2009 (9) TMI 947 - HC - Income Tax

Summary

Issues Involved:
1. Whether the business activity of the assessee amounts to manufacturing activity.
2. Eligibility for deductions u/s 80HHA and 80-I of the Income-tax Act.

Summary:

Issue 1: Whether the business activity of the assessee amounts to manufacturing activity.

The assessee, M/s. J.D. Farms, engaged in poultry farming, claimed that its activities amounted to manufacturing. The activities included hatching eggs, feeding, rearing, and slaughtering chickens using sophisticated machinery, producing various meat products. The Assessing Officer disagreed, citing the Supreme Court's judgment in CIT v. Venkateshwara Hatcheries (P.) Ltd. [1999] 237 ITR 174, which held that the business of hatcheries did not amount to manufacturing or production of articles or things. The Court noted that the formation of chicks is a natural process, and the assessee merely aids this process without contributing to the formation of chicks. Similarly, the Madhya Pradesh High Court in Indian Poultry v. CIT [1998] 230 ITR 909 held that rearing chicks to broilers did not amount to manufacturing. The Supreme Court affirmed this view in Indian Poultry v. CIT [2001] 250 ITR 664, stating that dressing poultry did not constitute manufacturing. The Supreme Court in CIT v. Relish Foods [1999] 237 ITR 59 also held that processing shrimps did not involve production or manufacture. The Court concluded that the assessee's activities did not amount to manufacturing or production of an article or thing.

Issue 2: Eligibility for deductions u/s 80HHA and 80-I of the Income-tax Act.

The assessee claimed deductions u/s 80HHA and 80-I, asserting itself as an industrial undertaking. The Assessing Officer disallowed these deductions, stating that the assessee was not engaged in manufacturing or production. The CIT(A) upheld this view. The ITAT, however, allowed the appeals partly, holding that the assessee's activities amounted to manufacturing. The High Court, referencing the Supreme Court's judgments, held that the assessee's activities did not qualify as manufacturing or production. Consequently, the assessee was not eligible for deductions u/s 80HHA and 80-I. The Court set aside the ITAT's orders and restored the assessment order passed by the Assessing Officer, ruling in favor of the Revenue.

Conclusion:

The High Court concluded that the assessee's activities did not constitute manufacturing or production of an article or thing, thereby disqualifying it from deductions u/s 80HHA and 80-I of the Income-tax Act. The appeal was allowed, and the assessment order was restored.