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Issues: Validity of circular dated January 10, 1996, and orders dated August 7, 1996, August 8, 1996, and August 9, 1996. Interpretation of "processing" under section 206C of the Income-tax Act, 1961.
In the present case, the petitioners sought to challenge the circular dated January 10, 1996, and subsequent orders issued by respondents, contending that tendu leaves processing should be considered as "processing" under section 206C of the Income-tax Act, 1961. The petitioners, engaged in the business of tendu leaves, argued that their activities, including collection, pruning, drying, and transportation of tendu leaves, constitute processing, warranting the issuance of Form No. 27C. However, the State of Madhya Pradesh refused to grant the certificate, asserting that the activities did not amount to processing as per the statutory provision. The High Court, in its analysis, referred to a similar case and Supreme Court decisions to determine the scope of processing in the context of tendu leaves. Citing the Supreme Court judgments in Delhi Cold Storage Pvt. Ltd. v. CIT and Chowgule and Co. P. Ltd. v. Union of India, the Court concluded that the activities undertaken by the petitioners did not result in any substantial transformation of tendu leaves, thus not meeting the criteria of processing under the law. The Court emphasized that mere physical actions like sprinkling water and drying did not qualify as processing as envisaged by the legislation. Moreover, the Court acknowledged a previous decision where processing of tendu leaves was considered as processing. However, relying on the Supreme Court's differing interpretation in Delhi Cold Storage Pvt. Ltd., the Court held that the earlier decision was no longer valid law. The Court rejected the petitioners' argument that other states recognized similar activities as processing, emphasizing that the local court's decisions governed the matter within the state's jurisdiction. Ultimately, the High Court dismissed the petition, upholding the State's decision to deny Form No. 27C certification to the petitioners. The Court found no merit in the petition, aligning its decision with previous judgments and the interpretation of processing under the Income-tax Act, 1961. The Court ordered no costs to be awarded in the case, bringing the matter to a close.
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