1989 (11) TMI 67 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under Section 80HHA.
2. Eligibility for deduction under Section 80-I.

Detailed Analysis:

1. Eligibility for Deduction under Section 80HHA:

The primary issue was whether the assessee-company satisfied the conditions prescribed under Section 80HHA(2) of the Income Tax Act, 1961, which pertains to deductions for small-scale industrial undertakings. The Income Tax Officer (ITO) initially rejected the claim, stating that the company's activities did not involve any manufacturing or processing activity but were merely trading activities. The company argued that its activities, including purchasing foundation seeds, providing technical advice, grading, and treating seeds with chemicals, constituted "processing of goods."

The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the company's claim, noting that the company was engaged in various activities such as purchasing foundation seeds, distributing them to farmers, supervising the growing process, and processing the seeds using machinery. The CIT(A) concluded that these activities amounted to "processing" and not merely trading, thus qualifying for the deduction under Section 80HHA.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the company's activities, including production, processing, testing, quality control, and marketing of hybrid seeds, were extensive and met the criteria for processing. The Tribunal noted that the company's operations were in line with the standards stipulated by the Central Seed Certification Board and involved significant technical and quality control measures.

2. Eligibility for Deduction under Section 80-I:

The second issue was whether the assessee-company met the conditions under Section 80-I(2) of the Income Tax Act, which provides deductions for profits derived from industrial undertakings engaged in manufacturing or processing. The ITO had rejected the claim on the grounds that the company's activities did not constitute manufacturing or processing.

The CIT(A) again ruled in favor of the company, stating that the company's activities went beyond mere trading. The CIT(A) highlighted that the company was involved in the entire process, from growing seeds through agreements with farmers to processing and marketing the seeds. The CIT(A) found that the company's activities involved significant technical and quality control efforts, qualifying them as processing activities under Section 80-I.

The Tribunal concurred with the CIT(A), noting that the company's activities were similar to those considered by the Allahabad High Court in the case of Tarai Development Corporation, where similar activities were deemed to constitute processing. The Tribunal also referenced various other judicial decisions that supported the company's position, concluding that the company's activities met the criteria for processing and thus qualified for the deductions under Section 80-I.

Conclusion:

The Tribunal dismissed the appeal, upholding the CIT(A)'s order that the assessee-company was entitled to deductions under both Sections 80HHA and 80-I. The Tribunal found that the company's extensive activities in seed production, processing, testing, quality control, and marketing constituted processing activities, thus meeting the conditions for the claimed deductions.