1999 (1) TMI 19 - HC - Income Tax

Processing Of Fish, New Industrial Undertaking, Backward Area, Production Or Manufacture, Special Deduction, Condition Precedent

Issues Involved:
1. Entitlement to deduction under section 80J of the Income-tax Act, 1961.
2. Entitlement to deduction under section 80HH of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80J of the Income-tax Act, 1961:

The primary issue in I.T.R. Nos. 123 and 169 of 1986 was whether the assessee-company engaged in catching, purchasing, processing, and exporting fish is entitled to claim deduction under section 80J of the Income-tax Act, 1961. The court referenced its earlier decisions in CIT v. Marvell Sea Foods [1987] 166 ITR 624, CIT v. Poyilakkada Fisheries Pvt. Ltd. [1992] 197 ITR 85 (Ker), and CIT v. Poyilakkada Fisheries (P.) Ltd. [1992] 197 ITR 93 (Ker), which supported the view that similar activities amounted to production, thus qualifying for deductions under section 80J.

However, the Revenue's counsel argued for a fresh view based on the Supreme Court's decision in CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, which stated that "production" involves bringing new goods into existence. The Supreme Court's observation that the process must result in new goods was highlighted. The Revenue also cited Sterling Foods v. State of Karnataka [1986] 63 STC 239, where it was held that processed prawns, lobsters, and shrimps remain the same goods post-processing, challenging the notion that such processing qualifies as production under section 80J.

The court, after considering both sides, decided that the arguments required serious consideration by a larger Bench for an authoritative decision. The Full Bench later upheld the earlier decisions, emphasizing that the processing of prawns amounts to production, thus qualifying as an industrial undertaking under section 80J. The court also referenced similar decisions from the Calcutta High Court in CIT v. Union Carbide India Ltd. [1987] 165 ITR 550 and CIT v. Union Carbide India Ltd. [1993] 203 ITR 301 (Cal), and the Madras High Court in CIT v. Orient Marine Products Pvt. Ltd. [1995] 214 ITR 44 (Mad), which supported the view that processing fish results in a new commercial product.

The court concluded that the activities carried out by the assessee amount to production, entitling them to deductions under section 80J. The decision in CIT v. N. C. Budharaja and Co. was distinguished as being contextually different, dealing with construction rather than processing of goods.

2. Entitlement to Deduction under Section 80HH of the Income-tax Act, 1961:

The issue in I.T.R. Nos. 3 and 4 of 1987 and I.T.R. No. 100 of 1995 was whether the assessee engaged in similar activities is entitled to claim deduction under section 80HH of the Income-tax Act. The court referenced its earlier decision in CIT v. Marwell Sea Foods [1987] 166 ITR 624, which held that processing prawns amounts to production, thus qualifying for deductions under section 80HH.

The court noted that the same principles applied to sections 80J and 80HH, and the processing of prawns should be considered production, making the assessee eligible for deductions under section 80HH. The court also referenced similar decisions from other High Courts, which supported the view that processing fish results in a new commercial product.

The court concluded that the assessee is entitled to deductions under section 80HH, as the processing of prawns amounts to production. The decision in CIT v. N. C. Budharaja and Co. was again distinguished as contextually different.

Conclusion:

The court held that the assessee is entitled to deductions under both sections 80J and 80HH of the Income-tax Act, 1961, as the processing of prawns amounts to production. The court directed that a copy of the judgment be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.

← Previous Next →