Hatchery operations are not manufacture or production where chicks arise through a natural biological process, denying industrial deductions.

A hatchery business was held not to amount to manufacture or production of articles or things under sections 32A and 80J of the Income-tax Act because chicks are formed through a natural biological process, merely assisted by incubation, fumigation and other mechanical controls. The Court construed "produce" in its statutory and legislative context, noting that poultry farming was treated separately from industrial undertakings. On that basis, the hatchery was also held not to be an industrial undertaking, and the assessees were denied development allowance and deductions under sections 32A, 80HH, 80HHA, 80-I and 80J.

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Issues: Whether a hatchery business amounts to manufacture or production of articles or things under sections 32A and 80J of the Income-tax Act, 1961; whether such business constitutes an industrial undertaking; and whether the assessees are entitled to the claimed investment allowance and deductions.

Issue (i): Whether a hatchery business amounts to manufacture or production of articles or things under sections 32A and 80J of the Income-tax Act, 1961.

Analysis: The expression "produce" was examined in its statutory context, not by isolated dictionary meaning. The legislative scheme showed a separate treatment for poultry farming through the earlier exemption under section 10(27) and its replacement by section 80JJ, indicating that poultry-related income was dealt with distinctly from industrial undertakings manufacturing or producing articles or things. The hatching of chicks was held to be the outcome of a natural and biological process, which the assessee only assisted by maintaining temperature, fumigation, incubation, and other mechanical controls. The Court held that the assessee did not itself bring about the formation of chicks.

Conclusion: A hatchery business does not amount to manufacture or production of articles or things for the purposes of sections 32A and 80J.

Issue (ii): Whether the hatchery business constitutes an industrial undertaking and whether the assessees are entitled to the claimed investment allowance and deductions.

Analysis: Reading sections 32A, 80J and the poultry-specific provisions together with the legislative history, the Court held that the statutory incentive for poultry farming was separate from the incentive granted to industrial undertakings. The fact that modern hatcheries use scientific methods, plant, machinery, research, and large-scale operations did not alter the character of the activity, because the essential event of hatching remained a natural process. The Court also declined to import meanings assigned to "articles or things" in the Fifth Schedule or under other statutes into these provisions.

Conclusion: The hatchery business is not an industrial undertaking and the assessees are not entitled to development allowance under section 32A or deductions under sections 80HH, 80HHA, 80-I and 80J.

Final Conclusion: The Revenue's view on the legal character of hatchery operations was upheld, the contrary High Court view was disapproved, and the assessees' claims to industrial-undertaking benefits were rejected.

Ratio Decidendi: A business is not one of manufacture or production of articles or things where the alleged output is brought into existence by a natural biological process merely assisted by mechanical means, and the statutory expression must be construed in its legislative context and scheme.

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