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TMI Blog2005 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT The judgment of the court was delivered by D.A. Mehta.- The following common question of law has been referred by the Income-tax Appellate Tribunal, Ahmedabad Bench "A", under section 256(1) of the Income-tax Act, 1961 ("the Act"), at the instance of the Commissioner of Income-tax in all the three references. Therefore, all the three references have been heard together and are being disposed of by this common judgment and order: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that HPS groundnuts exported by the assessee did not come within the ambit of expression 'agricultural primary commodities' in section 80HHC(2)(b)(i) of the Income-tax Act, 1961, and that deduction under section 80HHC(i) of the Act was allowable?" It is an accepted position between the parties that the lead matter is Income-tax Reference No. 113 of the 1994, and, hence, the facts necessary for the determination of the question are taken from the said reference. The assessment year is 1983-84 and the relevant accounting period is December 31, 1982. The assessee, a State Government Corporation, is carrying on business of expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. It was submitted that the assessee, in support of its case, had furnished a certificate of an expert in the field and there was no evidence to the contrary. That accordingly, the goods exported by the assessee ceased to be an agricultural primary commodity and HPS groundnuts were known as a different commodity in the market. It was urged that the contention of the Revenue, if accepted, would mean that the word "primary" appearing in the phrase "agricultural primary commodities" had to be ignored. That there was a difference between a commodity which was a primary commodity and a secondary commodity or other commodity as distinguished from primary commodity. In this connection, he placed reliance on the apex court decisions in the cases of CIT v. Cynamid India Ltd. [1999] 237 ITR 585 as well as Aspinwall and Co. Ltd. v. CIT [2001] 251 ITR 323. He, therefore, urged that the Tribunal's order be upheld and the question be answered in favour of the assessee. Section 80HHC, as was applicable for the three assessment years under consideration, and relevant for the present, reads as under: "80HHC. Deduction in respect of export turnover.-(1) Where the assessee, being an Indian comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is entitled to deduction in relation to all goods or merchandise exported out of India except the enumerated items in clause (b) of sub-section (2) of section 80HHC of the Act. The Tribunal accordingly formulated the crucial question which fell for its decision, i.e., whether HPS groundnuts come within the ambit of the expression "agricultural primary commodities" in section 80HHC(2)(b)(i) of the Act. If the Revenue is able to show that HPS groundnuts fall within the meaning of the said expression, then the assessee would not be entitled to deduction under section 80HHC(1) of the Act, and on the other hand, if HPS groundnuts are not "agricultural primary commodities", then the assessee would be entitled to the deduction. The expression "agricultural primary commodities" has not been defined in the Act. However, the phrase envisages that there should be an agricultural commodity, and further, it should be a primary commodity. The term "agricultural" denotes that the commodity in question is a produce of agricultural operations. To that extent, there is a consensus amongst the parties. The real lis is whether HPS groundnuts can be termed to be a "primary commodity". According t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be "agricultural primary commodities". In the case of CIT v. Cynamid India Ltd. [1999] 237 ITR 585, the apex court was called upon to determine the meaning of the term "product of agriculture" as used in section 35C of the Act. The commodity in question before the apex court was husk of rice which remains after dehusking of paddy. The apex court accepted the finding of the High Court that the operation of dehusking paddy is not an industrial or manufacturing operation as commonly understood; it is essentially an agricultural operation and such changes as are brought about in the product are an outcome of agricultural operation. Both rice and husk remain in their natural form as a result of dehusking and are covered by the term "agricultural product". Thereafter, the apex court goes on to hold that: "the term 'agricultural product' or 'product of agriculture' is required to be construed liberally so as to include not merely the primary product as it actually grows, but also a product which undergoes a simple operation so as to make it more saleable or more usable. The rice and the husk though separated remain as they were produced and hence continue to be 'agricultural product' o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that after processing the raw berries, the assessee converts them into coffee beans which is commercially a different commodity. Applying the aforesaid test, it is apparent that, in the present case, the assessee acquires unshelled groundnuts which are then processed and the end-product, namely, groundnuts cease to be "agricultural primary commodity", even if they continue to remain agricultural commodity, because when raw berries after processing can be termed to be manufacture of coffee beans, then in the present case, it can be stated with added emphasis that the commodity ceases to be a primary commodity. It is not disputed on behalf of the Revenue that HPS groundnuts in the form in which they are exported are commercially a different commodity. What is submitted is that, groundnuts retain their characteristics as groundnuts and hence, they are "agricultural primary commodities". For the reasons stated hereinbefore, it is not possible to accept the contention for the simple reason that, whether the characteristics remain the same or not, what is material is that the commodity ceases to be a primary commodity and is known as a commercially different product. It is necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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