2009 (5) TMI 33 - HC - Income Tax

Assessee offered income in respect of tendu patta business on the basis of provisions of S. 44AC activity like collection of tendu leaves, pruning, prevention of diseases, plucking, arrangements of pudas at collection centres, drying, gradation of bid leaves, putting them in the bags and thereafter their transportation do not amount to processing of tendu leaves within the meaning of S. 206C - activity undertaken by the assessee is neither a manufacturing activity nor a processing activity Tribunal was justified in law in the holding that case of assessee clearly falls within preview of S. 44-AC

Summary

Issues: Appeal by Revenue under Section 260A of the Income Tax Act, 1961, barred by limitation; Substantial questions of law regarding applicability of Section 44AC and Supreme Court decision.

Analysis:
1. Appeal Barred by Limitation: The appeal by the Revenue under Section 260A of the Income Tax Act, 1961, was initially barred by limitation. However, after notices were issued to the assessee-respondent and a hearing was conducted, the delay in filing the appeal was condoned. This procedural aspect was duly addressed to ensure a fair hearing.

2. Substantial Questions of Law: The primary issues revolved around the interpretation and application of Section 44AC of the Income Tax Act, 1961. The first substantial question of law raised was whether the Tribunal was correct in holding that the case of the assessee fell within the purview of Section 44AC. The second question pertained to the Tribunal's decision not to decide the case based on a specific Supreme Court judgment. These questions were crucial in determining the legal implications of the case.

3. Facts and Assessment: The respondent-assessee was engaged in the business of 'Tendu patta' and tobacco. The assessing officer did not accept the assessee's income calculation based on Section 44AC for the assessment year 1991. The CIT(A) concurred with the assessing officer, stating that the provisions of Section 44AC were not applicable due to additional operations involved after plucking tendu leaves. This disagreement led to an appeal before the Income Tax Appellate Tribunal.

4. Tribunal's Decision: The Income Tax Appellate Tribunal, after reviewing previous orders, concluded that the activities related to tendu leaves undertaken by the assessee did not constitute manufacturing or processing activities. The tribunal allowed the appeal of the assessee, leading to further arguments by both counsels regarding the nature of operations involved in dealing with tendu leaves.

5. Legal Arguments: Mr. Sanjay Lal, representing the Revenue, emphasized the processing involved in preparing tendu leaves for sale, highlighting the various steps such as plucking, bundling, drying, and packaging. On the other hand, Mr. H.S. Shrivastava, counsel for the assessee, argued that the characteristics of tendu patta remain unchanged through the process, citing a relevant court decision to support this position.

6. Court's Decision: The court, concurring with the view presented by Mr. H.S. Shrivastava and referencing a previous judgment, concluded that the activities related to tendu leaves did not amount to processing within the meaning of the Income-tax Act. As a result, the court found no substantial question of law to be addressed in the appeal and dismissed it accordingly, upholding the decision of the Income Tax Appellate Tribunal.