2018 (8) TMI 985 - HC - Income Tax

Deduction u/s 10A - eligible activity - Whether the processing of prawns undertaken by the assessee under IQF (Individual Quick Freezing) can be termed to be a manufacture or production - Claim of expenditure/ deduction towards contribution made in the Fishermen s Welfare Fund which Fund - Fund was declared unconstitutional by the judgment of the Honourable Supreme Court Held that - Any assessee who was entitled to the benefit prior to the substitution would be entitled to the benefit under the substituted provision for the unexpired period as per the un-amended provision. - First question decided against the revenue. Contribution to the fund which was held unconstitutional - Held that - We find that the Honourable Supreme Court while declaring the Fund to be unconstitutional also directed that the amount of contributions already paid will not be liable to be refunded to the contributors. In such circumstances there is no question of a refund to the assessee and as found by the Tribunal when the contributions were made there was a valid fund created. The contribution so made to the Fishermen s Welfare Fund Board having not been refunded as specifically interdicted by the Honourable Supreme Court the same would also be employed for the welfare of the fishermen. - Decided against the revenue.

Summary

Issues:
1. Eligibility for deduction under Section 10A of the Income Tax Act for processing sea food.
2. Classification of processing of prawns under IQF as manufacture or production.
3. Deduction on contributions to Fishermen's Welfare Fund declared unconstitutional by the Supreme Court.

Eligibility for deduction under Section 10A:
The appeals by the Revenue challenged the order of the Income Tax Appellate Tribunal allowing the assessee's appeals for the assessment years 2001-02, 2002-03, and 2003-04 regarding the eligibility under Section 10A of the Income Tax Act. The key question was whether the assessee processing sea food could claim deduction under Section 10A due to the substitution in the Section made by the Finance Act, 2000. The proviso accompanying the substituted provision clarified that the assessee entitled to the benefit before the substitution would continue to be entitled for the unexpired period of ten consecutive assessment years. The Court held that any assessee enjoying the benefit prior to the substitution would be entitled to the deduction under the substituted provision for the unexpired period as per the un-amended provision. Thus, the first question of law was answered in favor of the assessee.

Classification of processing of prawns under IQF:
Regarding the processing of prawns under IQF, a question arose whether it could be considered as manufacture or production. The Court referred to a previous decision that concluded processing prawns by IQF does not constitute manufacture or production. The assessee argued that the proviso accompanying the substituted provision under Section 10A allowed continued benefits for the unexpired period. The Court agreed with this interpretation and ruled in favor of the assessee on the first question, rendering the need to answer the second question unnecessary.

Deduction on contributions to Fishermen's Welfare Fund:
In the assessment year 2002-2003, a question arose concerning the deduction claimed on contributions made to the Fishermen's Welfare Fund, which was declared unconstitutional by the Supreme Court. The Court noted that the contributions made to the Fund, which had not been refunded as directed by the Supreme Court, would still be utilized for the welfare of the fishermen. As a result, the Court answered this question against the Revenue and in favor of the assessee, ultimately rejecting the appeals filed by the Revenue.

In conclusion, the High Court of Kerala ruled in favor of the assessee on all the issues, emphasizing the entitlement to deductions under Section 10A and the continued validity of contributions to the Fishermen's Welfare Fund despite its unconstitutional status.