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TMI Blog2015 (2) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... derstood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.In that view of the matter, we are of the opinion that the contention raised by the department that it is not a manufacturing process, is devoid of merit and the same is required to be rejected. When the product is to be disposed of immediately even that the product is not fit for human consumption. If it is required to be preserved, it seems to be a manufacturing process, and therefore, in our view, the finding of the Tribunal is misconceived and required to be reversed and the view taken in the subsequent year is accepted. Also going through the letter, from which, it is clear that more than 10 employees are working there, which fulfills the condition, and therefore, the assessee is entitled for the benefit under sec. 80IA of the IT Act. - Decided in fvaour of assessee. - Tax Appeal No. 538 of 2004 Tax Appeal No. 1512 of 2006 Tax Appeal No. 2399 of 2010 Tax Appeal No. 2400 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 on 27.12.2004, this Court has framed the following substantial question of law: Whether on the facts and in the circumstances of the case, the appellant assessee is entitled in law to the deduction u/s. 80I and 80IA of the Income-tax Act, 1961 for the assessment year 2000-01 in question ? 2.2 While admitting Tax Appeal No. 1512/2006 on 25.7.2007, this Court has framed the following substantial question of law: Whether on the facts and circumstances of the case the Appellate Tribunal was right in law and facts in holding that the activity of testing, gradation, drying, fumigation and coating of seeds would be an activity of manufacturing and production of seeds and thereby, entitled to deduction us/ 80IA of the Income Tax Act, 1961 ? 2.3 While admitting Tax Appeal No. 2399/2010 on 23.11.2011, this Court has framed the following substantial questions of law: (I) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow deductions u/s. 80I of the Act of ₹ 71,70,683/- and u/s. 80IA of the Act of ₹ 10,48,158/- ? (II) Whether the Appellate Tribunal is right in law and on facts in deleting the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 3.3.2008, this Court has framed the following substantial questions of law: (A) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the activity of the respondent was a manufacturing activity with regard to trading of seeds ? (B) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the processing charges on seeds incurred as handling and pesticide charges ? 2.10 While admitting Tax Appeal No. 1100/2007 on 14.12.2007, this Court has framed the following substantial question of law: Whether the Appellate Tribunal is right in law and on facts in law and on facts in confirming the order passed by the CIT(A) allowing deduction u/s. 80IB amounting to ₹ 18,04,912/-? 2.11 While admitting Tax Appeals No. 935/2009, 936/2007 937/2009 on 10.12.2004, this Court has framed the following substantial question of law: Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) in deleting the addition of ₹ 12,60,251/- made on account of processing charges for certified seeds ? 2.12 While admitting Tax Appeal No. 880/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department by way of Tax Appeal No. 58/1993, where the Tribunal's view was confirmed by this Court on 13.7.1993. The same was also carried before the Hon'ble Supreme Court which was also confirmed. 4.2 Mr. Soparkar learned counsel thereafter has taken us through the decision of the Hon'ble Supreme Court in the case of State of Rajsthan and others v. Rajsthan Agriculture Input Dealers' Association and others, reported in (1996) 5 SCC 479, where, the Hon'ble Supreme Court has observed in para- 4 7 as under: 4. Strong reliance was placed by Mr. Aruneshwar Gupta, learned counsel for the appellants on Kishal Lal v. State of Rajsthan and Ors,- 1990 Suppl.) SCC 742 to contend that for the purposes of Section 2(1)(i) and the Schedule of the Act, the expression agricultural produce is an inclusive definition which could even include processed items from foodgrains. Thus processed foodgrains on becoming seeds, as alleged by the respondents would all the same remain foodgrains requiring the respondents to take licence under the Act. Secondly, it was urged that by virtue of Notification dated 16th May, 1980, certified seeds and foundation seeds of a description ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel has also relied on the decision of the Hon'ble Supreme Court in the case of Aspinwall and Co. Ltd. vs. Commissioner of Income-tax, reported in [2001] 251 ITR 323, more particularly, at page 326, where the Hon'ble Supreme Court has described nine processes, which reads as under: It was noticed that the Tribunal had inspected the factory premises to have a first-hand knowledge of the operations carried on by the assesseecompany. The inspection was made by the Tribunal in the presence of both the parties through their representatives. The factual observation of the Tribunal as a result of the inspection found that the following nine processes are involved in curing of coffee: (1) Receipt of coffee from the estates; (2) Storage of coffee in covered godowns; (3) Drying of coffee to the required standards prescribed by the coffee board in drying yards; (4) Hulling/pealing/polishing; (5) Grading of coffee mechanically; (6) Colour sorting; (7) Garbling and manual grading; (8) Out-turning of garbled coffee; and (9) Bulking. The Tribunal also found that to deal with the nine processes, the assessee has the factory area where godowns for storage of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbles P. Ltd., reported in 320 ITR 79 and in the case ofCommissioner of Income Tax v. Oracle Software India Ltd., reported in 320 ITR 546 and in the case of India Cine Agencies v. Commissioner of Income-Tax, reported in 308 ITR 98 . He has also drawn our attention to the decision of the Allahabad High Court in the case of Tarai Development Corporation v. Commissioner of Income-Tax, Lucknow, reported in 120 ITR p. 342, where a similar question arose for consideration and process held to be the manufacturing process. 4.7 He has also relied on the decision of the Madras High Court in the case of Commissioner of Income-Tax v. E.I.D. Parry (India) Ltd., reported in 218 ITR 713 and the decision of the Bombay High Court in the case of Commissioner of Income-Tax v. Jalna Seeds Processing and Refrigeration Co. Ltd., reported in 246 ITR 156 and contended that the Tribunal has committed an error in holding that it is not a manufacturing process. 4.8 Mr. Soparkar learned counsel has also drawn our attention to para-5 of the judgment and order of Tribunal, which reads as under: 5. After considering the rival submissions and going through the material on record, we find that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that too without any risk sharing at cultivation level with grower. In such a situation any agreement or arrangement on paper with agriculturists renders no help to assessee for allowing deduction under section 80-I 80IA. Assessee should produce different commodities out of raw materials with the help of systematic activity to be entitled to claim deductions u/s. 80-I and 80IA of the Act, which has not been done by assessee in this case. In this case seed is raw material and end product is seed. Assessee is not purchasing food grains but only seeds are being purchased from growers so there is no question of any genetic or chemical irreversible change in raw material. So the ratio of the decision of Hon. Supreme Court in the case of Krishi Utpadan mandi Samity Ors, v. Pilibhit Pantnagar Bej Ltd. Anr(s) (supra) is of no help to the assessee. Various decisions based on the decision in the case of Krishi Utpadan Mandi Samity Ors. v. Pilibhit Pantnagar Beej Ltd. Anr.(s)(supra) also do not help the assessee. Even the contents of partnership deed of assessee firm, agreement entered by the assessee with agriculturists does not help the assessee. The details of salary and process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. (1986) [162 ITR 640] (Bom). 4.10 Mr. Soparkar learned counsel contended that the finding of the Tribunal is contrary to the evidence on record. 5.1 Mr. Mehta learned counsel for Revenue has tried to distinguish two decisions of Supreme Court and contended that in view of decision of the Hon'ble Supreme Court in the case ofSeedsman Association, Hyderabad and Ors. v. Principal Secretary to Govt. A.P. Ors., reported in (2004) 9 SCC 56, where both the decisions of the Supreme Court are considered in paras 8 9, which read as under: 8. We have given our careful consideration to the submissions made by learned counsel for the parties. There are two decisions of this Court touching upon the controversy in hand. The first one is State of Rajsthan v. Rajasthan Agriculture Input Dealers' Assn. In this case, the High Court took the view that when goodgrains of particular varieties were treated and subjected to chemical process for preservation, those grains become commercially known as seeds . If, however, a dealer was found dealing in foodgrains under the garb of seeds, the authorities were not precluded from prosecuting the offender in a criminal court. The ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Seed Certification Agency. The rejected lots and losses at processing are returned to farmers only after the foundation seeds are certified as conforming to specifications, the lots are subjected to treatment with insecticides (cell phose, quick phose) and pesticides (thiram and barastin) at the time of packing. The Company had filed certificates issued by the Seed Certification Agency and other relevant documents to show that they are not dealing in sale and purchase of foodgrains or wheat but only in certified seeds and that the stock stored by them were not of wheat but of certified seeds of wheat under the supervision of the U.P. Seed Certification Agency. Having regard to the material produced by the Company, it was held that as the wheat seed converted into certified seed is unfit for human consumption, the levy of market fee is not permissible. 5.2 Mr. Mehta has also drawn our attention to para-5 of the order of Tribunal and contended that the process is not identical to the case of Navbharat Seeds (P) Ltd., and therefore, assessee is not entitled to deduction under sec. 80IA of the IT Act. Mr. Mehta further contended that at least 10 employees are there, and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Certification Agency. 2 All the above activities are conducted as per the Indian Minimum Seeds Certification Standards stipulated by Central Seed Certification Board, Department of Agriculture and Co-operation, Ministry of Agriculture, Government of India. The company is producing, processing and marketing certified seeds. Gujarat State Seeds Certification Agency inspect the seed production field, processing plant and test seeds in notified Government Laboratories and issue tags for each and every bag. Rules and Laws prescribed by Govt. remain same for all seed producers. The procedure is narrated in the enclosed certificate. 3 (1) Production of Hybrid Seeds. 3.1 (a) Company is producing hybrid seeds through its contract growers. Contract growers are selected according to yield potentiality of the area, availability compact are irrigation facility and plots having no isolation problem (isolation distance). The contract is entered into with each and every sub-producer in the beginning of season. Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4 (c) Technical guidance; After distribution of foundation seeds, company's technical staff give guidance to the farmer about the planting of male and female plants in rows (planting ratio) and inspect the seed plots so organized time to time. Company's technical staff supervises the work of regueing, crossing and other cultivation practices asper the crop. Rogueing, in seed producing good yield of superior quality. Such plots which meets minimum seed certification standard, prescribed by Government of India, are harvested in the presence of company's representative and Government Seed Certification Agency staff. The seeds thus produced is called as hybrid seeds that is produced by crossing of male and female seed plants. After harvesting threshing, the samples are drawn by the staff of State Seed Certification Agency and tested at Government Seed Testing Laboratories for germination, physical purity and genetic purity. If this seed conforms to the standards prescribed by the Government of India in the Minimum Seed Certification Standards then it will be certified seed. We have a very large team of experienced fiel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t inspects micro-organisms. We use the same type of Slurry Treator for treating Bajra and other seed. Castor Seed, being soft and larger in size, will brake in Slurry Treator hence the treatment has to be done manually. This procedure of seed treatment is described under point No. 3 in the enclosed certificate of GSSCA. 5 On receipt of the raw seed from the farmer's field the seeds are dried and tested for moisture content. Afterwards the seeds are cleaned on Air Screen cleaner. This process removes immature seed, dust particles, plant materials, off size seed diseased or insect damaged seed etc. After basic cleaning the seeds are upgraded on gravity separator to improve the quality of seed by using weight component difference between seeds. The seed then treated with 1% mercurial fungicides and DDT in Slurry Seed Treator. This is done to protect seed against seed borne and soil borne micro-organisms. As mentioned above Gujarat and Andhra Pradesh fall in Semi Arid Zone of climate, the moisture content in seed produced in this area is naturally controlled. Due to this reason, only some lots need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified) seed, we have to perform these t4ests on our own. This is described in point no. 3 of the enclosed certificate. 8 (4) Marketing: 8.1 The Seed on getting satisfactory test results are marked with blue tag (Enclosure II) issued by Gujarat State Seed Certification Agency. As per Seed Act, 1966 the seed container and tag must have following on the tag and bag: DO NOT USE FOR FOOD, FED AND OIL PURPOSE. POISON TREATED WITH 1% PMS FUNGICIDE. The same type of tags are issued by the supervising officer of Strate Certification Agency who supervises the processing activities at our processing plant. Such tags are individually signed by the officer and then stitched along with another tag of producing company, to the seed container (cloth bag) and a seal bearing monogram of the certification agency and an identification of the officer is fixed with the container. The treatment of poisonous pesticide is mandatory and hence this warning is also compulsory to be printed in RED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Supreme Court in the case of Aspinwall and Co. Ltd. v. Commissioner of Income-Tax, reported in [2001] 251 ITR 323, the word manufacture is defined by the Hon'ble Supreme Court at page 327, which reads as under: The word manufacture has not been defined in the Act. In the absence of a definition of the word manufacture it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity. 8.1 In that view of the matter, we are of the opinion that the contention raised by the department that it is not a manufacturing process, is devoid of merit and the same is required to be rejected. We are fortified in our view by the decision of the Hon'ble Supreme Court in the case of Aspinwall and Co. Ltd. v. Commissioner of Income-Tax, reported in [2001] 251 ITR 323. 8.2 Apart from that, the Tribunal itself in subsequent year has accepted the same in o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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