1999 (9) TMI 60 - HC - Income Tax

High Court denies deductions under IT Act for processed shrimps, emphasizing manufacturing activities.

The High Court ruled against the assessee's entitlement to deductions under sections 80HH and 80-I of the IT Act, 1961, in a case involving processing and ... Deduction, Manufacture Or Production Issues:1. Entitlement to deductions under sections 80HH and 80-I of the IT Act, 1961 for a company engaged in processing and export of shrimps.2. Whether the processing activities involved amount to manufacturing for the purpose of claiming deductions.3. Interpretation of the term 'production' in the context of business activities.Analysis:Issue 1: Entitlement to deductions under sections 80HH and 80-IThe case involved a private limited company engaged in processing and exporting shrimps, marine products, and cashew kernels. The Assessing Officer (AO) initially rejected the deductions claimed under sections 80HH and 80-I on the grounds of no manufacturing activities. However, the Commissioner of Income-tax (Appeals) held in favor of the assessee, stating that the business activities involved processing and production of goods, making them eligible for the deductions.Issue 2: Manufacturing activities for claiming deductionsThe Revenue argued that the processing of shrimps did not involve manufacturing or production of new articles. They contended that processes like deheading, peeling, and freezing did not change the character or identity of the original shrimps, and the processed shrimps remained the same commodity. On the other hand, the assessee claimed that the processing altered the character of the shrimps, making them distinct from the original product.Issue 3: Interpretation of 'production'The apex court's decision in CIT vs. Rehsh Foods was referenced to determine whether the assessee's business activities constituted 'production' for claiming exemptions under section 80HH. The court in Sterling Foods vs. State of Karnataka established that processed or frozen shrimps were commercially regarded as the same commodity as raw shrimps. It was concluded that the processed shrimps did not become distinct commodities and were still recognized as shrimps in common parlance. Consequently, the Tribunal's decision to allow deductions under sections 80HH and 80-I was overturned in favor of the Revenue, based on the lack of essential difference between raw and processed shrimps.In conclusion, the High Court upheld the Revenue's position, ruling against the assessee's entitlement to deductions under sections 80HH and 80-I of the IT Act, 1961. The judgment highlighted the significance of manufacturing activities and the interpretation of 'production' in determining eligibility for tax benefits in cases involving processing and export of goods.