1982 (8) TMI 20 - HC - Income Tax

High Court: Tea blending qualifies as 'processing of goods' under Finance Act, 1978.

The High Court ruled in favor of the assessee, holding that the blending of tea constituted 'processing of goods,' qualifying the assessee as an ... Industrial Company, Processing, Tax Concession Issues Involved:1. Whether the assessee qualifies as an 'industrial company' under clause 2(7)(c) of the Finance Act, 1978.Issue-wise Detailed Analysis:1. Qualification as an 'Industrial Company':The primary issue in this case is whether the assessee, engaged in the business of purchasing, blending, and selling tea, qualifies as an 'industrial company' under clause 2(7)(c) of the Finance Act, 1978. The relevant section defines an 'industrial company' as one mainly engaged in the business of generation or distribution of electricity, construction of ships, manufacture or processing of goods, or mining.The assessee claimed that its activities of blending tea constituted 'processing of goods,' thereby qualifying it for the concessional tax rate applicable to industrial companies. The Income Tax Officer (ITO) and the Commissioner (Appeals) both rejected this claim, stating that blending tea did not result in the manufacture or processing of goods since the tea remained tea and no new product emerged.The Tribunal upheld the decision of the Commissioner (Appeals), emphasizing that the blending of tea did not produce a commercially new and distinct article. The Tribunal referenced the Calcutta High Court decision in Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. [1978] 113 ITR 718 and the Kerala High Court decision in CIT v. Casino (Pvt.) Ltd. [1973] 91 ITR 289, which similarly interpreted the term 'manufacture.'The assessee appealed to the High Court, arguing that the process of blending tea involved significant operations such as testing, assigning blend numbers, and various manual processes, which should qualify as 'processing of goods.'The High Court examined the Supreme Court's decision in Chowgule & Co. Ltd. v. Union of India [1981] 47 STC 124, where the blending of different qualities of ore was considered 'processing' under the Central Sales Tax Act. The Supreme Court noted that blending ore to meet contractual specifications involved changes in the chemical and physical composition, qualifying it as 'processing.'Applying this principle, the High Court concluded that the blending of tea, involving various operations and changes in the tea's characteristics, also constituted 'processing.' The Court emphasized that the method of blending (manual or mechanical) was immaterial; what mattered was the change in the commodity's characteristics.The High Court disagreed with the Tribunal's reliance on the Kerala High Court's decision, noting that the Supreme Court's broader interpretation of 'processing' should apply. The Court also rejected the argument that manual operations could not constitute 'processing,' as the Supreme Court had expressly negated this view.In conclusion, the High Court held that the assessee's activities did qualify as 'processing of goods,' making it an 'industrial company' under clause 2(7)(c) of the Finance Act, 1978. The question was answered in the affirmative, in favor of the assessee. The parties were directed to bear their own costs.