1982 (3) TMI 171 - AT - Income Tax

Industrial Company, Agricultural Development Allowance, Deductions, Livestock Breeding Or Poultry Farming

Issues Involved:

1. Entitlement to deduction under section 80J of the Income-tax Act, 1961.
2. Entitlement to deduction under section 35C.
3. Entitlement to deduction under section 35B.
4. Classification as an industrial company.
5. Computation of income for deduction under section 80JJ.

Detailed Analysis:

1. Entitlement to deduction under section 80J:

The main issue was whether the assessee, running a modern poultry farm, is entitled to deduction under section 80J. The assessee argued that their large-scale production of chicks using modern scientific methods qualifies as "production of articles or things" under section 80J. The department contended that chicks, being living animals, cannot be considered as articles or things, and their production is a natural process, not a manufacturing process. The Tribunal analyzed the meaning of "articles or things" and "production" within the Act, referencing other statutes and judicial precedents. It concluded that the artificial hatching of eggs involves human agency and thus qualifies as production. Therefore, the assessee is entitled to deduction under section 80J.

2. Entitlement to deduction under section 35C:

The assessee claimed deduction under section 35C, which requires engagement in the manufacture or processing of any article or thing using products of agriculture, animal husbandry, or dairy farming. The department's objection was based on the same reasoning as section 80J. The Tribunal, applying its findings from section 80J, held that the assessee is entitled to deduction under section 35C as the production of chicks qualifies as manufacturing or processing.

3. Entitlement to deduction under section 35B:

The assessee claimed deduction under section 35B for salaries of staff not engaged in export work. The Tribunal noted that the assessee's non-export staff also contributed to export-related activities. Although the Commissioner (Appeals) had denied this deduction, the Tribunal allowed a partial deduction, restricting it to 10% of the claimed amount.

4. Classification as an industrial company:

The assessee argued that they should be treated as an industrial company under the Finance Act, 1977, which defines an industrial company as one engaged in the manufacture or processing of goods. The Tribunal held that the assessee's activities of producing chicks through artificial hatching qualify as processing of goods. Thus, the assessee is entitled to be classified as an industrial company.

5. Computation of income for deduction under section 80JJ:

The department appealed against the Commissioner (Appeals)'s decision to compute the deduction under section 80JJ based on commercial profits rather than statutory profits. The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the deduction should be computed with reference to commercial profits, as the statute does not explicitly require computation based on statutory profits. The Tribunal reasoned that the Companies Act, 1956, ensures uniformity in drawing up profit and loss accounts, mitigating concerns about variability in deductions.

Conclusion:

The appeals by the assessee for the years 1977-78 and 1979-80 were partly allowed, granting deductions under sections 80J, 35C, and partial deduction under 35B, while the departmental appeal regarding the computation of income under section 80JJ was dismissed. The assessee was also classified as an industrial company.

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