Madras High Court
Judgment Reserved On Judgment ... vs The Assistant Commissioner Of Income ...
Author: T.V.Thamilselvi
Bench: M.Duraiswamy, T.V.Thamilselvi
T.C.A.Nos.378 to 380 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
CORAM:
THE HON'BLE Mr.JUSTICE M.DURAISWAMY
and
THE HON'BLE Mrs.JUSTICE T.V.THAMILSELVI
Tax Case (Appeal) Nos.378 to 380 of 2009
and
M.P.Nos. 1,2 and 2 of 2009
Judgment reserved on Judgment pronounced on
05.02.2021 23.02.2021
M/s.Sterling Agro Products Processing Pvt.Ltd
327, Anna Salai,
Teynampet,
Chennai-600 018. .. Appellant in all the Appeals
-vs-
The Assistant Commissioner of Income Tax,
Company Circle VI(4),
Ayakar Bhavan, New Block, 7th Floor,
121, M.G.Road,
Chennai-600 034. .. Respondent in all the Appeals
Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961
against the orders of the Income-tax Appellate Tribunal Chennai Bench 'C', dated
06.02.2009 in I.T.A.Nos.2416 to 2418 /Mds/2007 for the assessment years 2001-
2002, 2002-2003 and 2003-2004.
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T.C.A.Nos.378 to 380 of 2009
For Appellant : Mr.G.Baskar
(in all the Appeals)
For Respondent : Mr.J.Narayanaswamy
(in all the Appeals) Senior Standing Counsel
COMMON JUDGMENT
T.V.THAMILSELVI, J.
These appeals have been filed by the Assessee namely M/s.Sterling Agro Products Processing Pvt. Ltd., challenging the common order passed by the Income Tax Appellate Tribunal, Chennai “C” Bench, dated 06.02.2009 in I.A.T.No.2416 to 2418/Mds/2007 for the assessment years 2001-2002, 2002-2003 and 2003-2004.
2. All the Tax Case Appeals were admitted vide order dated 05.05.2009 on the following substantial questions of law:
(i) whether on the facts and in the circumstances of the case the income Tax Appellate Tribunal is right in law in holding that the assessee is not entitled to deduction under Section 10 B of the Income Tax Act ?
(ii) whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal is right in law in concluding that the activity of conversion of raw gherkins to bottled pickle does Page No:2/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 not amount to ' manufacture' ?
3. Heard Mr.G.Basker, learned counsel for the appellant and Mr.J.Narayanaswamy, learned Senior Standing Counsel for the Respondent.
4. Facts of the case are as follows:
The Assessee is engaged in business of manufacture and export of Agro products. The appellant has export oriented units in other state which have been duly approved by the Government of India. The appellant is engaged in manufacturing hot and sweet pickles out of gherkins and other agricultural commodities. The appellant has full fledged manufacturing unit and carries out manufacturing processes in its factories. In the returns of income filed by the appellant for the Assessment Years 2001-02, 02-03 and 03-04, the appellant claimed relief under Section 10B of the Income Tax which provides for a deduction of the income earned from the manufacture of goods, articles or computer software.
5. The appellant is also doing manufacturing process to convert a raw gherkin into a bottled pickle. The raw gherkins are unloaded in a temperature controlled receiving area and kept in cold storage. Thereafter, the product is put Page No:3/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 through a process called pre-culling, thereafter, process of fine grading. The vegetables are loaded into barrels and chemicals like acetic acid, brine, vinegar, salt, calcium and KMS preservatives are added. Such mixture is stored for 7 to 10 days for stabilization. Then they are transported from the factory and unloaded into pits. Thereafter, the gherkins are lifted out of the pit by a conveyor into a rod washer, which removes extraneous matter from the gherkins. After the stage of defect removal, the gherkins are sliced. Thereafter a machine called the vibrator two speedy automatic pail filler packs the processed vegetable pieces in pails and covers the same with a solution. Then these pails are labeled with manufacturing dates and after a stipulated period they are filled into bottles and packed for distribution. Narrating all these process the appellant contended that the entire process of manufacture involves several stages of process as well as chemical transformation inorder to adheres the international hygiene norms. Hence the appellant contended that he has engaged in the business of manufacture and export of Agro products. So he is entitled for deduction of Income Tax under Section 10(B) of Income Tax Act.
6. The appellant contended that the Assessing Authority erroneously applied the rational of the decisions of the Hon'ble Supreme Court in the case of the India Hotels Company Ltd. Vs. CIT 245 ITR 538 wherein it has been Page No:4/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 held that the process of conversion of raw gherkins to bottled pickle does not amount to manufacturing activity. Against which they preferred appeal to the Commissioner of Income Tax in ITA No.147 of 2006-07. In the said appeal the assessee's contention was accepted and concluded that the process adopted by the assessee amount to manufacturing activity and they are entitled for deduction and relief under Section 10B of Act. Aggrieved by the same the Department preferred appeals before the Income Tax Appellate Tribunal,Chennai Bench 'C', I.T.A.No.2416 to 2418/MDS/2007 which allowed the appeals on 06.02.2009 following the decision of the Apex Court in India Hotels Company Ltd., Vs. CIT 245 ITR 538. Aggrieved by the same, the assessee preferred these appeals.
7. At the time of the arguments the learned counsel for the assessee submitted that the raw gherkins from the vegetables are converted to various processes of manufacture as detailed above and converted into hot and sweet pickles. But, without considering the said manufacturing activities adopted by the assessee the appellate Tribunal erroneously ordered in favour of the Department, concluding that the activity adopted by him will not come under the definition of 'manufacture'. At this juncture, the learned counsel for the appellant relied upon a judgment of the Hon'ble Supreme Court in Income Tax Officer Vs. Arihant Tiles & Marbles (P) Ltd., vid. In (2009) 77 CCH 1098 ISCC wherein it has Page No:5/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 been held as follows:
“Deduction under s.80-IA-Manufacture or production- Conversion of marble blocks into slabs and tiles-process undertaken by the assessee includes not only cutting of marble blocks into slabs but also the activity of polishing and ultimate conversion of blocks into polished slabs and tiles-blocks have to go through various stages before they become polished slabs and tiles-such activity would fall in the category of “manufacture” or “production” under s.80-IA - ...... ......Therefore, the activity undertaken by the assessee constitutes manufacture or production and they are entitled to benefit of s.80- IA”
8. By placing reliance on the above decision it was argued that the changes made in the article raw gherkins resulted in a new sweet and hot pickles. Thereby, it amount to manufacturing activity.
9. By way of reply, the learned counsel for the Authority submits that the assessee was doing only the processing work and was not involved in the manufacturing activity and producing a new article. In this regard he relied, the India Hotels Company Ltd. Vs. Income Tax Officer reported in (2000) 112 Taxman 46 (SC) the operative portions of the judgment read as follows:
Page No:6/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 “8. Chapter II of the Finance Act, 1979 provides for rates of income-tax. Relevant part dealing with the company is as under:
“2(7) For the purposes of this Section and the First Schedule,-
(a) and (b)**
(c) 'industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining.”
9. The aforesaid definition covers four categories of the activities carried on by a company and it must be mainly engaged:
(i) in the business of generation or distribution of electricity or in other form of power;
(ii) in the construction of ships;
(iii) in manufacturing or processing of goods; and
(iv) in mining.
15. In support of his contention, the learned Solicitor General referred to the decision of this Court in Sterling Foods, A Partnership Firm v. State of Karnataka (1986) 3 SCC 469. The court in tha case considered the question as to what happens when shrimps, prawna and lobsters purchased by the assessee (under the provisions of the Central Sales Tax Act, 1956) are subjected to the process of cutting heads and tails, peeling, deveining, cleaning and freezing before export. Do they cease to be original commodity and become commercially a new commodity or do they still retain their original identity as shrimps, prawns and lobsters? The court held that despite such processing they continue to possess their original character and identity and even though processing was necessary for making them fit for the table. The Court referred to the decision of the Supreme court of the United States in East Texas Motor Freight Lines v. Frozen Food Express 100 L.Ed., 917 where the question was whether dressed and frozen chicken was a commercially distinct article from the original chicken. The court relied upon the following passage from the said judgment:
“.... there is hardly less difference between cotton in the field and cotton at the gin or in the bale or between cottonseed in the Page No:7/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 field and cottonseed at the gin, than between a chicken in the pen and one that is dressed. The ginned and baled cotton and the cottonseed, as well as the dressed chicken, have gone through a processing stage. But neither has been 'manufactured' in the normal sense of the word.”
16. In our view, same would be the position with regard to the foodstuff served or sold by the hotels. The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables, meat or the like cannot be regarded as commercially distinct commodity and it cannot be held that such foodstuff is manufactured or produced.
Commissioner of Income Tax (Central), Madras Vs. Buhari Sons Pvt. Ltd., reported in MANU/TN/0062/1983, High Court of Madras as follows:
10. Thus, it is clear that the words used in a statue must take colour from the objects of the Act and it cannot be taken to have a uniform meaning in whatever statue it occurs. We are, therefore, of the view that the decision rendered in New Taj Mahal Cafe Ltd., V. Inspector of Factories, AIR 1956 Mad 600, with reference to definition of “manufacturing process” occurring in s.2(k) of the Factories Act cannot be of much assistance to the assessee. Even otherwise, the expression construed in the said decision is “manufacturing process” which has been specifically defined in the Factories Act. We are, however, concerned with a slightly different expression “manufacture or processing of goods”. Can we say that a hotel or a restaurant is engaged in the business of manufacturing of goods? As already stated, the Kerala High Court in CIT v. Casino (Pvt.) Ltd.
MANU/KE/0107/1972: [1973] 91ITR289 (Ker) has taken the view that the expression “manufacture of goods” referred only to the activity of a manufacturing concern and not the activity of a trader. Further, the expression used in s.2(7)(d) of the Finance Act, 1966, is “manufacture of good”. The question is whether the assessee in this case can be said to manufacture of goods. We are the view that the word “goods” has been used here in the sense of merchandise, that is, articles for sale. The expression “goods” if understood in a Page No:8/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 commercial sense will not include the eatables prepared in a hotel.
10. Based upon the above authorities, the learned counsel for the respondent argued that the conversion of the raw gherkins into hot and sweet pickles does not constitute the activity of 'manufacture' and the appellate authority rightly rejected the claim of the assessee.
11. The entire facts reveal that the assessee is running an Agro product unit under the name and style of 'Sterling Agro Products Processing Pvt.Ltd.,' which is very much involved in the production of the pickles from the raw vegetables gherkins and to make a fine pickle vegetable, raw gherkins were processed into various stages like cutting into pails, various process like pre- culling, washed and loaded in the barrels with preservative chemicals and then cut into pieces, removing the defective fruits and then cut into slices and packed into the bottles as sweet hot pickles. All these processes clearly reveal that the original commodity of vegetable gherkins transform into pickles, had the same identity as the original gherkins and it was not transformed into new commodity. Therefore, the authorities relied on by the respondent / Department are squarely applicable to the facts of the case and on the other hand, the authorities relied on by the appellant are not supporting his contentions rather it relates to the Page No:9/12 https://www.mhc.tn.gov.in/judis/ T.C.A.Nos.378 to 380 of 2009 industrial activities, which is totally different from the facts of the instant case. The questions of law are answered accordingly. Therefore, we are of the view that the assessee is not entitled for the deduction under Section 10B of Income Tax Act and the findings given by the Income Tax Appellate Tribunal that the conversion of raw gherkins to bottle pickle, would not amount to 'manufacture' is sustainable one consequently, they are not entitled for deduction under Section 10B of the Income Tax Act.
12. In these circumstances the appeals are liable to be dismissed. Accordingly, the same are dismissed. Consequently, connected Miscellaneous petitions are closed. No costs.
(M.D., J.) (T.V.T.S., J.)
23.02.2021
rri
Index : Yes/No
Speaking Order: Yes/No
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T.C.A.Nos.378 to 380 of 2009
M.DURAISWAMY, J.
and
T.V.THAMILSELVI, J.
rri
To
The Assistant Commissioner of Income Tax,
Company Circle VI(4),
Ayakar Bhavan, New Block, 7th Floor,
121, M.G.Road,
Chennai-600 034.
Pre-delivery Judgment made
in T.C.A.Nos.378 to 380 of 2009
and
M.P.Nos. 1,2 and 2 of 2009
23.02.2021
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T.C.A.Nos.378 to 380 of 2009
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