1997 (8) TMI 32 - HC - Income Tax

Cashew kernel processing unit treated as an 'industrial undertaking', allowing income-tax deductions u/ss 80HH and 80J

Whether a unit engaged in processing/manufacture of cashew kernels qualifies as an 'industrial undertaking' for deductions under ss. 80HH and 80J of the ... Deductions under section 80HH and section 80J - New Industrial Undertaking - Special Deduction - Manufacturing Or Processing Of Goods - Cashew Kernels - HELD THAT:- It is true that there is no definition of the term 'industrial undertaking' in the Income-tax Act, 1961. But, it is defined under the Wealth-tax Act, 1957. The Explanation to section 5(1)(xxxi) of the Wealth-tax Act defines the term as an undertaking engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. There is nothing in the language of section 80HH or section 80J which would suggest that a different meaning is contemplated for the term 'industrial undertaking', when it relates to a unit engaged in manufacture or production. On the other hand, the conditions to be fulfilled by the industrial undertaking as provided under sub-section (2) would indicate that a unit which is manufacturing or producing articles can be treated as an industrial undertaking without any further qualification. Therefore, we find no merit in the contention raised by the Revenue that in order to be an industrial undertaking, it should be something more than an undertaking where manufacturing or production is carried on. Thus, we hold that the Tribunal was fully justified in taking the view that the assessee was entitled to deduction under sections 80HH and 80J of the Income-tax Act, 1961. We, therefore, answer all the questions in the affirmative, in favour of the assessee and against the Revenue. Issues involved:The judgment involves the interpretation of provisions u/s 80HH and u/s 80J of the Income-tax Act, 1961 to determine if the assessee is entitled to exemptions under these sections.Interpretation of Section 80HH:The assessee, engaged in the export of cashew kernels and shell oils, claimed deductions under section 80HH and section 80J. The assessing authority rejected the claim, but the Tribunal found in favor of the assessee. The Tribunal held that the assessee satisfied the conditions under section 80HH(2)(iv) as even temporary workers were considered. The Tribunal's decision was based on the direct involvement of the assessee in part of the manufacturing process, such as drying raw cashew nuts and packing the final product. The Tribunal's decision was upheld, allowing the deduction under section 80HH.Interpretation of Section 80J:Regarding the claim under section 80J, the assessing authority initially rejected it, stating that the assessee was not engaged in manufacturing activities. However, the first appellate authority and the Tribunal found that the assessee was indeed involved in manufacturing activities, even though some processing was outsourced. The Tribunal relied on precedents to establish that even if a significant portion of the processing was done through third parties under the assessee's supervision, it still qualified as manufacturing activity. The Tribunal's decision was upheld, granting the deduction under section 80J.Definition of 'Industrial Undertaking':The Revenue argued that the assessee did not qualify as an industrial undertaking, but the Tribunal disagreed. The Tribunal found that part of the manufacturing activity was directly carried out by the assessee, and this direct involvement was sufficient to qualify as an industrial undertaking. The absence of a specific definition of 'industrial undertaking' in the Income-tax Act was noted, but the Tribunal's interpretation was supported by relevant case law. The Tribunal's decision was upheld, affirming that the assessee was entitled to deductions under sections 80HH and 80J.Conclusion:The High Court upheld the Tribunal's decision, ruling in favor of the assessee on all counts and against the Revenue. The judgment clarified that direct involvement in part of the manufacturing process was sufficient for the assessee to qualify for deductions under sections 80HH and 80J. The judgment will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench for further action.