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TMI Blog1999 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. [1992] 197 ITR 85 (Ker) and CIT v. Poyilakkada Fisheries (P.) Ltd. [1992] 197 ITR 93 (Ker) (Appex.). On the very same principle, it was held in CIT v. Marwell Sea Foods [1987] 166 ITR 624 (Ker), that the assessee carrying on similar activities, is entitled to deduction under section 80HH. If these decisions are to be followed, the questions raised in the present reference cases are to be answered in favour of the assessee and against the Revenue. But, learned standing counsel for the Revenue submits that a fresh view has to be taken on this issue in the light of certain observations contained in the decision of the Supreme Court in CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412. Following CIT v. Marwell Sea Foods [1987] 166 ITR 624, this court has taken the view that peeling, deveining and deheading of the prawn would amount to production as contemplated by sections 80J and 80HH. According to learned standing counsel, the above view can no longer be accepted as correct in the light of the following observation of the Supreme Court in CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412 : "The word 'production' or 'produce' when used in juxtaposition with the word 'manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from consideration that is required to see whether there was production for the purpose of section 80J and section 80HH of the Income-tax Act. After hearing both sides, we feel that the arguments put forward by counsel require serious consideration by a larger Bench for an authoritative decision on the issue. We, therefore, direct the Registry to place the above mentioned reference cases before the Chief justice for appropriate orders for being posted before a larger Bench. P. K. R. Menon and N. R. K. Nair for the Commissioner. C. Kochunni Nair and M. C. Mohanan for the assessee. JUDGMENT OF THE FULL BENCH The judgment of the court was delivered by K. NARAYANA KURUP J.---The Revenue is the applicant in all these income-tax reference cases with the assessee(s) figuring as respondents). We are concerned with the assessment years 1978-79 in I. T. R. No. 123 of 1986, 1977-78 in I. T. R. No. 169 of 1986, the assessment years 1974-75 and 1975-76 in I. T. R. Nos. 3 and 4 of 1987 and the assessment year 1980-81 in I. T. R. No. 100 of 1995. The assessee-company is engaged in the business of catching, purchasing, processing and exporting fish and selling the same. The assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee under section 80HH or section 80HHA) of so much of the amount thereof as does not exceed the amount calculated at the rate of six per cent. per annum on the capital employed in the industrial undertaking or ship or business of the hotel, as the case may be, computed in the prescribed manner specified in subsection (1A) in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year).... (4) This section applies to any industrial undertaking which fulfils all the following conditions, namely :---... (iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking. 80HH. Deduction in respect of profits and gains from newly establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned reference cases before the Chief Justice for appropriate orders for being posted before a larger Bench. It was under the above circumstances that the matter was posted before this Full Bench. Heard counsel on both sides at length. Since the questions of law raised in all these I. T. R. cases is the same, they are being disposed of by a common judgment. Since I. T. R. Nos. 123 and 169 of 1986 are being treated as the main case, the decision on I. T. R. Nos. 3 and 4 of 1987 and I. T. R. No. 100 of 1995 will depend upon the outcome of the decision in I. T. R. Nos. 123 and 169 of 1986. To recapitulate, the question raised in I. T. R. Nos. 123 and 169 of 1986 is : "Whether the assessee-company, which is engaged in the business of catching, purchasing, processing-and exporting fish, is entitled to claim deduction under section 80J of the Act ?" The point for consideration is whether the assessee in these cases can be considered to be an industrial undertaking manufacturing or processing article entitling them to the relief under section 80J of the Act. An identical question was the subject-matter of the Bench decision of this court in CIT v. Marwell Sea Foods [1987] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of section 80J of the Act. This court further held that the Tribunal was justified in affording relief to the assessee under section 80J of the Act. Both CIT v. Poyilakada Fisheries (P.) Ltd. [1992] 197 ITR 93 (Ker) and CIT v. Marwell Sea Foods [1987] 166 ITR 624 (Ker) were followed by this court in CIT v. Poyilakada Fisheries (P.) Ltd. [1992] 197 ITR 85 in the following terms "The second point that falls to be considered is whether the assessee is eligible for allowance under section 80J and section 32A of the Income-tax Act. In the case of the very same assessee the matter came up before us for the assessment years 1976-77 and 1978-79 at the instance of the Revenue in I.T.R. Nos. 124 and 125 of 1986 (CIT v. Poyilakada Fisheries (P.) Ltd. [1992] 197 ITR 93 (Ker)). An identical question was considered therein. Following the earlier Bench decision of this court in CIT v. Marwell Sea Foods [1987] 166 ITR 624 (Ker), this court held in I. T. R. Nos. 124 and 125 of 1986 (see [1992] 197 ITR 93), that 'processing of prawns will amount to production of articles and so it is an industrial undertaking for the purpose of section 80J of the Income-tax Act'. This court further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the operations carried out by the assessee in its "Deep Sea Fishing Division", the natural produce, that is, the shrimps caught from the deep seas, was converted into frozen fish and fish products and that the operations consisting of cleaning, peeling, packing and freezing the shrimps without which the same were not marketable-resulted in the bringing into existence of a new commercial product. Moreover, in view of item 30 in Schedule V of the Income-tax Act, 1961, which item covered processed (including frozen) fish and fish products, a person who owned machinery or plant engaged in the manufacture or production of processed fish (including frozen) and fish products was entitled to development rebate under section 33 at a higher rate. If, for the purpose of a higher development rebate under the said section, processed fish (including frozen) and fish products were the result of production or manufacture, a fortiori on analogy it should be held that for the purpose of section 80J of the Act such items should be capable of being produced or manufactured. Therefore, the Deep Sea Fishing Division of the assessee was held to be an "industrial undertaking" within the meaning of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frozen) and fish products are the result of production or manufacture, it should be held that for the purpose of section 32A, such items should be capable of being produced or manufactured. According to the Calcutta High Court, the processing offish in this case amounted to production of an article. Therefore, the deep sea fishing division of the assessee which is an industrial undertaking within the meaning of section 80J of the Act is also entitled to relief under section 32A of the Act. The Madras High Court has followed the decision of the Calcutta High Court and the decision of this court in CIT v. Orient Marine Products Pvt. Ltd. [1995] 214 ITR 44 and held that the assessee's activities in processing the shrimps, frog legs, prawns and lobsters amounted to manufacturing activities as contemplated under section 80J of the Act, 1961, and as such the assessee was entitled to deduction under section 80J of the Act for the assessment year 1974-75. In the light of the judicial pronouncements noted supra, we are satisfied that the activities carried on by the assessee amount to an activity of production, if not manufacture. Neither of the words It manufacture" or "production" is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be pointed out that the observation made by the Supreme Court in N. C. Budharaja's case [1993] 204 ITR 412 has to be understood in the context it was made. In N. C. Budharaja's case [1993] 204 ITR 412, the claim was put forward under section 80HH of the Act in respect of an activity of construction of a dam. The Income-tax Officer allowed the same. The Commissioner of Income-tax, however, reversed the order of the Income-tax Officer to the extent of grant of relief under section 80HH of the Act. He was of the opinion that the assessee engaged in construction of a dam cannot be said to be engaged in manufacture or production of an article in as much as "a dam is constructed and not manufactured. It would be absurd to say that the assessee is manufacturing the dam or the dam is capable of being sold. In short, the firm cannot be held as an industrial undertaking merely because it has to undertake certain manufacturing process in the course of construction of the irrigation project". He also referred to the fact that the assessee-firm was constituted only for the purpose of constructing a particular dam, on the completion of which work the firm would cease to exist automatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam or for that matter a bridge, a road or a building". The Supreme Court in N. C. Budharaja's case [1993] 204 ITR 412, took the view that a dam cannot be treated as an "article" occurring in section 80HH of the Act. Moreover, in the earlier portion of the very same judgment the Supreme Court had observed that the word "production" had a wider connotation than the word "manufacture". While every "manufacture" can be characterised as "production", every "production" need not amount to manufacture. Therefore, even when the end result of the process is not a new article, there can be "production" even though there is no manufacture". In the aforesaid view, N. C. Budharaja's case [1993] 204 ITR 412 (SC), can be of no assistance to the Revenue as the context and setting in which it was rendered are entirely different. The reliance by learned counsel for the Revenue on Sterling Foods v. State of Karnataka [1986] 63 STC 29 (SC), is also misplaced. The aforesaid decision was rendered in the context of the provisions of the Sales Tax Act. When CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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