Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs Srinivasa Sea Foods Ltd. on 22 March, 2006
Equivalent citations: (2006)204CTR(AP)582, [2006]284ITR348(AP)
Author: Bilal Nazki
Bench: Bilal Nazki, G. Chandraiah
JUDGMENT Bilal Nazki, J.
1. Heard learned Counsel for the parties.
2. The following question has been referred at the instance of the Revenue:
Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) that the assessee-company is to be treated as an industrial undertaking for the purpose of deduction under Section 80J of the Income-tax Act, 1961?
3. The facts, as revealed from the record of the case, are that the assessee started business from July 31, 1978, after acquisition of trawlers and it carried on operation for two months. During the year ending on September 30, 1978, which would be relevant for the year 1979-80, the assessee was catching fish in the high seas and selling it. On September 30, 1979, it commissioned freezing and cold storage plant and also started export of fish and fish products after processing the caught fish. The claim of the assessee for relief under Section 80J of the Income-tax Act, 1961 (for short "the Act"), for the first two years was denied, but the same was partly allowed for the third assessment year with reference to the capital employed in the freezing division. The matter went to the Tribunal, which remitted the matter back to the Income-tax Officer to consider afresh "whether the assessee had after catching the fish by use of trawlers carried on any other operations or sold the fish as such". Thereafter, the case was again taken up by the Income-tax Officer, who gave the following finding.
In the instant case, the assessee has merely caught fish/prawns/ shrimp by the use of its trawlers and sold them as such to local parties without subjecting the catches to any kind of processing activities such as pealing, grading, diveining, freezing, etc. So, the decision of the Special Bench in the case of ITO v. Payilakkada Fisheries P. Ltd. cannot at all assist the claim of the assessee for relief under Section 80-I. Rather the facts in the instant case are similar to the facts in the case of New India Fisheries Ltd. v. P.M. Mehra, ITO as reported in [1971] 82 ITR 765 (Bom).
4. On appeal by the assessee, the Commissioner of Income-tax (Appeals) reversed the order of the Income-tax Officer and thereafter, the Department went in appeal to the Tribunal, which has upheld the order of the first appellate authority. Hence, the reference at the instance of the Revenue.
5. The only question, which falls for consideration before this Court is:
Whether the assessee was an industrial undertaking within the meaning of Section 80J(4)(iii) of the Act?
6. Section 80J(4)(iii) of the Act lays down as follows:
it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking.
7. Therefore, the prerequisite for an undertaking to be an industrial undertaking in terms of Section 80J(4) of the Act is that it should manufacture or produce articles. The record of the case shows that, at best in the third assessment year, the assessee was processing, cleaning and freezing the fish before they were sold and in the first two assessment years, it was selling the fish in the same form, in which the fish was caught. Whether it would amount to manufacture or not is a question, which has already been considered by various courts including the Supreme Court.
8. Before coming to those judgments, it would be necessary to take a look as to the activities claimed by the assessee. The Commissioner of Income-tax (Appeals) had recorded the statement of the Fishing Engineer of the assessee, who has stated that the following activities were being done.
I am working with M/s. Srinivas Sea Foods (now known as Srinivas a Enterprises Limited) for the past three years. Initially I worked as Fishing engineer on board the trawlers of the company and now I am working as Shore Engineer. I am fully aware of the working of all the six fishing trawlers and the facilities available on the trawlers owned by the company. The following are the various activities carried on board the vessels Suhasini and Subhashini.
1. Setting the net, placing the net in water and dragging the net and catching shrimps.
2. Verifying and sorting out the catch according to the variety on board.
3. Be-heading the shrimps.
4. Washing and cleaning the materials caught with sea water.
5. Filling the materials in bags as per variety and cleaning in fresh waters.
6. Preparation of chemical water.
7. Dipping the shrimps bags in the chemical water and thoroughly washing.
8. Storing bags in the chilled tanks as per variety and the temperature maintained is about four degrees C.
9. Removing the shrimps bags very often and changing water in chilled tanks.
10. Some bags will be stored in fish hold where temperature is about 18 degrees C. First bags will be put in front of blower and first bring down the temperature and they will be stored after sometime in various corners of fish hole i.e., to allow other freshly caught prawns to be kept in front of blowers.
9. By no stretch of imagination, these activities would constitute manufacturing of a product, which would be a new product, than the fish as commonly understood. The matter appears to be covered by the judgment of the Supreme Court reported in CIT v. Relish Foods [1999] 237 FTR 59, the judgment of the Delhi High Court reported in Golden Hind Shipping (India) P. Ltd. v. CIT [1999] 240 ITR 324 and the judgment of the Bombay High Court reported in CIT v. Ravi Ratna Exporters [1995] 212 ITR 588. Learned counsel appearing for the assessee, however, has drawn our attention to the judgment of the Supreme Court reported in CIT v. Kala Cartoons P. Ltd. [2001] 252 ITR 658, wherein a reference has been given to the judgment of the Kerala High Court in CIT v. Marwell Sea Foods [1987] 166 ITR 624. But, there is nothing to show that the views expressed by the Kerala High Court in this judgment were approved by the Supreme Court. The Supreme Court only distinguished that judgment on the basis of the facts. The Supreme Court made a reference to this judgment in the following terms (page 661):
The decision of the High Court in the case of Relish Foods [1989] 180 ITR 454 (Ker) has been set aside by this Court in the case of CIT v. Relish Foods [1999] 237 ITR 59. In respect of Marwell Sea Food's case [1987] 166 ITR 624 (Ker), it was noticed by this Court that the assessee therein had placed before the taxing authorities a detailed description of the process by which prawns were prepared for export and the appellate authorities had understood the various stages through which the prawns passed as processes involving production or manufacture.
10. For these reasons, we answer the reference in favour of the Revenue and against the assessee.