2)(b)(ii) Basically there are two questions to be answered an order to allow assessee's claim of deduction under sec.80HHC.
i) whether there is any processing
ii) whether the provisions contained in Twelfth schedule will apply to the assessee's case.
Merely because the assessee washes, chippers and washes the stone manually, it cannot be considered as 'processing' because Twelfth schedule stipulates that there should be pulverishing or micronising of Quartz and feldspar. These activities are not carried on by the assessee during the year under review.
These activities are carried on by the assessee in their godown is through some manual labourers who are taking the quartz in basket dipping it in water for washing purposes and impurities are chipped by a human manually.
It is also seen from the records of the assessee that the assessee has not instaled any machinery during the year to call it as mechanical process. Moreover, the assessee do not come under clause (i) or (x) of twelfth schedule as claimed by the assessee for the reason i) pulverished or micronised the feldspar, quartz are not exported.
ii) secondly the combined activity of cut and polished minerals is not happening in the assessee's case. Just because the name quartz, feldspar appear in twelfth schedule the assessee cannot take it as a advantage to claim relief u/s.80HHC. The word processing appears in twelfth schedule only in term of 2 & 3 and not in respect or item No:1. Incidentally so long as the assessee did not export pulverished and micronised quartz and feldspar, the assessee is not entitled for the claim u/s.80HHC. Hence the assessee's claim is NEGATIVE and addition on this score works out to Rs.86,09,977/- which is added to the income returned.
3. On appeal at the instance of the assessee, the Commissioner of Income Tax (Appeals) took the view that it is not in dispute that the assessee did not export Feldspar in pulverized or micronised form, but the nature of goods exported would fall under the definition as a mineral and it would satisfy the requirement of processed mineral or ore as defined under item x of the 12th schedule, namely, cut and polished mineral. He further held that quartz and feldspar are minerals and if one of the conditions of 12th schedule is satisfied, the benefit of Section 80HHC would automatically apply. The reasoning given by the Commissioner of Income Tax (Appeals) reads as follows:
11. It is mentioned specifically that quartz and feldspare exported in pulverised or micronised will qualify for deduction u/s.80HHC. This condition is obviously not satisfied in the case of the appellant. There is no other category where quartz and feldspar are specifically mentioned in the schedule. But item (x) of the Twelfth schedule mentions cut and polished minerals and rocks including cut and polished granite also as qualified items. Quartz and feldspar are minerals (vide Chambers 20th Century Dictionary). Quartz and fledspare exported here are cut from quarries and polished. Therefore, the items would certainly come under item (x) of the Twelfth Schedule. Once this condition is held to be satisfied, what is to be examined is whether this can be called processed minerals as per requirement of section 80HHC(2)(b) read with Twelfth Schedule of the I.T.Act. As per clause (i) of Explanation to the Twelfth schedule process means cutting and polishing. There is no requirement that this has to be done with the help of machinery or power. Thus, considering the totality of the facts and circumstances of the case, I am of the opinion that the appellant, during the relevant accounting period, was engaged in the export of goods and merchandise qualifying for deduction u/s. 80HHC. Thus, it will be entitled to a deduction of Rs.86,09,977 u/s. 80HHC of the Act for the said year. I direct accordingly."
4. Being aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue pursued the matter before the Income Tax Appellate Tribunal. The Tribunal, by a brief order, relying upon the decision of the Tribunal in the case of ACIT Vs. GTC Enterprises, reported in 87 ITD 188 came to hold that the assessee was covered by item (x) of Schedule XII and was eligible for deduction under Section 80HHC of the Income Tax Act.
5. As against the said order of the Tribunal, the Revenue is before this Court.
6. Learned Standing Counsel appearing for the Revenue submitted that item (i) of 12th Schedule directly deals with quartz and feldspar and therefore item (x) of the 12th schedule could not be applied. He further submitted that when the 12th Schedule specifically provides that Feldspar should be pulverized and micronised, the assessee is not entitled to the benefit of Section 80HHC, since the assessee only washes, chippers and washes the stone manually, which did not involve any processing. Hence, the Assessing Officer is correct in denying the benefit under Section 80HHC of the Income Tax Act.
7. Per contra, learned counsel appearing for the assessee submitted that as per item x of the 12th schedule, which mentions cut and polished minerals and rocks including cut and polished granite are qualified for benefit under Section 80HHC. Quartz and feldspar, which are minerals and cut from quarries and polished also qualify for deduction under Section 80HHC. As per clause (i) of Explanation to 12th Schedule, process means cut and polishing. Hence, the Tribunal is correct in granting the benefit to the assessee.
8. Heard learned Standing Counsel appearing for the Revenue and the learned counsel appearing for the assessee and perused the materials placed before this Court.
9. The core issue now arise for consideration in these appeals is in relation to Section 80HHC(2)(b)(ii) of the Income Tax Act, in effect, "other than processed minerals and ores specified under 12th Schedule". In order to clarify this issue, we extract herein the 12th Schedule in relation to processed minerals and ores and the explanation:
THE TWELFTH SCHEDULE [See section 80HHC(2)(b)(ii)] PROCESSED MINERALS AND ORES
(i) Pulverised or micronisedbarytes, calcite, steatite, pyrophylite, wollastonite, zircon, bentonite, red or yellow oxide, red or yellow ochre, talc, quartz, feldspar, silica powder, garnet, silliminite, fireclay, ballclay, manganese dioxide ore.
(ii) Processed or activatedbentonite, diatomious earth, fullers earth.
(iii) Processedkaoline (china clay), whiting, calcium carbonate.
(iv) Beneficated-chromite, flourspar, graphite, vermiculite, ilmenite, brown ilmenite (lencoxene) rutile, monazite and other mineral concentrates.
(v) Mica blocks, mica splittings, mica condenser films, mica powder, micanite, silvered mica, punched mica, mica paper, mica tapes, mica flakes.
(vi) Exfoliated-vermiculite, calcined kyanite, magnesite, calcined magnesite, calcined alumina.
(vii) Sized iron ore processed by mechanical screening or crushing and screening through dry process or mechanical crushing, screening, washing and classification through wet process.
(viii) Iron ore concentrates processed through crushing, grinding or magnetic separation.
(ix) Agglomerated iron ore.
(x) Cut and polished minerals and rocks including cut and polished granite.
Explanation.For the purposes of this Schedule, processed, in relation to any mineral or ore, means
(a) dressing through mechanical means to obtain concentrates after removal of gangue and unwanted deleterious substances or through other means without altering the minerological identity;
(b) pulverisation, calcination or micronisation;
(c) agglomeration from fines;
(d) cutting and polishing;
(e) washing and levigation;
(f) benefication by mechanical crushing and screening through dry process;
(g) sizing by crushing, screening, washing and classification through wet process;
(h) other upgrading techniques such as removal of impurities through chemical treatment, refining by gravity separation, bleaching, floatation or filtration.
10. It is not in dispute that Feldspar is a mineral. The question is whether Feldspar would be a processed mineral, only if it is pulverized and micronised. If the answer to this is not in the affirmative, then the assessee's case can be accepted. If the Department's contention that Feldspar, if pulverized and micronised alone are entitled to the benefit of deduction under Section 80HHC, is accepted, then the Department has a ground to pursue these appeals.
11. Section 80HHC(2)(b)(ii) of the Income Tax Act excludes minerals and ores other than processed minerals and ores specified in the 12th Schedule. In the 12th Schedule, processed minerals and ores, items (i) to (ix) are specific insofar as different varieties of minerals and ores are concerned. However, in general terms, item (x) provides cut and polished minerals also subject to processing as defined under explanation, are eligible for deduction.
12. In the present case, feldspar is not in pulverized and micronised form, but is exported as cut and polished mineral. This fact is not in dispute. The main point is whether Feldspar while cutting and polishing undergoes any one of the processes as defined under the Explanation to the 12th Schedule. In the assessment order, the Assessing Officer has accepted the process as defined in the Explanation to the 12th Schedule. We find that Feldspar, as a mineral, could be exported either in the cut and polished form or in the pulverized and micronised form. It is not correct to say that cut and polished feldspar is not a mineral. The pulverized and micronised is one among the various processes provided for different types of minerals. In the same manner, cut and polished minerals, undergoing various processes as per Explanation to the 12th Schedule, is a processed mineral. The Commissioner of Income Tax (Appeals) is correct in holding that if any one of the processes specified in the 12th Schedule is satisfied, then the benefit would be automatic. In our considered opinion, the restrictive meaning given by the Assessing Officer does not appear to be correct. The Assessing Authority misconstrued the 12th Schedule and the Explanation to deny the benefit of deduction under Section 80HHC only on the wrong premise that Feldspar should be exported only in pulverized and micronised form. If such a view is taken, item (x) of 12th Schedule will become redundant and meaningless.
13. The decision of the Supreme Court in the case of Gem Granites V. Commissioner of Income-Tax reported in (2004) 323 ITR 271 relied on by the learned Standing Counsel appearing for the Revenue does not get attracted to the facts of the present case, as the said case deals with the issue pertaining to the assessment year 1987-88, which is prior to the amendment in 1991.
14. The present cases are after the amendment in the year 1991, wherein in clause (2) (b) (ii) of Section 80HHC of the Income Tax Act, the words 'other than processed minerals and ores specified in the Twelfth Schedule' are inserted. But prior to the amendment in the year 1991, there are no words of restriction 'other than'.
15. We, therefore, have no hesitation to hold that the order of the Commissioner of Income Tax (Appeals), confirmed by the Tribunal is correct. Accordingly, the substantial questions of law are answered in favour of the assessee and against the Revenue.
In the result, all the above Tax Case (Appeals) are dismissed. No costs.
Index:Yes/No (R.S.,J.) (R.K.,J.) Internet: Yes / No 16.02.2015 sl To 1. The Income Tax Appellate Tribunal, Madras 'A' Bench. R.SUDHAKAR,J. AND R.KARUPPIAH,J. sl Tax Case (Appeal) Nos.2100 to 2102, 2306, 2307, 396 of 2006 and 232 of 2007 16.02.2015