2009 (10) TMI 23 - AAR - Income Tax

Processing Fruit Juice Mixed Fruit Juice Fruit Juice Concentrate Fruit Powder held that - the expression should not be confined to minimal processing that would not change the identity of the fruit. If processing and preservation is to be confined only to fruits as such and not to the derivatives from the fruits the benefit intended to be given to agro-processing industries will operate in a very limited sphere thereby defeating the very object of the provision. The extraction of juice and oil from the fruits or further converting the homogenized juice into fruit powder and adding the substances meant for preservation would legitimately fall within the sweep of the expression processing exemption u/s 80IB allowed.

Issues:
1. Interpretation of Section 80IB of the Income Tax Act, 1961 for deduction eligibility.
2. Determining whether the proposed business activities constitute processing, preservation, and packaging of fruits for deduction under sub-section (11A) of Section 80IB.

Analysis:

Issue 1: Interpretation of Section 80IB for Deduction Eligibility
The ruling addresses the applicant's request for an advance ruling under Section 245Q of the Income Tax Act, 1961. The applicant seeks clarification on whether the profit derived from the business activities of squeezing juice from fruits, extracting oil, emulsifying, homogenizing, spray drying, adding preservatives, and packaging qualifies for deduction under sub-section (11A) of Section 80IB. Section 80IB allows for deductions in respect of profits and gains from certain industrial undertakings, specifying conditions for eligibility and the percentage of deduction allowed. The ruling delves into the legislative intent behind sub-section (11A), emphasizing its amendment in 2004 to promote agro-processing industries. The Memorandum explaining the provisions highlights the importance of granting benefits to undertakings engaged in processing, preservation, and packaging of fruits and vegetables, subject to fulfillment of specified conditions outlined in sub-section (2) of Section 80IB.

Issue 2: Determining Processing Activities for Deduction Eligibility
The ruling extensively analyzes whether the proposed business activities of the applicant constitute processing, preservation, and packaging of fruits, essential for deduction under sub-section (11A) of Section 80IB. The applicant's project involves various steps such as peeling, extraction of fruit oil, pulping, screening, emulsifying, homogenizing, spray drying, and packaging to produce fruit-based products. The ruling scrutinizes the concept of 'processing' by referencing Supreme Court decisions interpreting the term in taxing enactments. Noteworthy cases like Delhi Cold Storage P. Ltd. vs. CIT and Chowgule & Co P. Ltd. vs. Union of India are cited to elucidate the broad scope of processing and the requisite change experienced by commodities through operations. The ruling emphasizes that processing should not be limited to minimal changes preserving the fruit's identity but should encompass operations like juice extraction, oil processing, and powder conversion, which alter the fruit's form while falling within the ambit of 'processing.'

In conclusion, the ruling affirms the applicant's entitlement to the deduction under sub-section (11A) of Section 80IB, subject to meeting the conditions specified in sub-section (2) of the Act. The Commissioner's comments also support the eligibility of the proposed business for deduction, provided all conditions are satisfied. The ruling clarifies the expansive interpretation of 'processing' in the context of agro-processing industries, ensuring the applicant's business activities align with the legislative intent behind the deduction provision.

*(Ruling delivered on the 28th day of October, 2009)*

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