1999 (9) TMI 76 - HC - Income Tax

Export Market Development Allowance Weighted Deduction Special Deduction Manufacture Or Production

Summary

Issues Involved:
1. Entitlement to export markets development allowance under section 35B of the Income-tax Act, 1961.
2. Entitlement to deduction/relief under section 80J of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Export Markets Development Allowance:

The primary issue was whether the assessee-company was entitled to an export markets development allowance under section 35B of the Income-tax Act, 1961. The assessee claimed a weighted deduction under section 35B(1)(b)(viii) for expenses incurred on charter fees for fishing trawlers hired from a company in Thailand. The Assessing Officer disallowed the claim, stating that the expenses were for hire charges related to the cost of the product exported and did not pertain to the supply of goods or performance of services outside India as required under section 35B. The Commissioner of Income-tax (Appeals) concurred with this decision.

The Tribunal dismissed the assessee's appeal, noting that the expenses fell under sub-clause (iii) of clause (b) related to the carriage of goods, not sub-clause (viii). The Tribunal emphasized that the services performed by the assessee in connection with the execution of the contract for the supply of goods outside India were not explained, and the expenditure did not qualify for weighted deduction under sub-clause (viii).

The High Court upheld the Tribunal's decision, stating that the expenses incurred were trading expenses in India and did not qualify for deduction under sub-clause (viii). The court also declined to consider the alternative claim under sub-clause (iii) because the assessee did not press this claim before the Tribunal. The court concluded that the assessee was not entitled to the export markets development allowance under section 35B.

2. Entitlement to Deduction/Relief under Section 80J:

The second issue was whether the assessee was entitled to deduction/relief under section 80J of the Income-tax Act, 1961, for profits derived from catching and exporting fish. The assessee claimed the benefit under section 80J, arguing that it operated a cold storage plant on its trawlers. However, the lower authorities rejected the claim, stating that the provision of storage facilities on fishing trawlers did not equate to operating a cold storage plant as defined under section 80J.

The Tribunal examined whether the assessee was engaged in manufacturing or producing any articles to qualify for relief under section 80J. It concluded that the assessee's activities, which included catching fish, cleaning it, and storing it in cold storage, did not constitute manufacturing, production, or even processing of goods. The Tribunal distinguished this case from the Kerala High Court decision in Cochin Company v. CIT, where the assessee was engaged in the processing and export of fish.

The High Court agreed with the Tribunal's findings, stating that the mere cutting off of the head and tail of the fish did not transform it into a distinct commodity. The court cited the Supreme Court's decision in Sterling Foods v. State of Karnataka, which held that processed or frozen shrimps and prawns are commercially the same as raw ones. The court also referred to CIT v. Relish Foods and CIT v. Fazalbhoy Ibrahim and Co. P. Ltd., which supported the view that catching fish did not amount to manufacturing or production.

The High Court concluded that the assessee was not engaged in manufacturing or producing any article and, therefore, was not entitled to deduction under section 80J. Both questions were answered in favor of the Revenue and against the assessee, with no order as to costs.