1989 (5) TMI 101 - AT - Income Tax

Summary

Issues:
- Claim for deduction under sec. 80HH
- Claim for deduction under sec. 80J

Analysis:
1. Claim for deduction under sec. 80HH:
The assessee, engaged in the export business of cashew kernels and shell oil, claimed deduction under sec. 80HH, which was rejected by the Income-tax Officer. The CIT(A) sustained the rejection, stating that the activity was not one of manufacture or production of an article but a mere trading activity. However, relying on legal precedents, the Tribunal held that the process of turning raw cashew nuts into cashew kernels constitutes manufacturing or production of an article. The Tribunal referred to the ordinary meaning of "manufacture or produce articles" and held that the activity qualifies for the relief under sec. 80HH. Additionally, citing the decision in Hemsons Industries v. ITO, the Tribunal emphasized that similar activities have been considered as manufacturing activities for the purpose of relief under sec. 80HH.

2. Ownership of Plant and Machinery:
The revenue contended that the assessee did not own any plant or machinery and that part of the manufacturing activity was outsourced to a third party. However, the Tribunal noted that the assessee directly supervised the manufacturing process, similar to the situation in Addl. CIT v. A. Mukherjee & Co. (P.) Ltd., where the assessee was considered to be carrying out a manufacturing activity despite outsourcing certain processes. The Tribunal rejected the revenue's argument, emphasizing that direct supervision suffices to qualify as a manufacturing or production activity.

3. Compliance with Employment Conditions:
The revenue argued that the assessee did not fulfill the conditions under sec. 80HH(2)(iv) as it had only nine permanent workers. However, the Tribunal held that employing casual workers in addition to permanent workers fulfills the conditions under sec. 80HH(2)(iv). Citing the decision in CIT v. K.G. Yediyurappa & Co., the Tribunal clarified that workers, whether casual, permanent, or temporary, contribute to meeting the employment criteria. The Tribunal also referred to the decision in CIT v. Harit Synthetic Fabrics (P.) Ltd., stating that engaging casual workers during part of the year is sufficient compliance with the law for the purpose of relief under sec. 80HH.

4. Claim for deduction under sec. 80J:
The CIT(A) allowed the claim for deduction under sec. 80J, considering the assessee as a manufacturing concern. The Tribunal upheld this decision, noting that since the conditions for relief under sec. 80J were satisfied, there was no reason to deny the relief under sec. 80HH. The Tribunal concluded that the assessee was entitled to relief under both sec. 80HH and sec. 80J, ultimately allowing the appeal by the assessee and dismissing the appeal by the revenue.