2021 (8) TMI 674 - HC - Income Tax

Deduction u/s 10B - activity of conversion of raw gherkins to bottled pickle - amount to ' manufacture' or not - HELD THAT - The entire facts reveal that the assessee is running an Agro product unit under the name and style of 'Sterling Agro Products Processing Pvt.Ltd.,' which is very much involved in the production of the pickles from the raw vegetables gherkins and to make a fine pickle vegetable, raw gherkins were processed into various stages like cutting into pails, various process like preculling, washed and loaded in the barrels with preservative chemicals and then cut into pieces, removing the defective fruits and then cut into slices and packed into the bottles as sweet hot pickles. All these processes clearly reveal that the original commodity of vegetable gherkins transform into pickles, had the same identity as the original gherkins and it was not transformed into new commodity. The authorities relied on by the respondent / Department are squarely applicable to the facts of the case and on the other hand, the authorities relied on by the appellant are not supporting his contentions rather it relates to the industrial activities, which is totally different from the facts of the instant case. The questions of law are answered accordingly - assessee is not entitled for the deduction under Section 10B of Income Tax Act and the findings given by the Tribunal that the conversion of raw gherkins to bottle pickle, would not amount to 'manufacture' is sustainable one consequently, they are not entitled for deduction u/s 10B. - Decided against assessee.

Summary

Issues:
1. Entitlement to deduction under Section 10B of the Income Tax Act.
2. Determination of whether the conversion of raw gherkins to bottled pickle amounts to 'manufacture'.

Entitlement to Deduction under Section 10B:
The appellant, engaged in manufacturing hot and sweet pickles from gherkins, claimed relief under Section 10B of the Income Tax Act for the assessment years 2001-2002, 2002-2003, and 2003-2004. The appellant argued that the entire manufacturing process involved chemical transformations adhering to international hygiene norms, making them eligible for the deduction. The Assessing Authority initially denied the deduction, citing a Supreme Court decision. However, the Commissioner of Income Tax accepted the appellant's contention. The Income Tax Appellate Tribunal later reversed this decision, following the Supreme Court's ruling in a similar case. The appellant contended that the process constituted manufacturing activity and cited a Supreme Court judgment supporting their claim.

Determination of 'Manufacture' for Gherkins to Pickles Conversion:
The core issue revolved around whether the conversion of raw gherkins into bottled pickles constituted 'manufacture' for the purpose of claiming the deduction. The appellant argued that the various stages of processing, including cutting, washing, adding preservatives, slicing, and packaging, transformed the gherkins into a new product, making it a manufacturing activity. The respondent, however, relied on legal precedents to argue that despite processing, the pickles retained the original identity of gherkins and did not become a new commodity. The High Court concurred with the respondent's arguments, stating that the pickles did not undergo a transformation significant enough to be considered a new product, thus disallowing the deduction under Section 10B of the Income Tax Act.

In conclusion, the High Court dismissed the appeals, upholding the Income Tax Appellate Tribunal's decision that the conversion of raw gherkins to bottled pickle did not amount to 'manufacture' for the purpose of claiming the deduction under Section 10B of the Income Tax Act.