2018 (2) TMI 193 - HC - Income Tax

Entitlement for deduction u/s 10B - whether conversion of ungarbled pepper to be fit for human consumption amounts to production? - Held that - We are unable to countenance assessee s contention, especially since the finding that un-garbled and garbled pepper are not two distinct commodities was not based on any specific provision in the statute. Yet again we notice that under Section 80HHC the benefit is to any industrial undertaking carrying on manufacture or processing . The benefit under Section 10B is to any undertaking carrying on manufacture or production . Hence the statute itself recognizes the distinction between manufacture , production and processing . A manufacture or production necessarily has to lead to a different commodity while a processing may not result in a new commodity being brought out. We, hence, decline to entertain the contention as raised by the learned Counsel. The process of garbling to make pepper edible does not give rise to a different commodity distinct from the raw pepper purchased. - Decided against assessee

Summary

Issues:
1. Eligibility of the assessee to claim deduction under Section 10B of the Income Tax Act, 1961.
2. Whether the conversion of un-garbled pepper to fit for human consumption amounts to production and qualifies for deduction under Section 10B.
3. Impact of the reconstitution of the partnership firm on the assessee's entitlement to benefits under Section 10B.

Analysis:
1. The case involved the eligibility of the assessee to claim a deduction under Section 10B of the Income Tax Act, 1961, as a hundred percent export-oriented unit. The assessee was engaged in the procurement and export of pepper. The issue was whether the process of converting un-garbled pepper to garbled pepper for human consumption qualified as production under Section 10B. The Tribunal rejected the claim, stating that the processing did not amount to manufacture or production, thus disentitling the assessee from the deduction.

2. The Tribunal also considered the impact of the reconstitution of the partnership firm on the assessee's eligibility for benefits under Section 10B. The Tribunal did not delve into this issue as it found the assessee dis-entitled to the deduction due to the processing of pepper not being classified as production. The first appellate authority had earlier ruled in favor of the assessee on both grounds, but the Tribunal overturned this decision based on the nature of the processing activity.

3. The Court analyzed precedents and legal interpretations to determine whether the processing of pepper constituted production for the purposes of Section 10B. It referred to a case involving the processing of pineapple, where it was held that the processed product retained the same identity as the original fruit, indicating that no new commodity emerged. Applying this reasoning to the case at hand, the Court concluded that the processing of pepper did not result in a new commodity, thus not meeting the criteria for production under Section 10B.

4. The Court emphasized the importance of the Tribunal considering all issues in an appeal to provide finality to the matter and avoid prolonged legal proceedings. It noted that a remand would be necessary if all aspects of the case were not addressed, potentially leading to further delays in the resolution. Ultimately, as the questions of law were decided against the assessee, the appeals were rejected, with no costs awarded.

This detailed analysis of the judgment highlights the key issues, legal interpretations, and the Court's reasoning in determining the eligibility of the assessee for deductions under Section 10B of the Income Tax Act, 1961.