TMI Blog2000 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... ight in law in declining to interfere with the cancellation of interest by the Commissioner of Income-tax (Appeals) ?" The relevant facts are as follows: The assessee is a registered firm engaged in the business of export of tea. For the assessment year 1979-80, the Assessing Officer disallowed the claim of the assessee for weighted deduction in respect of the expenditure incurred in connection with the exports in view of the provisions of section 35B(1A) introduced by the Finance Act, 1978. The Commissioner of Income-tax (Appeals) upheld the claim of the assessee for weighted deduction on the ground that the assessee was a small scale unit in the light of certification of registration granted by the Directorate of Industries, Kerala State, and the assessee was processing and manufacturing tea and, therefore, the embargo in section 35B(1A) of the Income-tax Act will not be applicable to the case of the assessee. On appeal by the Revenue, the Tribunal took the view that the assessee was a small scale industrial unit for manufacturing or processing products such as packet tea, etc. Relying on a decision of the Calcutta High Court in G. A. Renderian Ltd. v. CIT [1984] 145 ITR 387, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering of services in connection with the provision of technical know-how, to persons outside India ; and (b) the expenditure referred to in that sub-section is incurred by the assessee wholly and exclusively for the purposes of the business referred to in sub-clause (i) or, as the case may be, sub-clause (ii) of clause (a). Explanation.---For the purposes of this sub-section,--- (a) 'small-scale exporter' means a person who exports goods manufactured or produced in any small-scale industrial undertaking or undertakings owned by him : Provided that such person does not own any industrial undertaking which is not a small scale industrial undertaking ; (b) 'Export House Certificate' means a valid Export House Certificate issued by the Chief Controller of Imports and Exports, Government of India ; (c) 'provision of technical know-how' has the meaning assigned to it in sub-section (2) of section 80MM ; (d) 'small-scale industrial undertaking' has the meaning assigned to it in clause (2) of the Explanation below sub-section (2) of section 32A. (2) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the quantities of tea purchased by the assessees cannot since the date of purchase be regarded as processed within the meaning of the proviso to clause (a) of section 8 of the Act. There is not even application of mechanical force so as to subject the commodity to a process, manufacture, development, or preparation. The commodity has remained in the same condition. Even though certain skill is involved in preparing the tea mixture which was marketed it cannot be regarded as processing within the meaning of the proviso. The above decision was discussed in detail by the Calcutta High Court in G. A. Renderian Ltd. v. CIT[1984] 145 ITR 387 and dissented from. The question that came up for consideration before the Calcutta High Court was whether the assessee who carried on the business of purchasing tea of different qualities, blending the same by mixing one type with another and selling the tea so blended in packets can be brought under the definition of an industrial company, in terms of section 2(7)(c) of the Finance Act, 1978. The court took the view that the blending operation done by the assessee would come within the term "process" in the definition of industrial company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the word "processing" in Webster's Dictionary. It was then observed as follows (see [1981] 47 STC 124, 131 and [1984] 145 ITR 394) : "Where therefore any commodity is subjected to a process or treatment with a view to its 'development or preparation for the market', as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of section 8(3)(b) and rule 13. The nature and extent of processing may vary from case to case ; in one case the processing may be slight and in another it may be extensive ; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Sri Om Prakas Gupta v. CCT [1965] 16 STC 935. What is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural crop produced throughout the year in India in the States of Assam, West Bengal, Tamil Nadu, Kerala and Karnataka. The quality of tea produced would depend upon the soil, the weather pattern, the age of the tea bush and the elevation at which the tea is grown. Blending requires highly specialised expertise to identify different sources and grades of tea and to mix them in the right proportion so as to make available a consistent product (brand) to the consumers throughout the year. The tea produced during a particular period of the year will have special qualities. For example, the best teas from Assam known for their strength, brightness and thickness called "second flush" are produced between mid-May and end-June. Such tea with special quality will be stored and used judiciously while blending is carried on throughout the year. It is so done to keep the consistency in quality of tea to satisfy the consumers throughout the year. The tea thus blended will have to go through the different process of packing and labelling as explained in G. A. Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal). It is not contended before us that there is any difference in the process which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Laws (Amendment) Act, 1984, adding sub-section (6) to section 215 with effect from April 1, 1985, that till such amendment the assessment made under section 147 cannot be regarded as regular assessment. This contention was repelled by the Full Bench. It was held that even in the absence of subsection (6) of section 215 such assessments will be regular assessments. Sub-section (6) of section 215 is only a clarification of the earlier law as different High Courts have expressed different opinions on the question and by the inclusion of that sub-section alone, it cannot be said that, for the previous assessment years such assessments cannot be treated as regular assessments. According to us, the dictum laid down by the Full Bench has to be applied in cases arising under section 215 also. In the light of the above, we answer question No. 1 in the affirmative, in favour of the assessee and against the Revenue. Question No. 2 is answered in the negative, against the assessee and in favour of the Revenue. A copy of this judgment under the seal of the High Court and signature of the Registrar will be sent to the Income-tax Appellate Tribunal, Cochin Bench. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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