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Tarai Development Corporation Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 268 of 1975
Judge
Reported in[1979]120ITR342(All)
ActsIncome Tax Act, 1961 - Sections 33, 80B, 80B(7), 80I and 80J
AppellantTarai Development Corporation
RespondentCommissioner of Income-tax
Appellant AdvocateR.K. Gulati, Adv.
Respondent AdvocateAshok Gupta, Adv.
Excerpt:
- - considering the fact that section 33, and the fifth schedule, section 80b, and the sixth schedule treat processed seeds as an article obtained by the process of manufacture or production, it will be safe to infer that the legislature did not exclude processed seed from the category of manufactured or produced article for purposes of section 80j......to farmers, who are shareholders in the company. after the seeds are sown by the shareholders the seed production assistants of the company inspect the fields and advise the farmers regarding the mechanical use of pesticides, etc. after the produce is harvested, seed-samples are collected by the officers of the company, and tested for purity, viability and moisture content in the laboratory of the university at pantnagar. oa the samples meeting the required standard, the farmers are asked to supply their produce. the seeds supplied are again tested, and if found suitable, approved for processing. the seeds are then graded and cleaned by mechanical processes, and sorted out in three categories. the approved category is treated with mixtures of various chemicals, and then passed to a.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal (Delhi Bench ' A ') has at the instance of the assessee referred the following question of law for the opinion of this court :

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that income derived by the assessee from processing of seeds was not entitled to relief under Section 80J of the Income-tax Act, 1961, for the assessment year 1970-71 '

2. The assessee is an incorporated company and the case relates to the first year of assessment. It returned an income of Rs. 47,726 and claimed exemptions under Sections 80-I and 80J of the Act. The exemptions claimed were disallowed by the ITO. The AAC allowed the exemption claimed under Section 80J, but refused that claimed under Section 80-I. The department filed an appeal before the Tribunal, which was followed by a cross-objection by the assessee. The Tribunal held that the assessee was not entitled to relief under Section 80J, but allowed exemption under Section 80-I. The controversy in the present reference is as to whether the assessee was entitled to relief under Section 80J in respect of income derived by the sale of processed seeds. In order to resolve this controversy, it is necessary to advert to the method by which processed seeds are obtained by the assessee. The assessee distributes foundation seeds to farmers, who are shareholders in the company. After the seeds are sown by the shareholders the seed production assistants of the company inspect the fields and advise the farmers regarding the mechanical use of pesticides, etc. After the produce is harvested, seed-samples are collected by the officers of the company, and tested for purity, viability and moisture content in the laboratory of the University at Pantnagar. Oa the samples meeting the required standard, the farmers are asked to supply their produce. The seeds supplied are again tested, and if found suitable, approved for processing. The seeds are then graded and cleaned by mechanical processes, and sorted out in three categories. The approved category is treated with mixtures of various chemicals, and then passed to a mixing tank where the seeds and chemicals are mixed mechanically, as a result of which the chemical mixed is coated on each grain, and, thereafter, it is bagged and kept in godowns where precaution is taken to avoid any damage by pests. The assessee on the sale of these seeds derived income in respect of which deduction under Section 80J has been claimed. The relevant part of Section 80J reads as follows :

'(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking.........there shall, inaccordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains......

(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.'

3. It will be noticed that the advantage of Section 80J can be availed of by the assessee only in case it is an industrial undertaking, and either manufactures articles or produces articles within a period of thirty-three years following 1st April, 1948. The Tribunal has found correctly that the assessee is an industrial undertaking, and there is no dispute about it. The company was incorporated on February 27, 1969, and commenced business on June 6, 1969. The assessment year in question is 1970-71, the financial year for which ended on March 31, 1969. Thus, the period in respect of which exemption under Section 80J was being claimed, fell within the period of thirty-three years as counted from the 1st April, 1948. It has now to be seen whether the assessee could be said to be a manufacturer or producer of an article. We have already set out the method by which the processed seeds are obtained. It admits of little doubt that the seeds sold by the assessee are obtained by subjecting foundation seed to a mechanical and chemical process. The question is whether this processing amounts to manufacture or production of the article sold by the assessee, viz., processed seed. Neither the word ' manufacture ' nor the word 'production' has been defined in the Act; but as will be presently shown, there is inherent indication in the Act, and the Fifth and Sixth Schedules, which indicate that in the context of these sections, processed seed must be treated as falling either in the category of manufacture or production. It is not necessary for the purposes of this case to decide whether the processing of seeds as done by the assessee will amount to manufacture or production of an article, for the assessee would be entitled to exemption in either case. Reference may now be made to Section 80B of the Act as it then stood. Section 80B(7) defined priority industry in the following terms :

' (7) ' priority industry ' means the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Sixth Schedule or the business of any hotel where suchbusiness is carried on by an Indian company and the hotel is for the time being approved in this behalf by the Central Government.'

4. Item 28 of the Sixth Schedule, while enumerating lists of articles and things required of it by Section 80B(7), mentions ' processed seeds '. It will be noticed that Section 80B(7) contemplated speci6cations of articles manufactured or produced in the Sixth Schedule, and while enumerating the articles, which were manufactured or produced, the Sixth Schedule mentions 'processed seed', indicating that at least for the purpose of Section 80B(7) the legislature treated processed seed as an article obtained either by a process of manufacture or production. Relief in respect of priority industry, which fell within the ambit of Section 80B(7) was granted by Section 80-I to the extent of 8% of the total income of the company. One further provision needs to be noticed, and that is Section 33(1)(B). This section deals with the grant of development rebate, the relevant part of which helps in the interpretation of Section 80J and is in the following terms ;

' (B) In the case of machinery or plant,--

(i) where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule,'

4. One of the articles or things, which are treated to be manufactured or produced for purposes of Section 33, as set out in the Fifth Schedule is processed seed, which finds place at item 28 thereof. Processed seed is thus treated as an article, which is obtained by the process of manufacture or production for purposes of this section too. Considering the fact that Section 33, and the Fifth Schedule, Section 80B, and the Sixth Schedule treat processed seeds as an article obtained by the process of manufacture or production, it will be safe to infer that the legislature did not exclude processed seed from the category of manufactured or produced article for purposes of Section 80J. It is also worth remembering that Sections 80B and 80-I which grant relief to specified industries including those which sell processed seeds occur in Chap. VIA of the Act along with Section 80J. This being so, interpretative uniformity supports the view that processed seeds should be taken as an article which is obtained either by the process of manufacture or production for purposes of Section 80J. Mr. Gulati very studiously drew our attention to the decisions of this court in the Addl. CIT v. Farrukhabad Cold Storage (P.) Ltd. : [1977]107ITR816(All) , Singh Engineering Works Pvt. Ltd. v. CIT : [1979]119ITR891(All) , Farrukhabad Cold Storage (P.) Ltd. v. CIT : [1979]119ITR895(All) and Chrestien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC) and G. R. Kulkarni v. State : AIR1957MP45 . These decisions lend strength to the view that we have taken, but it is not necessary to refer to them in detail as the context and the setting of Section 80Jclearly indicate that processed seed should be treated as an article, which is obtained either by the process of manufacture or production.

5. We, accordingly, answer the question in the negative, against the department and in favour of the assessee. The assessee is entitled to its costs, which is assessed at Rs. 200.


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