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Sunjoy Dairy Farm Vs. Second Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1985)13ITD219(Mum.)
AppellantSunjoy Dairy Farm
RespondentSecond Income-tax Officer
Excerpt:
.....production or manufacture of an article or thing and, consequently, the assessee was entitled to investment allowance on machinery and plant used in the business. the ito, while making the assessment by order dated 25-3-1981, allowed this claim of investment allowance. subsequently, however, the commissioner was of the view that the order of the ito was erroneous and prejudicial to the interests of the revenue. he was not satisfied with the assessee's submission that since the assessment order was the subject-matter of appeal before the commissioner (appeals), the commissioner had no jurisdiction under section 263 and, alternatively, the assessee's activities amounted to manufacture or production of an article or thing and, therefore, the assessment order allowing investment allowance.....
Judgment:
1. This is an appeal filed by the assessee against the order of the Commissioner, Bombay, under Section 263 of the Income-tax Act, 1961 ('the Act').

2. The assessee is a registered firm and the appeal relates to the assessment year 1978-79. We were given to understand at the time of hearing of the appeal that the business of the assessee-firm was to purchase milk from various sources, which was brought to Bombay in refrigerated tankers and was subjected to chilling and pasteurization before being bottled and sold under the brand name 'Doodh Amrut'. It was claimed before the ITO in the course of the assessment proceedings that this activity amounted to production or manufacture of an article or thing and, consequently, the assessee was entitled to investment allowance on machinery and plant used in the business. The ITO, while making the assessment by order dated 25-3-1981, allowed this claim of investment allowance. Subsequently, however, the Commissioner was of the view that the order of the ITO was erroneous and prejudicial to the interests of the revenue. He was not satisfied with the assessee's submission that since the assessment order was the subject-matter of appeal before the Commissioner (Appeals), the Commissioner had no jurisdiction under Section 263 and, alternatively, the assessee's activities amounted to manufacture or production of an article or thing and, therefore, the assessment order allowing investment allowance on machinery and plant used in this business cannot be said to be erroneous or prejudicial to the interests of the revenue. The Commissioner, therefore, by order under Section 263 dated 7-2-1983 set aside the assessment with a direction to the ITO to make a fresh assessment after giving the assessee an opportunity of being heard, to withdraw the investment allowance and to take all ancillary action which may be required at the time of making the fresh assessment. The assessee is aggrieved and has, therefore, come up in the present appeal before us.

3. The assessee's learned Counsel, Shri Haribhakti, submitted to us that at the time of making the assessment, i.e., 25-3-1981, there were two decisions, one of the Hon'ble Kerala High Court in the case of CIT v. Castlerock Fisheries [1980] 126 ITR 382 and another of the Hon'ble Calcutta High Court in the case of CIT v. Radha Nagar Cold Storage (P.) Ltd. [1980] 126 ITR 66 wherein their Lordships laid down that even if the plant was temporarily let out to a sister concern, the income derived by such letting out was business income and the assessee was entitled to development rebate while working out the business income and the business of keeping potatoes in the cold storage was an activity, which falls within the meaning of processing of goods. He, therefore, submitted that, as laid down by the Hon'ble Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229, the assessment cannot be said to be erroneous simply because the ITO had followed the decisions of the Hon'ble High Courts, which he was bound to follow. It was also pointed out by him that since at the time of the proceedings under Section 263 the appeal against the assessment order was pending before the Commissioner (Appeals), it was open to the ITO to request for enhancement and the Commissioner had no jurisdiction under Section 263.

In this connection, he pointed out that the reasoning in the decision of the Special Bench of the Tribunal in the case of Dwarkadas & Co.

(P.) Ltd. v. ITO [1982] 1 SOT 495 (Bom.) was applicable here. Summing up Shri Haribhakti vehemently argued before us that the exercise of the jurisdiction under Section 263 by the Commissioner was void ab initio.

4. Shri Haribhakti referred to a number of decisions of the Tribunals in the cases of ITO v. Elite Sea Foods [1983] 3 ITD 348 (Coch.) where the Tribunal held that investment allowance was admissible in the business of purchase of shrimps, etc., which, after de-heading, peeling, de-veining and freezing, were exported, Universal Spices v.ITO [1983] 4 ITD 367 (Hyd.) where the Tribunal held that the business of accommodating the tumeric dolls in a factory shed and carrying on the process of polishing as a result of which the final product underwent substantial vibration and wear and tear amounted to a sort of a manufacturing process, First ITO v. Dr. P. Vittal Bhat [1983] 6 ITD 560 (Bang.) (SB) where the Tribunal held that the X-ray photographs produced from an X-ray unit could be said to be production of an article or thing and Nishit Synthetics (P.) Ltd. v. ITO [1984] 7 ITD 486 (Ahd.) where the Tribunal held that the conversion of flat yarn into twisted yarn would amount to manufacture of a new article within the meaning of Section 32 A of the Act, in support of the contention that the assessee's business activity of converting the milk purchased from various sources into the brand product 'Doodh Amrut' amounted to manufacture or production of an article or thing. On this basis, Shri Haribhakti submitted that the assessee-firm was entitled to investment allowance on new machinery and plant used in this business and the investment allowance was rightly allowed by the ITO. Summing up, Shri Haribhakti vehemently contended before us that in the first place the Commissioner had no jurisdiction under Section 263 and, alternatively, the assessment order was not erroneous and, therefore, the order of the Commissioner under Section 263 should be cancelled.

5. On the other hand, the learned departmental representative, Shri Vohra, submitted to us that on the date of the order of the Commissioner under Section 263, i.e., 7-2-1983, the appeal against the assessment order before the Commissioner (Appeals) was still pending and, therefore, there was no question of the merger of the assessment order in the order of the Commissioner (Appeals) at the time the Commissioner exercised his powers under Section 263. He, therefore, submitted that the Special Bench decision of the Tribunal in the case of Dwarkadas & Co. (P.) Ltd. (supra) will not be applicable here.

Reference in this connection was also made by him to the decision of the Hon'ble Bombay High Court in the case of CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570 where their Lordships of the Hon'ble Bombay High Court laid down that the principle of merger of order of a subordinate authority only applies to that part of the order, which was the subject-matter of consideration and decision by the appellate authority and the entire order does not merge in the order of the appellate authority. Viewed in this context, according to Shri Vohra, when even the appeal had not been decided by the Commissioner (Appeals), there was no question of any merger of the assessment order in the order of the appellate authority, i.e., the Commissioner (Appeals), on the date of exercise of powers under Section 263 by the Commissioner. Referring to the ruling of the Hon'ble Kerala High Court in the case of Castlerock Fisheries (supra), Shri Vohra pointed out that the issue in this case was whether the development rebate could be denied because the plant instead of being used by the assessee for its own business was let out to a sister concern and, therefore, there is no decision by the Hon'ble Kerala High Court on whether the business amounted to manufacture or production of an article or thing. We were then taken through the ruling of the Hon'ble Calcutta High Court in the case of Radha Nagar Cold Storage (P.) Ltd. (supra), where their Lordships laid down that the potatoes kept in the cold storage for preservation in the original state and prevention of the normal decay amounts to processing of goods, which is not the same thing as manufacture of goods. Both of these decisions, therefore, according to Shri Vohra, were not on the issue of whether the assessee's business of purchase of milk from various sources, which was transported to Bombay and sold after chilling and pasteurization under the brand name of 'Doodh Amrut' amounted to manufacture or production of an article or thing. On this basis, Shri Vohra submitted that there was no question of the ITO following the decisions of the Hon'ble Kerala High Court and the Calcutta High Court in these two cases while allowing the assessee's claim of investment allowance on machinery and plant used in the business. We were taken through the assessment order in order to point out that there was no discussion by the ITO on this issue and the assessee's claim of investment allowance was allowed without any inquiry or scrutiny. He, therefore, vehemently argued before us that there was no merit in the claim made by the assessee's learned Counsel, Shri Hari-bhakti, that the Commissioner had no jurisdiction under Section 263 on the date on which he passed the order, i.e., 7-2-1983.

6. Shri Vohra then referred to the ruling of the Hon'ble Kerala High Court in the case of CIT v. Casino (P.) Ltd. [1973] 91 ITR 289 wherein their Lordships laid down that to consider whether the activity amounts to processing or manufacturing of goods, the matter has to be viewed in the popular sense, i.e., what a person will understand in the ordinary sense in which the English language is understood and viewed in this context, the process of preparation of various items of food from various raw materials cannot be said to constitute even processing, what to say of manufacture of goods. Two decisions of the Tribunals were also cited before us, the first being Saluja Cold Storage v. ITO [1982] 1 ITD 751 (All.) where the Tribunal held that the plant and machinery used in cold storage cannot be said to be engaged in manufacture or production of an article or thing and, therefore, the assessee is not entitled to investment allowance on new items of plant and machinery in the cold storage and the second being Budhwar Cold Storage v. ITO [1984] 10 ITD 357 (Delhi) where also the Tribunal held that investment allowance was not admissible on machinery and plant installed in the cold storage since this did not involve manufacture or production of an article or thing. Referring to the decisions of the Tribunal cited by the assessee's learned counsel, Shri Haribhakti, Shri Vohra submitted that these cases were on different facts and were distinguishable on the facts and in the circumstances of the present case. Summing up, Shri Vohra argued before us that the assessment order accepting the assessee's claim of investment allowance on machinery and plant used in the business of supply of milk was erroneous and prejudicial to the interests of the revenue. He, therefore, justified the order of the Commissioner under Section 263 and submitted to us that the order of the Commissioner should be upheld.7. We have carefully considered the rival submissions. At the outset it will be necessary to point out that the assessee's business was to purchase milk from various sources, which was brought to Bombay in refrigerated tankers and after chilling, pasteurization and bottling, was sold under the brand name 'Doodh Amrut'. The fact, however, remains that what was sold by the assessee as the end product was also milk as commonly understood by any person. The various rulings cited by the assessee's learned Counsel, Shri Haribhakti, are, therefore, on different facts and cannot be applicable to the issue under consideration here. The Hon'ble Supreme Court in the case of Union of India v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791 has laid down that processing cannot be equated with manufacture and the word 'manufacture' means to bring into existence a new substance and not merely produce some change in the substance however minor in consequence the change may be. The production of an article also presupposes that the end product should be different from the raw material. Viewed in this context, as laid down by the Hon'ble Kerala High Court, in the case of Casino (P.) Ltd. (supra) applying the test of the ordinary sense in which the language is understood, the end product in the present case, whatever be the brand name, was only milk.

Thus, while the activity of the assessee of bringing the milk purchased from various centres to Bombay by refrigerated tankers and chilling, pasteurization and bottling of the milk may satisfy the test of processing of goods, it does not satisfy the test of manufacture or production of an article or thing. The assessee was, therefore, not entitled to the claim of investment allowance on the new items of plant and machinery used in this business and the assessment order allowing this claim was erroneous and prejudicial to the interests of the revenue.

8. We will now deal with the issue raised that since the assessment order had merged in the order of the appellate authority, the Commissioner had no jurisdiction under Section 263. Here it will be necessary to point out that the appeal against the assessment order was decided by the Commissioner (Appeals) on 31-5-1983 and, thus, on the date on which the Commissioner passed his order under Section 263, i.e., 7-2-1983, there was no order of the Commissioner (Appeals). Thus, it cannot be said that when the Commissioner passed his order under Section 263, the assessment order had already merged in the order of the Commissioner (Appeals). It is true that the ITO could have requested the Commissioner (Appeals) for enhancement of the assessment since the appeal was pending at the time the Commissioner exercised his jurisdiction under Section 263 but then if two remedies are open either to the assessee or to the department, the it is open to either side to resort to any of the two remedies and simply because one remedy was resorted to and not the other, will not render the remedy resorted to illegal on that ground alone.

9. Considering all these and looking to the totality of the facts and circumstances, we have no hesitation in coming to the conclusion that the order of the Commissioner under Section 263 was justified. The order of the Commissioner under Section 263 is, therefore, upheld.


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