2007 (3) TMI 297 - AT - Income Tax

Summary

Issues Involved:
1. Whether the appellant was engaged in the manufacture or production of ornamental fishes.
2. Whether the processes adopted by the appellant amounted to rearing or production.
3. Whether the submissions made by the appellant were supported by evidence.
4. Whether there was a difference in identity between the original fish and the produced ornamental fishes.
5. Whether the appellant contributed to the formation of ornamental fishes.
6. Whether the definition of export-oriented undertaking should be equated with that of an industrial undertaking.
7. Legality of disallowing the claim of deduction under Section 10B.
8. Whether the disallowance of the claim under Section 10B was unjust, illegal, arbitrary, and excessive.

Issue-wise Detailed Analysis:

1. Manufacture or Production of Ornamental Fishes:
The appellant claimed that it was manufacturing ornamental fishes by converting juvenile fishes into ornamental fishes using various processes, thus creating a new article with a distinct character and identity. The Revenue, however, argued that fish being animate creatures cannot be termed as an article or thing and that the appellant was not producing fish as it is a natural process of development of eggs. The Tribunal found that the processes undertaken by the appellant, including sex reversal and artificial coloring, resulted in a new and distinct commodity known in the trade as ornamental fishes. Thus, the Tribunal concluded that the appellant was indeed engaged in manufacturing.

2. Processes Adopted: Rearing or Production:
The CIT(A) held that the processes adopted by the appellant amounted to rearing rather than production. The Tribunal, however, observed that the appellant's activities involved several complex processes requiring knowledge, skill, equipment, and technology, which culminated in the production of ornamental fishes. Therefore, the Tribunal concluded that these processes amounted to manufacturing rather than mere rearing.

3. Evidence Supporting Submissions:
The CIT(A) concluded that the appellant's submissions were based on assertions and not supported by evidence. The Tribunal, however, noted that the appellant had provided detailed descriptions of the processes, lists of plant and machinery, and supporting literature. Additionally, the Tribunal had conducted a site visit and verified the processes. Thus, the Tribunal found that the appellant's submissions were indeed supported by substantial evidence.

4. Difference in Identity Between Original and Produced Fishes:
The CIT(A) upheld the AO's view that there was no difference in identity between the original and produced ornamental fishes. The Tribunal, however, found that the processes undertaken by the appellant resulted in ornamental fishes that were distinct from the original juvenile fishes in terms of character, identity, and commercial value. Therefore, the Tribunal concluded that there was a significant difference in identity.

5. Contribution to Formation of Ornamental Fishes:
The CIT(A) upheld the AO's conclusion that the appellant did not contribute to the formation of ornamental fishes. The Tribunal, however, found that the appellant's processes, including sex reversal, artificial coloring, and disease treatment, significantly contributed to the formation of ornamental fishes, making them distinct from the original juvenile fishes.

6. Definition of Export-Oriented Undertaking:
The CIT(A) equated the definition of an export-oriented undertaking with that of an industrial undertaking. The Tribunal, however, noted that the definition of an export-oriented undertaking is specifically provided under Section 10B of the IT Act and should be adopted as such. The Tribunal concluded that the appellant met the criteria for an export-oriented undertaking as defined under Section 10B.

7. Legality of Disallowing Deduction Under Section 10B:
The appellant argued that the disallowance of the claim under Section 10B was bad in law. The Tribunal, after considering the processes and evidence provided by the appellant, concluded that the appellant was indeed engaged in manufacturing activities and was entitled to the deduction under Section 10B. Therefore, the disallowance was deemed incorrect.

8. Disallowance of Claim: Unjust, Illegal, Arbitrary, and Excessive:
The appellant contended that the disallowance of the claim under Section 10B was unjust, illegal, arbitrary, and excessive. The Tribunal, after a thorough analysis of the processes, evidence, and legal precedents, found that the appellant's activities qualified as manufacturing. Therefore, the disallowance of the claim was deemed unjust and incorrect.

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the Revenue to allow the benefit under Section 10B to the appellant, concluding that the appellant was engaged in the manufacturing of ornamental fishes and met the criteria for deduction under Section 10B of the IT Act. The appellant's appeal was allowed.