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Issues involved: Determination of whether processing of shrimps amounts to production or manufacture for deduction under section 80HH of the Income-tax Act, 1961.
Summary: The High Court of Madras considered the case involving the assessment of income for the years 1979-80 and 1980-81 of an assessee engaged in processing and exporting shrimps. The Income-tax Officer rejected the claim for deduction under section 80HH, stating that processing does not constitute production or manufacture. However, the Commissioner of Income-tax and the Tribunal held that processing shrimps amounts to manufacture, citing precedents from other High Courts. The Tribunal's decision was challenged by the Revenue, arguing that it contradicted Supreme Court rulings emphasizing the distinction between processed and raw commodities. The Supreme Court's precedent in the case of Sterling Foods established that processed shrimps retain their original character and identity, being commercially regarded the same as raw shrimps. The Court further referenced a U.S. Supreme Court case to support this position. Despite these clear precedents, the assessee's counsel attempted to justify the processing of shrimps as manufacturing, citing decisions from various High Courts. However, the Court deemed these decisions as incorrectly decided and disagreed with them. Additionally, the counsel relied on another apex court decision to argue that processing shrimps amounts to production, even if not manufacturing. However, the Court clarified that the processing of shrimps for export does not result in the creation of a new commodity, thus not entitling the assessee to the deduction under section 80HH. Consequently, the Court ruled in favor of the Revenue, denying the deduction and awarding costs to the Revenue.
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