2011 (5) TMI 827 - HC - Income Tax

Deduction u/s 80HHC(3)(a) - assessee is a plantation company engaged in purchase and export of cardamom - Revenue contended that cleaning and grading done by the assessee did not involve any processing within the meaning of clause (a) of section 80HHC(3) as there is no change physical or otherwise - Held that - The assessee has no case that the assessee either changed the physical form or made any change whatsoever to the cardamom purchased before export and what was done by the assessee is that it just washed the cardamom to remove the extraneous matters and particles if any on the surface of the cardamom and exported the same. Since the commodity purchased was exported in the same form the transaction falls under trading of goods falling under clause (f) read with clause (b) and not under clause (a). What is required to be considered is not whether the assessee has done any processing of purchased goods before export but the processing of the goods resulted any change to the original form of the goods to treat it as a processed goods export of which alone will entitle the assessee for deduction of profit under clause (a) above referred. Since the washing drying and grading of dried cardamom purchased by the assessee before export do not make the cardamom exported as processed cardamom within the meaning of clause (a) above stated the assessee is not entitled to deduction - Decided against the assessee

Summary

Issues:
- Interpretation of whether the assessee was engaged in the export of processed goods for deduction under section 80HHC(3)(a) of the Income-tax Act.

Analysis:
The case involved a plantation company engaged in trading goods, particularly cardamom. The dispute arose from the assessee's claim for exemption on export profit under section 80HHC(3)(a) of the Income-tax Act. The assessee argued that the cleaning and grading of cardamom before export constituted processing, thus entitling it to the deduction. The Assessing Officer disagreed, stating that the goods were exported in the same form as purchased, without any substantial change. The Commissioner of Income-tax (Appeals) and the Tribunal ruled in favor of the assessee, leading to the Department's appeal.

The statutory provisions under section 80HHC allow for a deduction of profits derived from the export of goods, whether in the course of trading or goods manufactured or processed by the assessee. The court emphasized that processing should result in a change or alteration in the goods, distinct from manufacturing. The key question was whether the activities carried out by the assessee on the purchased cardamom amounted to processing, making it eligible for the deduction under clause (a) of section 80HHC(3).

The court considered the definition of "processing" as explained by the Supreme Court, emphasizing that processing involves bringing forth a change in the goods. Upon reviewing the activities of the assessee, including washing, drying, and grading of cardamom, the court found that the goods were exported in the same form as purchased, with no substantial change. The court concluded that the washing and grading did not alter the original form of the goods to qualify as processed goods under clause (a). Therefore, the assessee was not entitled to the deduction under section 80HHC(3)(a), and the appeal by the Revenue was allowed, overturning the decisions of the lower authorities.