1994 (11) TMI 89 - HC - Income Tax

Industrial Undertaking In Backward Area Literal Interpretation Manufacture Or Production Special Deduction Taxing Statutes

Summary

Issues Involved:
1. Whether the activity of processing prawns amounts to manufacture or production of articles within the meaning of Section 80HH of the Income-tax Act, 1961.

Detailed Analysis:

1. Nature of Activity and Claim for Deduction:
The assessee, a partnership firm, engaged in the sale of prawns, claimed a deduction under Section 80HH of the Income-tax Act, 1961, arguing that the processing of prawns (cutting heads and tails, cleaning, etc.) amounted to manufacturing or production of articles. The Income-tax Officer rejected this claim, but the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld the assessee's contention. The Revenue then referred the matter to the High Court for an opinion on whether "processing of prawns" constitutes "manufacture or production of goods or articles" under Section 80HH.

2. Legislative Intent and Interpretation:
Section 80HH provides deductions to industrial undertakings that "manufacture or produce articles." The court emphasized that the legislative intent must be derived from the statute's clear and explicit language. The court noted the distinction between "manufacture or production" and "processing" as used in different sections of the Act and other related statutes, such as Section 33B and Section 2(8)(c) of the Finance Act, 1975. The Legislature specifically used "processing" in juxtaposition to "manufacture" where it intended to include processing activities within the benefit scope, which was not the case in Section 80HH.

3. Judicial Precedents and Definitions:
The court reviewed various judicial precedents to interpret the terms "manufacture," "production," and "processing." It referred to the Supreme Court's decisions in Chowgule and Co. P. Ltd. v. Union of India and Deputy CST v. Pio Food Packers, which clarified that "manufacture" involves a transformation resulting in a new and distinct commodity, whereas "processing" involves subjecting a commodity to a process without necessarily creating a new product. The court also cited Sterling Foods v. State of Karnataka, where the Supreme Court held that processed or frozen shrimps, prawns, and lobsters retain their original identity and do not become new commodities.

4. Application of Tests:
The court applied the test of whether the processed commodity is regarded as distinct in identity from the original commodity in commercial parlance. It concluded that the processing of prawns (cutting, cleaning, freezing) does not transform them into a new and distinct commodity. They remain prawns in commercial terms, and thus, no "manufacture" occurs.

5. Conclusion and Judgment:
Based on the analysis, the court concluded that the processing of prawns does not amount to "manufacture or production of articles" under Section 80HH. Therefore, the assessee's activity does not qualify for the deduction under this section. The question referred was answered in the negative, in favor of the Revenue and against the assessee. There was no order as to costs.

Summary:
The High Court held that the activity of processing prawns does not amount to the manufacture or production of articles within the meaning of Section 80HH of the Income-tax Act, 1961. Consequently, the assessee's claim for deduction under this section was not upheld. The court emphasized the clear legislative intent and distinguished between "manufacture," "production," and "processing," concluding that the processing of prawns does not result in a new and distinct commodity.