1999 (3) TMI 12 - SC - Income Tax

Assessee have poultry farms and they run hatcheries where eggs are hatched on a large scale by adopting the latest scientific and technological methods - held that assessee is neither an industrial undertaking nor is it engaged in the business of producing articles or things , consequently, the assessee is not entitled to developmental allowance under section 32A of the Act and deductions under sections 80HH, 80HHA, 80-I and 80J

Summary

Issues Involved:

1. Whether the business of hatchery qualifies as "manufacture or produce articles or things" under sections 32A(2) and 80J of the Income-tax Act, 1961.
2. Whether the assessee is an "industrial undertaking" under the Act.

Issue-Wise Detailed Analysis:

1. Business of Hatchery as "Manufacture or Produce Articles or Things":

The primary question was whether the business of hatchery run by the assessee falls within the meaning of "manufacture or produce articles or things" as per sections 32A(2) and 80J of the Income-tax Act, 1961. The Revenue contended that chicks, being animate creatures, cannot be termed as articles or things. Even if chicks could be considered articles or things, the Revenue argued that the assessee is not producing chicks; rather, the hatching of chicks is a natural process of egg development. The court noted that the dictionary meanings of "produce" suggest that bringing forth living creatures can be considered production. However, since the dictionary provides multiple meanings, the court emphasized that the words must be interpreted in the context of the Act and its legislative history.

The court examined the legislative history, noting that section 10(27) of the Act, which provided tax exemption for poultry farming, was omitted and replaced by section 80JJ, offering partial exemption. The court concluded that the provisions for poultry farming were distinct from those for industrial undertakings manufacturing or producing articles. Hence, the business of hatchery does not fall within the meaning of sections 32A and 80J.

2. Assessee as an "Industrial Undertaking":

The court evaluated whether the assessee qualifies as an "industrial undertaking." The assessee argued that their hatchery operations, involving scientific and technological methods, should be considered as production of articles or things. The court reviewed the detailed steps taken by the assessee in hatching eggs, which included maintaining quarantine, fumigation, storage, incubation, and sexing of chicks. Despite these processes, the court found that the formation of chicks is a natural biological process, and the assessee merely facilitates this process without contributing to the formation of chicks.

The court also addressed the argument that other statutes, such as Sales Tax Acts and Central Excise Act, consider animate objects as goods. However, the court held that meanings assigned in different statutes cannot be imported into the Income-tax Act. The court concluded that the assessee is not an industrial undertaking and does not produce articles or things as per the Act.

Conclusion:

The court held that the business of hatchery does not qualify as "manufacture or produce articles or things" under sections 32A and 80J of the Income-tax Act, 1961. Consequently, the assessee is not an "industrial undertaking" and is not entitled to developmental allowance under section 32A or deductions under sections 80HH, 80HHA, 80-I, and 80J of the Act. The court set aside the judgments under appeal, except for Civil Appeal No. 2596 of 1997, which was dismissed. There was no order as to costs.