Income Tax Appellate Tribunal - Madras
Kanyakumari District Co-Op. Milk ... vs Income-Tax Officer on 20 September, 1995
Equivalent citations: [1996]56ITD80(MAD)
ORDER
G. Chowdhury, Judicial Member
1. These appeals by the assessee relating to the assessment years 1983-84 to 1985-86 arise out of the common order of the Commissioner of Income-tax, Madurai dated 16-3-1989 passed under Section 263 of the Income-tax Act, 1961. Since a common point is involved in these appeals, they are heard together and are disposed of by a consolidated order for the sake of convenience.
2. The assessee is a co-operative society carrying on the business of purchase and sale of milk. At the time of assessments the assessee claimed investment allowance on machineries used for pasteurising the milk, which was allowed by the Assessing Officer during the relevant assessment years. On a perusal of the assessment orders for the assessment years under consideration the Commissioner of Income-tax found that those orders were erroneous and prejudicial to the interests of Revenue as the allowance of investment allowance under Section 32A as claimed by the assessee was not justified. Accordingly the Commissioner issued a show-cause notice under Section 263 dated 12-1-1989 to the assessee calling upon the assessee to explain as to why an order enhancing or modifying the assessments or cancelling the assessments directing the Assessing Officer to be made afresh could not be passed. In response to the said notice, the assessee filed its reply dated 8-2-1989. After carefully considering the assessee's contentions, for the reasons stated by him in his order under Section 263 the Commissioner held that the assessee is not engaged in the manufacture or production of any article and as such is not entitled to investment allowance under Section 32A. He therefore directed the Income-tax Officer to modify the assessments for the assessment years under consideration by withdrawing the investment allowance already granted by him in the original assessments. Against the said order of the Commissioner, the assessee is in appeal before the Tribunal.
3. Before us the assessee's counsel submitted that the activities of the assessee-society includes manufacturing and processing the pasteurised milk by converting the raw milk. Further it was submitted that the assessee was also engaged in the manufacture of ghee and kova and hence it was entitled to investment allowance under Section 32A. In support of this contention, the learned counsel for the assessee placed reliance on the order of the Tribunal in the case of Adarsh Dugdhalaya (P.) Ltd. v. Ninth ITO [1989] 35 TTJ (Bom.) 470.
4. On the other hand, the learned Departmental Representative submitted that the assessee-company has been carrying on the business of sale of milk purchased by it from the primary co-operative societies. For the purpose of sale the assessee was required to keep the milk so purchased for some days. So that the milk is not destroyed the assessee had to pasteurize the same, but then the end-product as a result of such process is only milk. He contended that the connotation of the words "manufacture or production" as used infection 32A of the Act denotes that the end-product obtained as a result of the process should be different from the input, but this is not the case in the present assessee's case. Reliance in this regard was placed on the Madhya Pradesh High Court decision in the case of Mittal Ice & Cold Storage v. CIT [1986] 159 ITR 18 and also the decision of the Supreme Court in the case of Delhi Cold Storage (P.) Ltd. v. CIT [1991] 191 ITR 656. He therefore pleaded that no interference is called for in the order passed by the Commissioner.
5. We have heard the parties and perused the papers filed before us. As already stated, the main business of the assessee-society is to purchase and sell milk. The raw milk purchased from primary co-operative societies is pausterised and in this process the bacteria is destroyed enabling storing of the milk for a few days. The ITO had allowed investment allowance on generator, prepack filling machine etc. installed for pausterising the milk. In the show-cause notice issued on 12-1-1989 by the Commissioner it was stated that the investment allowance was allowed by the ITO on the above machines wrongly on the footing that these processes involve manufacturing activity as contemplated under Section 32A, whereas the machineries in question related to the packing of milk in polythene bags and preserving the milk in cool condition. The Commissioner therefore stated that the assessment orders are thus, erroneous insofar as they are prejudicial to the interests of Revenue. In reply to the said show-cause notice, the assessee stated as under; by its reply dated 8-2-1989:-
...Though our society is engaged in purchase and sale of milk, we are also carrying on manufacturing process to make the product marketable. The milk purchased from the primary societies is pasteurised. The process is that the milk is firstly heated and then it is immediately cooled. In the course of this process the bacteria is destroyed enabling storing the milk for a few days. Various types of machineries are used in this manufacturing process, viz., boiler, compressor, chilling plant, prepack filling machines and innumerable items of various machineries including generator. Thus the product manufactured by our Society is pasteurised milk, which is different from raw milk.
Thus it is our earnest submission that our Society's activity includes manufacturing process and hence our Society is entitled to Investment Allowance under the provisions of Section 32A of the Income-tax Act, 1961.
6. At the time of proceedings under Section 263, none was present on behalf of the assessee before the Commissioner. Therefore, considering the reply submitted by the assessee mentioned above, the impugned order was passed by the Commissioner. The Commissioner held that by pasteurisation the assessee has not engaged in the manufacture or production of any article and as such, is not entitled to investment allowance under Section 32A, as the end-product as a result of these processes is also milk. While so holding the Commissioner relied on the decisions in the cases of Mittal Ice & Cold Storage (supra) and S.B. Cold Storage Industries (P.) Ltd. v. CIT [1987] 166 ITR 646 (Cal.). We find from the written representation submitted by the assessee before the Commissioner that the assessee-society was engaged in purchase and sale of milk. For the purpose of pasteurising the milk the same is firstly heated and then immediately cooled, in the course of which the bacteria is destroyed enabling storing the milk for a few days. Various types of machineries are used in this manufacturing process. According to the assessee, by this pasteurising process the end-product becomes different from raw milk. Before us, the learned counsel for the assessee submitted that apart from dealing in milk the assessee used to deal in kova, ghee etc. From the written submission furnished by the assessee before the Commissioner, we do not find anything to substantiate this contention of the assessee that apart from purchase and sale of milk it was also dealing in ghee and kova. Before us also the assessee's counsel could not substantiate this contention.
7. In the case of Delhi Cold Storage (P.) Ltd. (supra), their Lordships of the Hon'ble Supreme Court had occasion to deal with a case of a cold storage. In that case the assessee's case was that through the activities of the cold storage the company was 'processing' goods within the meaning of an 'Industrial company', as has been defined in Section 2(7)(c) of the Finance Act, 1973 and hence entitled to investment allowance. The Supreme Court considering the decision in the case of Chowgule & Co. (P.) Ltd. v. Union of India [1981] 47 STC 124 held as follows :
What is necessary in order to characterise an operation as 'processing' is that the commodity must, as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore possessing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical compositions demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical compositions, because what is produced by such blending is ore of a different chemical and physical composition. When the chemical and physical composition of each kind of ore which goes into the blending would amount to 'processing' of ore within the meaning of Section 8(3)(ft) and rule 13. It is no doubt true that the blending of ore of diverse physical and chemical composition is carried out by the simple act of physically mixing different quantities of such ore on the conveyor-belt of the mechanical ore handling plant. But to our mind it is immaterial as to how the blending is done and what process is utilised for the purpose of blending. What is material to consider is whether the different quantities of which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and chemical compositions as a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions.
Their Lordships further held that in common parlance, "processing" is understood as an action which brings forth some change or alteration of the goods or material which is subjected to the act of processing. The dictionary meaning of the term is not very different from this meaning in one sense, while various other meanings of wider amplitude are also available. It was further held that in a cold storage, vegetables, fruits and several other articles which require preservation by refrigeration are stored. While, as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone a process within the meaning of section of the Finance Act, 1973. Their Lordships further held that the three Judge Bench must be taken to have overruled the view of the Allahabad High Court in Addl CIT v. Farrukhabad Cold Storage (P.) Ltd. [1977] 107 ITR 816 and that of the Calcutta High Court in CIT v.Radha Nagar Cold Storage (P.) Ltd. [1980] 126 ITR 66.
8. Taking into consideration the ratio of the aforesaid decision, we find that in the present assessee's case the assessee pasteurised the milk with a view to only make it fit for storing for a few days, destroying the bacteria. In the case of cold storage also articles were kept to prevent the same from normal decay. There may be some processing needed for the purpose of pasteurising the milk, ie., heating, cooling, etc., but the originality of the milk is not changed by this process, and the end-product as a result of these processes is also milk. Taking into consideration the aforesaid circumstances, we are of the view that by the pasteurisation carried out by the assessee the end-product remains the same, though the assessee could store the milk for a few days. Accordingly, we are not inclined to interfere with the order passed by the Commissioner under Section 263 of the Income-tax Act, 1961 and hold that the assessee is not entitled to investment allowance under Section 32A of I.T. Act.
9. In the result, the assessee's appeals are dismissed.