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Commissioner of Income-tax, Kottayam Versus Interseas, Sea Food Exporters

2009 (11) TMI 982 - KERALA HIGH COURT

IT APPEAL NO. 77 OF 2009 - Dated:- 6-11-2009 - C.N. RAMACHANDRAN NAIR AND V.K. MOHANAN, JJ. Jose Joseph for the Appellant. Joseph Vellapally, Chandramohan R. and Premjit Nagendran for the Respondent. JUDGMENT C.N. Ramachandran Nair, J. - The respondent-assessee is mainly engaged in processing and export of marine products. Goods purchased and exported by respondent include processed shell fish like prawns and lobsters supplied to respondent by processors who purchase the whole fish and process t .....

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assessee claimed the benefit of exemption provided under rule 6DD(f)(iii ) of the Income-tax Rules (hereinafter called "the Rules") prescribed under sub-section (3) of section 40A of the Act which provides for exemption for payments made to producers of fish or fish products for the purchases other than through Account Payee Cheques or Demand Drafts. The Assessing Officer, however, took the view that the processor of fish who supplied the same after removal of head, tail and shell to w .....

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ppellate authority directed the Assessing Officer to conduct enquiry with the suppliers based on the details furnished by the assessee, based on which a remand report was called for from the Assessing Officer. On examining the details contained in the remand report and after hearing the assessee, the appellate authority held that payments made for so much of the supplies which do not stand confirmed by the suppliers should be disallowed. While the original disallowance was ₹ 2,20,42,473, a .....

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he nature of business, it would be impossible for the assessee to prove before the department the identity of the persons who have supplied the fish meat against which payments were made. Accordingly, the Tribunal allowed the assessee's appeal by cancelling the part disallowance made by the first appellate authority based on details collected from remand report submitted by the Assessing Officer after enquiry. It is against this common order of the Tribunal the department has filed this appe .....

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d from prawns, lobsters, skud fish etc. after removing the head, tail, shell and other inedible portions, fall within the definition of fish products entitling the assessee to get the benefit of exemption from the operation of section 40A(3) of the Income-tax Act provided under rule 6DD(f)( iii) of the Income-tax Rules? (2)Whether on the facts and in the circumstances of the case, was the Tribunal justified in cancelling the part disallowance confirmed by the CIT (Appeals) on the ground that the .....

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ranted to the assessee during the assessment year is above ₹ 14 crores. Besides processing the fish by itself, the assessee is engaged in purchase of processed fish which is nothing but fresh fish meat obtained after removal of inedible portions like head, tail, shell, etc. In fact, the fish meat so purchased are of prawns, lobsters, skud fish etc. The suppliers of the processed fish to the assessee are not actually fishermen but are those who purchase fish from fishermen, process the same .....

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( iii) for purchase of fish and fish products by making payments other than through Account Payee Cheques and Demand Drafts as required under section 40A(3) of the Act. Since the decision on the first question raised above depends on the interpretation of rule 6DD(f)(iii ), we extract hereunder the relevant portion of the said Rule as it stood during the relevant time :- "6DD. Cases and circumstances in which payment in a sum exceeding twenty thousand rupees may be made otherwise than by a .....

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airy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture; to the cultivator, grower or producer of such articles, produce or products." 5. Senior Counsel appearing for the department contended that the item purchased by the assessee is not a fish product and is only fish and since the payment is not made to the cultivator, grower or producer of the article, purchase by the assessee from the processors of fish would not be covered by the exe .....

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y for exemption, all the conditions of the Rule have to be satisfied because it is made very clear in rule 6DD that in order to get the exemption, the expenditure in respect of which claim is made should have been incurred in the cases and circumstances specified under the Rules. On examining the Rule in detail, we notice that in order to qualify for the benefit of exemption, two conditions have to be satisfied. In the first place, the exemption is available only for the purchase of items referr .....

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ce or products, the purchase is not covered by the exemption clause. We have to, therefore, consider two questions herein; one is whether the item purchased in this case is fish or fish product and the payment is to its producer. Obviously no one has a case that fish purchased by the assessee are grown in a farm and sold by the producer of it. On the other hand, fish involved is caught from the ocean by the fishermen, purchased by the processors who process the same by removing the inedible port .....

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oods [1999] 237 ITR 59 and another decision of this court in Ameena Enterprises v. CIT [2005] 275 ITR 8 and contended that removal of head, tail, peeling, deveining, cleaning etc., of prawns and other variety of fish do not involve any manufacturing activity and so much so, the fish meat purchased cannot be treated as a fish product. Senior counsel appearing for the assessee on the other hand relied on Notification SO 730(E), dated 21-8-1995 issued by the Central Government under section 17 of t .....

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lved was whether the commodity purchased namely, the fish, changes its identity and character in the process of cleaning, peeling, deveining etc., to disentitle the assessee for exemption for export after the said processing. The Supreme Court held that processing do not involve any manufacture or production of an article having a different identity and so much so, exemption under section 5(3) is available on purchase of fish and export of the same after processing. In other words, the provision .....

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facture of fish products are covered by the exemption clause contained in clause (iii). We feel the exemption clause generally covers a class of goods in all forms without confining itself to any particular form leaving other forms of it from the very same class. When fish and even manufactured products of fish are covered by the exception clause and the payments to its producers in excess of the limit of ₹ 20,000 are covered by the exception clause, we see no reason why the processed fish .....

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the processed fish purchased is not fish in the same form it is obtained, it falls within the meaning of fish product under the above Rule. Since we have accepted the contention of the assessee that the processed fish purchased is fish product within the meaning of that term in the Rule, we have to necessarily hold that the supplier namely, the processor of the fish, is certainly producer to whom payments are made. Therefore, we are of the view that the Tribunal rightly held that rule 6DD(f)( i .....

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on going through the details contained in the remand report extracted in the CIT (Appeals)'s order, it is clear that very many suppliers whose names and addresses were furnished by the assessee, fully or partly disowned the transactions. It is seen that the purchases made in an year from the very same person runs into several lakhs of rupees. In some cases even though the suppliers have confirmed that they have supplied goods to the assessee, they have stated that they do not maintain the a .....

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he documents in regard to supply written by the assessee in his name. We find force in the contention of the assessee that having regard to the nature of trade, the assessee would not be able to get the suppliers confirm the supplies to the assessee because they are not within the control of the assessee. After making supplies and after collecting cash payments the suppliers are absolutely free to disown the transaction and assessee obviously cannot be blamed for the same. It is seen from the co .....

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the requirement of section 40A(3). However, Government has chosen to liberalise the operation of section 40A(3) to augment trade. After granting this facility, we are of the view that the department cannot insist the assessees to get the suppliers confirm to the department about the supplies made to the assessee and the payments received by them. In our view, the assessee should be taken to have discharged their burden by furnishing the copies of purchase bills or vouchers issued containing the .....

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