TMI Blog2007 (3) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... llant for the produce of the ornamental fishes amounted to rearing of the fishes and did not involve the process of production of the ornamental fishes, thereby denying the claim of the appellant under s. 10B of the IT Act. 3. That on the facts and in the circumstances of the case the CIT(A) further erred in coming to the conclusion and holding that the submissions made by the appellant were based on assertions and were not supported by evidences or accounts in spite of the fact of physical verification of the various process adopted by the appellant for the process of the ornamental fishes by the Department during the course of appeal proceedings. 4. That on the facts and in the circumstances of the case the CIT(A) erred in upholding the action of the AO in coming to the conclusion that there was no difference in the identity between the original fish and the produced ornamental fishes thereby further holding that there was no manufacture or produce by the appellant of an article or thing, which findings are erroneous and on non-appreciation of the facts of the case. 5. That on the facts and in the circumstances of the case the CIT(A) erred in upholding the action of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article or thing it cannot be said that the appellant is producing fish as it is a natural process of development of eggs. (c) The words articles or things have to be interpreted as per the provisions of the particular section and regard must also be paid to the intention of the legislature. (d) The appellant is not an industrial undertaking and therefore it does not fall under the purview of s. 10B of the IT Act, 1961. In coming to these conclusions the AO has relied upon the following case laws: (i) CIT vs. Venkateswara Hatcheries (P) Ltd. Etc. (1999) 153 CTR (SC) 105 : (1999) 237 ITR 174 (SC); (ii) Indian Poultry vs. CIT (2001) 166 CTR (SC) 503 : (2001) 250 ITR 664 (SC); (iii) CIT vs. Relish Food (1999) 152 CTR (SC) 500 : (1999) 237 ITR 59 (SC)." 3. In appeal, the CIT(A) has upheld such order of AO holding that the claim of the assessee was not tenable on legal propositions as according to him ornamental fishes can neither be manufactured or produced nor such fishes are animate creature viz. ornamental fishes can be called as an article or thing within the meaning of s. 10B of the IT Act, 1961. The CIT(A) has also rejected the plea of the assessee that it was given l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new product having a distinctive name, character or use and shall include processes such as refrigeration, remaking, polishing, labelling, reconditioning, repair, remaking, refurbishing, testing, calibration, re-engineering. Manufacture for the purpose of this policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture". The learned counsel has pointed out that from the above definition of the word manufacture as per Foreign Trade Policy of the Government of India, it is apparent that the activity pisciculture tantamounts to manufacture. Continuing his argument the learned counsel has pleaded that in the case of the assessee raw fishes are converted into ornamental fishes which are indeed of a separate character than the character of raw fishes as raw fishes can be consumed and ornamental fishes cannot be consumed and there is a distinct and separate market for ornamental fishes than that of raw fishes. The learned counsel has thereafter narrated the various processes involved in the manufacture of ornamental fishes. 5. The learned counsel had also made a request to the Bench for a visit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Supreme Court is not applicable to the facts of the assessee's case. 8. It has, therefore, been contended by the learned counsel that all the three decisions relied by the AO are distinguishable from the facts of the case of the assessee as the assessee has explained the entire process step by step for the production of ornamental fishes. It has been pleaded that the successful production of the ornamental fishes is a time-taking culmination of several complex activities requiring knowledge, skill, equipments, plant and machinery, chemicals, dyes and fertilizers, medicines and drugs and other procedures. 9. The learned counsel has further submitted that the word manufacture and produce has not been defined in the IT Act but as laid down by various authorities it is apparent that the same should be recognized in the trade as a new distinct commodity. The Hon'ble Supreme Court in the case of Aspinwall Co. Ltd. vs. CIT (2001) 170 CTR (SC) 68 : (2001) 251 ITR 323 (SC), held that the word manufacture has not been defined and in the absence of definition, it has been given a meaning as is understood in common parlance and therefore, it is to be understood as meaning the produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture and production of ornamental fishes, copy of license as a 100 per cent export oriented undertaking under the Falta Export Processing Zone and certificate from the Fish Aqua Culture and Fish Port Office. Government of West Bengal, where fish production award has been given to the assessee for production of ornamental fishes during the financial year 2002-03. All such copies are available in the paper book filed by the assessee. 12. The learned counsel has also placed his reliance on various definitions of the word manufacture and processing and placed a copy thereof in the paper book contending that pisciculture tantamounts to manufacture. The learned counsel has also contended that process undertaken by the assessee could not be termed at par with the case of CIT vs. Venkateshwara Hatcheries Ors. It has been submitted by the learned counsel that facts of the case in case of Venkateshwara Hatcheries are altogether different to the facts involved in the present case as in this case the assessee is not producing or manufacturing the same thing which would have produced or which would have been available without deploying any processing or manufacturing. It has further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enying benefit of deduction under s. 10B to the assessee and therefore such action of the AO and CIT(A) should be upheld. 16. We have given our careful consideration to the rival submissions and have perused the orders of the tax authorities. We have also considered the paper book filed and the case laws relied upon. We also have taken into consideration the processing activities as seen by us while visiting the premises of the assessee along with the learned Departmental Representative while deciding the issues. 17. In this case the Revenue has considered the processing of juvenile fishes into ornamental fishes not eligible for deduction under s. 10B as such conversion of juvenile fishes into ornamental fishes could not be considered as manufacturing activity within the meaning of s. 10B of the Act, by relying on the order of Supreme Court in the case of Venkateshwara Hatcheries Ors. The assessee on the other hand has contended that the conversion activity of juvenile fishes into ornamental fishes certainly tantamounts to the manufacturing activity as the assessee by such conversion is bringing altogether a new article or item which is distinct and separate from the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Orissa High Court in case of CIT vs. S.L. Agarwala Co., held, that the Tribunal had found that the big iron ingot and the sma11er pieces were commercia11y different. In view of the categorical factual finding recorded by the Tribunal that a different and distinctive commercial commodity came into existence, the assessee was entitled to investment allowance. 24. Hon'ble Madras High Court in CIT vs. M.R. Gopal held that the process employed in converting boulders into small stones with the aid of machinery is a manufacturing process and the undertaking is an "industrial undertaking" and as such entitled to the exemption under s. 15C. 25. Hon'ble Gujarat High Court in case of CIT vs. Lakhtar Cotton Press Co. (P) Ltd., held, that loose cotton in bulk quantity with lighter density was, as a result of pressing, converted into cotton bales and to that extent it underwent a change and, therefore, the assessee-company fell within the definition of an "industrial company" because it processed cotton into cotton bales and was entitled to the concessional rate of tax within the meaning of ss. 2(7)(c) and 2(8)(c) of the Finance Acts, 1973 and 1974, respectively. 26. Hon'ble Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious High Courts in unmistakable terms. The test is whether the processing has resulted in a commercially different product or not. The test to be applied is clear but the problem arose in its application, in the present case. On the basis of the evidence filed by the assessee before the Revenue authorities and the Tribunal, it had to be held that a commercially different commodity had come into existence. The certificates filed from various pharmaceutical laboratories were indicative of the fact that candy sugar is a different commodity from sugar and that it is not only known by a different name but has also different uses and serves different purposes from ordinary grade sugar. Sales-tax cases which held that candy sugar is only a different form of sugar were distinguishable inasmuch as they were dealing with a different legislative provision. The various certificates produced by the assessee from the pharmaceutical laboratories showed that candy sugar is a different commodity from sugar. The above conclusion is also supported by the decision of the Andhra Pradesh High Court in the case of Surana Co. vs. State of A.P. (1977) 40 STC 192 (AP). The decision in Chunnilal Motilal v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or natural method and in that process also, the same time is taken when the chicks come out from the eggs. What the assessee by application of mechanical process did in the hatchery was to preserve and protect the eggs at a particular temperature. But the coming out of chicks from the eggs is an event of nature. The only difference seems to be that, by application of mechanical methods, the mortality rate of chicks is less and the assessee may get chicks more in number. This, however, would not mean that the assessee produces chicks and that chicks are 'articles or things'. The assessee is neither an industrial undertaking nor does the business of hatchery carried out by the assessee fall within the meaning of ss. 32A and 80J of the Act. Consequently, the assessee is not entitled to investment allowance under s. 32A of the Act and special deductions under ss. 80HH, 80HHA, 80-I and 80J of the IT Act." 31. Whereas in the case of CIT vs. Relish Food, the Hon'ble apex Court held as under: Held , reversing the decision of the High Court, (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this stage, the juvenile raw fishes are treated against various diseases and injuries and are made accustomed to the food of captivity. For fish treatment drugs as tetracycline, chloramphenicol, formalin, and other broad spectrum fungicides and antibiotics are used. - The selected raw fishes are conditioned under the controlled and suitable water conditions laid down for them and the process of artificially breeding takes place using different methods on different species of fishes. Artificial breeding is where the males are made to mate in artificial water conditions laid down by them in separate water tanks conditioning them to produce further specific fishes. - The livebearers (fishes that give birth to young ones) are identified from amongst the various holding tanks and the females with eggs are placed in round vats and the males are introduced to fertilize the eggs within the female womb. - The females give birth to live youngs whose sex is not determinable and the appellant by using hormones for sex reversal ensures breeding of male fishes as they become more colourful after injecting biological dyes and pigment for export of the ornamental fishes. - The young fishes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation through the above process which can never happen biologically. 34. The assessee has also furnished the complete list of plant and machinery used by it for such production which is as under: Internal power filters, External power filters, Power heads, Thermostatic heaters, Vortex blowers, Ozone generators, Biological filters, Reverse osmosis water treatment systems, Water softening equipment, Multi nozzle aeration pumps, Diaphram type air pumps, Hand nets, Mechanical biological filter (air operated), Glass tanks, Cement tanks, Plumbing fixtures for water supply, Network of aeration pipes for supply of air under pressure, Oxygen cylinders, Bag sealing machines, Modified atmosphere gas filling and sealing machine, Band sealer, Central rook heating apparatus (radiation type), Refrigeration equipment, Water testing equipment and kit, Microscope, Diesel generating set, Central servo stabiliser system. 35. Whereas the packing process is as under: (a) The ornamental fishes are. taken out from the aquariums using specialized nets and are manually counted and placed in plastic bags, which are produced in the unit. (b) The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) This results in change of colour of fishes and value addition to the fishes. (iii) Giving different colours to fishes by injecting chemicals to fishes as per requirement of importers and the market. (iv) These manufactured fishes are of different character as they cannot survive in the natural environment and require special/artificial; conditions by the assessee. (v) The manufactured fishes are different in use also as same cannot be consumed and are of only ornamental value. (vi) The ornamental fish loses its character after manufacturing and cannot be reverted back to its original form i.e. juvenile fish. (vii) All other activities which have already been mentioned in the process chart submitted by the assessee are reproduced elsewhere in this order and not controverted by the Revenue. 38. Since the assessee has undertaken a number of processes for manufacturing ornamental fishes and such processing activity was undertaken by a number of machineries installed by the assessee apart from the fact that it was also granted license by the competent authority and to undertake such processing activities; in our considered opinion, the assessee is fulfilling all the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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