TMI Blog2002 (7) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... Choice Estate Construction Co. Ltd. by virtue of a resolution dated 8-6-1993. Assessee also derives income from its Sea Food Division, Shipping Division and Software Division besides income from interest on deposits, dividends, profit on sale of investments, rent, vehicle hire charges etc. Investment in subsidiary company: On scrutiny of the books of account the Assessing Officer noticed that the assessee was conducting business operation through borrowed funds from banks. Assessee was availing different types of loans like export packing credit, term loan, transit loan, IDBI term loan, industrial finance loans etc. from SBI, SBT, etc. Interest paid to the banks amounted to Rs. 2,01,51,741 in addition to service charges paid to IDBI, M.G. Road, Ernakulam of Rs. 2,94,000. It was also noticed that an amount of Rs. 92,50,015 has been diverted out of EPC loan availed from SBI, Cochin, for the purpose of acquiring equity shares in a company named 'Geo Marine Exports (P.) Ltd'. Apart from the export packing credit loans, there were no funds available with the assessee, noted the Assessing Officer, for investing in the shares of M/s. Geo Marine Exports (P.) Ltd. Since no other f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase relied on by the ld. Sr. Departmental Representative are distinguishable. Here, the acquisition of the shares was with the motive of getting control of the company. There were two rival groups. The shareholders desired one group should control the company so as to make it profitable or viable as compared to the other group. On the other hand, we find that in the decision of the Madras High Court in the case of Indian Commerce Industries Co. (P.) Ltd., it has been held that if the purchase of the shares in the company was intended for the purpose of increasing the business of the assessee, the expenditure should be treated as business expenditure and that the disallowance, on that ground, of the interest cannot be upheld. Here, it is also to be noted that KSIDC, which advanced loans to M/s. Geo Marine Exports (P.) Ltd. with which the assessee was also having transactions, advised the assessee to take over M/s. Geo Marine Export (P.) Ltd. It is to be noted that assessee's processing capacity was increased highly. Therefore, the first appellate authority was right in allowing the claim of the assessee considering the reason that if the assessee was to establish such a wing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in the line of construction business and it was for business purposes that the investment was made. Hence, we are of the view that the reasoning of the first appellate authority stands to reason. This ground of the revenue also fails. Car advance: 11. At the time framing the assessment order, the Assessing Officer noticed that there was a car advance to the tune of Rs. 26,55,000 paid for acquiring a foreign car for the Managing Director of the company. As on 31-3-1994, he also found that the registration of the car was not transferred in the name of the company. The above amount was disallowed by the Assessing Officer as the expenditure was not for business purposes and was for acquiring asset not needed for business purpose. 12. It was submitted before the Commissioner (Appeals) that during the subsequent year the car was transferred in the name of the company, and the car was being used for the purpose of transporting foreign buyers. Hence, it was contended that the car was used for business purposes. It was also stated that it was only due to certain difficulties in getting registration during the year that the amount was shown as an advance. Accepting the above con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to the Managing Director of the assessee-company in his personal capacity. Because this proposition would not stand in the face of the fact that the motor car was used for the purpose of the business of the assessee-company. Moreover, the Managing Director of the assessee-company is not a stranger altogether. He is the most important personnel of the assessee-company who steers the business of the assessee-company. Therefore, one cannot hold that the motor car could not be considered as the car of the assessee-company simply for the reason that the registration of the car was taken in the name of the Managing Director of the assessee-company. In the context of depreciation allowance the Courts have consistently taken the view that what is to be looked into is the de facto ownership of the asset rather than the de jure ownership of the asset. The Hon'ble Calcutta High Court in the case of Salkia Transport Associates and Nagpur Bench of the Bombay High Court in the case of Dilip Singh Sardarsingh Bagga have held that in the case of motor vehicles, depreciation should be allowed to the beneficial owners of the vehicles even though the registration for the purpose of Motor Vehic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-business purposes. The proportionate disallowance of interest is deleted under this head." 16. Relying upon the decision of the Supreme Court in the case of Madhav Prasad Jetia v. CIT [1979] 118 ITR 200, the ld. Departmental Representative submitted that amount claimed by the assessee as donation to educational institutions cannot be allowed. The ld. counsel for the assessee submitted that originally the company started construction of the school when it was carrying on the construction division and the school was in the area where the flats were constructed. This was started with a view to improve the saleability of the buildings constructed, and as such, the cost is allowable as a revenue deduction, in the light of the decision of the Allahabad High Court in the case of CIT v. Development Trust (P.) Ltd. [1992] 198 ITR 766. Assessee's counsel further submitted that when the construction was transferred, the company continued with the construction of the school as it was felt that the school would be beneficial to the children of the assessee's employees. The children of the employees are given priority in admission in the school. Under similar circumstances, in the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persuading buyers to purchase plots in the colony promoted by the assessee, the expenditure incurred is liable to be allowed. In view of the above, we have no reason to take a contrary view from that of the first appellate authority. This ground of the revenue also fails. 18. The ld. counsel for the assessee submitted that interest on borrowings cannot be disallowed merely because of charging of reduced rate of interest or failure to charge interest on lending or investment for the purpose of the business. For the above proposition he relied on the decision of the Bombay High Court in the case of CIT v Bombay Samachar Ltd. [1969] 74 ITR 723. Further relying on the decision of the Hon'ble Supreme Court in the case of Rejendra Prasad Moody, assessee's counsel has submitted that interest cannot be disallowed merely because the investment has not earned any income. He further submitted that the company was having sufficient funds and the reserves and the profit for the year before depreciation and after tax was to the tune of Rs.238 lakhs. Hence, the lending and investment should be deemed to be out of interest free funds. For the above proposition, he also relied on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court reported in CIT v. Sterling Foods (Goa) [1995] 213 ITR 851. 22. Assessee claimed deduction under section 80-I in respect of sea-food products manufactured in its I.Q.F. plants at Nellore and Cochin. It was the case of the assessee that the IQF processing involves cooking/blanching of the product as well as glazing and freezing and other chemical treatment for preservation and it is a totally different form of processing from the conventional form of sea-food processing called 'block freezing'. The Assessing Officer disallowed the claim of the assessee in the light of the decision of the Bombay High Court in the case of Sterling foods (Goa) in which the Hon'ble High Court held that "by subjecting of prawns to processing for the purpose of export, they do not lose their original character. No new commodity or article emerges as a result of such processing." The Assessing Officer held that the above observations clearly apply to the case of the assessee. Since IQF is only a process by which prawns are subjected to instant deep freezing for the purpose of exports, the original identity of prawns is not lost, and therefore, he held that there is no production or manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected to instant deep freezing for export. By this process the original identity of the prawns is not lost. Therefore, there is no production or manufacture of any new article or thing, and hence, there cannot be any claim for deduction under section 80-I. Relying on the decision of the Kerala High Court in CIT v. Casino (P.) Ltd. [1973] 91 ITR 289, ld. Departmental Representative submitted that in this case the Hon'ble High Court held that the activity carried on in preparing articles of food from raw materials in a hotel would not constitute "manufacture or processing of goods" within the meaning of section 2(6)(d) of the Finance Act, 1968. A company which carries on such activity will not fall within the definition of an "industrial company" under that provision. Hence, the Departmental Representative submitted that the above decision is squarely applicable in the instant case of the assessee. He also relied on the decision referred to at page 606 [ie., CST v. Harbilas Rai Sons [1968] 21 STC 17 (SC), in CIT v. West India Steel Co. Ltd. [1977] 108 ITR 601 (Ker.)]. In Harbilas Rai Sons's case, notwithstanding the fact that the assessee bought bristles plucked by kanjars fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, shrimps completely lose their identity and character and the end product is totally different from the input, and they are commercially different. Whereas the input cannot be consumed by the individual, the output from the assessee's unit is directly marketed to the individual in USA and other places. In fact, the output from the factories like Relish Food, Sterling Foods and other companies whose cases have been decided by the Supreme Court and the Kerala High Court, are exported and are subjected to further manufacturing process abroad as is being done by the assessee, and in the instant case, this further process is done by the assessee here itself. In the case of the assessee, the final product of those companies are put through further processing during which the product completely changes its identity and characteristics. The Hon'ble High Court in the case of CIT v. Jalna Seeds Processing Refrigeration Co. Ltd. [2000] 246 ITR 156 (Bom.) upheld the order of the Tribunal wherein the Tribunal held that a different commodity emerged after the raw seeds underwent the different stages of processing on the ground that the net result of the processing was that the raw seed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treatment. It also involves use of chemicals whereas stage seven, which is the last stage, deals with the treated seeds which are weighed in an automatic weighing machine. The net result of the seven stages through which the raw seeds go is that the raw seeds which can be consumed by human beings and animals, after being subjected to the process, are no longer edible and can be used only for cultivation." 25. Relying on the decision of the Supreme Court in the case of Aspinwall Co. Ltd. v. CIT [2001] 251 ITR 323, the ld. representative of the assessee submitted that curing of coffee by converting berries into coffee beans amounted to manufacturing. In fact, curing of coffee by converting berries into coffee beans is a very simple process; activities involved in that process are merely de-husking, grading, blocking etc. The Apex Court held that even that process is a manufacturing process and sufficient for the purpose of section 80-I. He also relied on the decision of the Allahabad High Court reported in Renusagar Power Co. Ltd. v. ITO [1979] 120 ITR 352, Madras High Court reported in CIT v. RID. Parry (India) Ltd. [1996] 218 ITR 713 and of the Bombay High Court reported in Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are graded according to and sizes in each variety. 4. Each lot is washed, water drained by using draining table, predetermined quantities weighed out into waxed cartons inner lined by a thin polythene sheet. Shrimp arranged in carton in slab form. Filled cartons arranged in metallic trays. Glazing water is added to all the cartons arranged in the trays, coded slips of paper placed in each carton. Cartons itself superscribed with name of the species, count and code as prescribed by Export Inspection Agency for identification. 5. Trays containing slabs loaded into freezers. Vertical compressive force applied for positive contact of the plates with the material. In this process the material gets freezed at minus 40 degrees FH. 6. Block frozen cases are kept in the cold store and for IQF (Individually Quick Frozen) processing the required number of cases are taken out and the slabs are put for thawing. 7. The shrimps are then subjected to chemical treatment with STPP (Sodium Tri Polyphosphate), salt, colour and water and the mixture is stirred continuously for four hours inside a stirring machine. 8. After that, the shrimps are taken out and drained and they are passed thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we are of the view that the order of the first appellate authority is liable to be upheld. The ld. Senior Departmental Representative relied on the decisions in the cases of Relish Foods and Sterling Foods (Goa) do not further the revenue's case. The decision in the case of Relish Foods was rendered by Their Lordships of the Apex Court as the assessee could not present in detail what the assessee did to the shrimps other than peeling and freezing them. It was in these circumstances that Their Lordships held that "there was no detailed description of what the assessee did to the shrimps it bought other than the bald statement that it peeled and froze them. Processed or frozen shrimps and prawns are commercially regarded as the same commodity as raw shrimps and prawns. When raw shrimps and prawns are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing they do not cease to be shrimps and prawns and do not become other distinct commodities. There is no essential difference between raw shrimps and prawns and processed or frozen Shrimps". Assessee's plea for remanding the matter was turned down for the reason that the assessment year invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Inside the cooker the shrimps are blanched/cooked and then the blanched shrimps are dumped into chilled water for cooling and are drained and passed through Infeed Shaker for separating each shrimp from others. Such shrimps are then passed through the IQF (Individually Quick Frozen) Freezer where each shrimp is individually frozen at -28 degree C. Keeping in mind the above system of processing, let us now come to the decision in the case of Aspinwall Co. Ltd. which is the latest decision of the Supreme Court as to what amounts to 'manufacturing'. The issue before Their Lordships of the Apex Court was whether curing of coffee i.e., process of manufacturing coffee beans from raw berries, amounts to manufacturing activity or not. Their Lordships discussed each stage of the process involved in curing coffee. The same is reproduced below for easy reference: "It was noticed that the Tribunal had inspected the factory premises to have a first hand knowledge of the operations carried on by the assessee-company. The inspection was made by the Tribunal in the presence of both the parties through their representatives. The factual observation of the Tribunal as a result of the inspectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which carries on such activity will not fall within the definition of an "industrial company" under that provision". The decision rendered by the Kerala High Court in the above case was in a particular circumstance on the basis of the facts. Assessee was a hotel. They were preparing foods from raw materials. On the basis of such preparation, the hotel claimed that they are manufacturing foods and they are an industrial undertaking and this claim was negatived by Their Lordships. But, it is very difficult to equate a fish processing industry with the preparation of food items in a hotel. 28. In the instant case of the assessee it is to be noted that the assessee has imported machinery worth Rs.7 crores for the processing undertaken by the assessee. This machinery is used for the assessee's processing. Hence, it is difficult to hold that the processing undertaken by the assessee is only cutting of heads and tails, peeling, deveining, cleaning and then freezing the shrimps; the assessee is doing more than the above in its processing. As enumerated at pages 16 and 17 above, at the 7th stage, the shrimps are subjected to chemical treatment with STPP (Sodium Tri-Polyphosphate), salt, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing, then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is a commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity". If we compare the processing that the assessee has undertaken in the process of making the food fit for human consumption, we have to hold that the process done by the assessee before us amounts to manufacture for the reason that the fish which was not fit for human consumption after the entire process is semi-cooked and can be served. The meat which was not fit for human consumption can now be consumed without further proce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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