1994 (3) TMI 165 - AT - Income Tax

Summary

Issues:
1. Whether the assessee is engaged in trading or processing activity in relation to Tendu Leaves for the assessment year 1990-91.

Comprehensive Analysis:
The appeal before the Appellate Tribunal ITAT Indore pertained to the assessment year 1990-91 and involved a dispute regarding the nature of the assessee's activity in relation to Tendu Leaves. The core issue revolved around whether the assessee's operations constituted trading or processing activity. The assessee claimed that Tendu Leaves were a forest produce, and therefore, the provisions of section 44AC of the Income-tax Act, 1961 should be applied, which prescribed a tax rate of 35% on presumptive basis for such income. The Assessing Officer contended that the assessee was engaged in processing activity, not trading, and hence, section 44AC did not apply.

The assessee, represented by Shri R.N. Gupta, argued that the operations performed, such as plucking, bundling, and preserving Tendu Leaves, constituted trading activity, not processing. The counsel relied on legal precedents to support the contention that the case fell within the purview of section 44AC. On the other hand, Shri K.L. Sanghi, representing the Revenue authorities, contended that the activities undertaken by the assessee amounted to processing, citing the distinction between manufacturing and processing under the law.

The Tribunal considered the provisions of section 44AC, introduced in 1988, which prescribed special rates for computing profits and gains for specified goods, including forest produce. It was noted that the applicability of section 44AC was not dependent on the income declared in account books exceeding the presumptive basis. The Tribunal also referred to a CBDT clarification emphasizing the mandatory application of section 44AC even if the declared income was higher.

Further, the Tribunal examined the nature of the assessee's activities concerning Tendu Leaves. It was observed that the jurisdictional High Court had previously ruled that processing of Tendu Leaves did not alter the nature of the goods, aligning with the definition of processing as an action that changes or alters the material. The Tribunal concluded that the assessee's operations did not amount to manufacturing or processing but fell within trading activity, thus directing the Assessing Officer to apply the presumptive rates under section 44AC.

In the final decision, certain grounds of appeal were dismissed as not pressed, while consequential relief was directed to be provided. The appeal of the assessee was partly allowed based on the findings regarding the nature of the assessee's activity in relation to Tendu Leaves for the assessment year 1990-91.