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TMI Blog2001 (7) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... tly disentitled the assessee to claim the benefit during appeal proceedings for the first time ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that for the purpose of section 54D it is not necessary for industrial undertaking to be engaged in manufacture or production ? 4. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal ought to have held that the benefit of section 54D is not available to the assessee in respect of sale of land as corresponding asset of land was not acquired as required by section 54D ?" The assessee carries on business of purchase and sale of groundnuts, decortication of groundnuts into kernel and selling the same. The assessee at the relevant point of time had a factory on lease at Anantapur and its own factory at Kadiri. For the assessment year 1984-85" the assessee filed its return of income showing an income of Rs. 2,15,886. The assessment was completed on August 18, 1996, at a total income of Rs. 4,72,760 by the Income-tax Officer. At this stage itself, it may be noticed that along with the return the assessee did not file a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the appeal of the assessee. The respondent though served with notice remains unrepresented. We have heard learned standing counsel for the Income-tax Department. Learned standing counsel placing reliance on the judgments in Deputy Commissioner of Sales Tax v. Pio Food Pachers [ 1980] 46 STC 63 (SC) ; Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC) and Namputhiris Pickle Industries v. State of Kerala [1994] 92 STC 1 (Ker), would contend that the decortication of groundnuts into kernel does not involve any manufacturing activity and, therefore, the assessee is not entitled to the relief envisaged under section 80HH of the Act. Secondly, learned standing counsel would contend that the construction of the factory at Gooty tantamounts to reconstruction of an old business. In support of this plea, learned standing counsel would place reliance on Textile Machinery Corporation's case [1977] 107 ITR 195 (SC). Thirdly, learned counsel would contend that since, admittedly, the assessee did not file the audit report along with the return, it is not entitled to the relief under section 80HH. In support of this contention, learned counsel would place reliance on an unreporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with the aid of power or without power. What is an industry? Webster's New International Dictionary gives various meanings to the word, one of which is : 'Systematic labour or habitual employment ; especially human exertion employed for the creation of value, regarded by some as a species of capital or wealth ; labour.' Another meaning is : 'Any deportment or branch of art, occupation or business ; especially one which employs much labour and capital and is a distinet branch of trade ; as, the sugar industry ; the iron industry the cotton industry.' 'Undertaking' also has different shades of meaning and, according to Webster, it means : 'Anything undertaken ; any business, work, or project to which one engages in, or attempts, an enterprise. There is here no doubt that labour is employed, capital is utilised and a form of wealth is produced in the shape of small chips of stones by the aid of machinery. The process of making chips is obviously also an enterpriser an occupation, of a business, and, therefore, is an undertaking. In fact, the only ground on which the departmental officers have held the process in question as not an industrial under taking is that it did not involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rice produced, its identity remained. It was true that rice was produced out of paddy but it is not true to say that paddy continued to be paddy even after dehusking. It had changed its identity. Rice is not known as paddy. It is a misnomer to call rice as paddy. They are two different things in ordinary parlance. Hence quite clearly when paddy is dehusked and rice produced, there has been a change in the identity of the goods. In this view it is not necessary for us to refer to the decisions of some of the High Courts read to us at the time of hearing." In ail these three cases, the goods which were subjected to certain pro cesses, lost their identity speaking in commercial parlance after under going those processes. Therefore, the courts, have held that those processes involved manufacturing activity. In the case on hand, no doubt, after decortication of the groundnut into kernel, one may not find any qualitative difference in the kernel itself. In other words, there will not be any qualitative difference in the kernel as such before or after decortication. But, that fact itself cannot be a ground to hold that decortication of the ground nut into kernel does not involve manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was subjecting the purchased goods to the process of cutting heads and tails, peeling deveining, cleaning and freezing before export. In such a fact-situation, the Supreme Court opined that even after the above process of cutting heads and tails, peeling deveining, cleaning and freezing, the goods remained the same goods in commercial parlance and, therefore, the process to which the purchased raw shrimps, prawns and lobsters were subjected did not involve manufacturing activity. In Namputhiris Pickle Industries' case [1994] 92 STC 1, the Kerala High Court while dealing with the question whether the chillies and chilli powder possess substantial identity and character, opined that both of them possess the same identity and character. The court opined that when chillies are made into powder, they do not change in substantial identity or character or essential nature. It is very pertinent to notice that the Kerala High Court has arrived at such an opinion mainly on the ground that both chillies and chilli powder be used or consumed, in their natural form. The judgments on which learned standing counsel for the Department placed reliance can be distinguished on facts also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clear that the mere fact that the assessee failed to enclose the audit report along with the return itself would not disentitle him to claim the benefit, and, on the other hand, if he files the audit report before the assessment order is passed, he will be entitled to the deduction. Admittedly, in this case, the petitioner filed the audit report before conclusion of the assessment proceedings for the assessment years 1981-82 and 1984-85. As regards the assessment year 1979-80 also, it was filed in the reassessment proceedings in response to the show-cause notice under section 148 of the Act. The relief under section 54D of the Act is disallowed mainly on the ground that in establishing the factory at Kadiri, the capital from Anantapur factory has been diverted. Even according to the Department, no machinery from the Anantapur factory has been transferred to the Kadiri factory and the Kadiri factory was constructed on a land secured on lease and new machineries have been erected thereon. The Tribunal on appreciation of the facts recorded the finding that the Kadiri factory is an independent factory and it is not a reconstruction of the existing unit. Sub-section (1) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd or building which is acquired, was used-by the taxpayer for the purposes of the business of the industrial undertaking during the two years immediately preceding the date of compulsory acquisition and the taxpayer purchases any other land or building or constructs any other building, within three years from the date of compulsory acquisition, for the purposes of shifting or re-establishing the industrial undertaking or setting up another industrial undertaking. In such cases, the capital gain will not be charged to tax to the extent it is utilised for purchasing or, as the case may be, constructing the new asset. In other words, in a case where the amount of the capital gain exceeds the cost of purchase or construction, only the excess amount will be chargeable to tax. Where the new asset is transferred within a period of three years of its purchase or construction, then, for the purposes of determining the amount of capital gain arising from the transfer of the new asset (i) the cost of the new asset will be taken as nil if the amount of the capital gain arising from the transfer of the old asset exceeded the cost of the new asset ; and (ii) the cost of the new asset will be re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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