1986 (3) TMI 110 - AT - Income Tax

Summary

Issues:
1. Whether fruits and vegetables qualify as 'agricultural primary commodities' for special deduction under section 80HHC(2)(b)(i) of the Income-tax Act, 1961.

Analysis:

1. Qualification of Fruits and Vegetables as Agricultural Primary Commodities:
The appeal centered around determining whether fruits and vegetables could be classified as 'agricultural primary commodities' for the purpose of availing special deductions under section 80HHC. The firm, engaged in exporting fruits and vegetables, contended that these items did not fall under this classification. The Commissioner, however, disagreed and held that fruits and vegetables should be considered as agricultural primary commodities and not produce of plantations. The argument presented by the firm's counsel emphasized the distinction between agriculture and horticulture, asserting that fruits and vegetables were not primary commodities. The revenue's standing counsel countered by stating that horticulture is part of agriculture and that agricultural primary commodities are not limited to staple food items. The judgment extensively referenced the Supreme Court decision in CIT v. Raja Benoy Kumar Sahas Roy to establish the interpretation of 'agriculture' and 'agricultural purposes.'

2. Interpretation of 'Agriculture' and 'Agricultural Commodities':
The judgment delved into the interpretation of 'agriculture' and 'agricultural commodities' to determine the eligibility of fruits and vegetables for the deduction under section 80HHC. It referenced the Supreme Court's analysis in CIT v. Nirlon Synthetic Fibres & Chemicals Ltd. to highlight the significance of interpreting these terms within the legal framework rather than popular or commercial meanings. The judgment emphasized that 'agriculture' in a broader sense includes horticulture, and any commodity grown through agriculture qualifies as an agricultural commodity. It was concluded that horticulture is a subset of agriculture, and fruits and vegetables, being products of agriculture, are considered agricultural primary commodities.

3. Classification of Fruits and Vegetables as Primary Commodities:
The judgment addressed the argument regarding whether fruits and vegetables could be classified as primary commodities. The firm contended that primary commodities only encompassed grains like paddy and wheat, while the revenue argued that primary commodities are produce of the first order. The judgment clarified that commodities in their initial stage are primary commodities, and fruits and vegetables in their chief condition qualify as agricultural primary commodities. The argument that fruits and vegetables could be construed as plantation crops was dismissed, emphasizing that plantation crops are distinct, including coffee, tea, and rubber.

4. Incremental Turnover Calculation and Natural Justice:
Regarding the calculation of incremental turnover under section 80HHC, a contention was raised regarding the Commissioner's reduction of the incremental turnover without specific notice to the firm. The judgment acknowledged the lack of specificity in the notice issued under section 263 and directed the Commissioner to reconsider the incremental turnover issue, providing the firm with an opportunity to be heard. This decision aimed to uphold principles of natural justice and ensure a fair assessment of the incremental turnover.

In conclusion, the appeal was partly allowed for statistical purposes, with a specific direction to reevaluate the incremental turnover issue in compliance with principles of natural justice.