Chillies Exports House vs Commissioner Of Income Tax

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1997 Supreme(SC) 722

1997(4) Supreme 181
SUPREME COURT OF INDIA
S.C. Agrawal & K.S. Paripoornan, JJ.
M/s. Chillies Exports House Ltd. -Appellant
versus
Commissioner of Income Tax -Respondent
Civil Appeal No. 3637 of 1983
with
Civil Appeal Nos. 8017 of 1995 and 15346 of 1996
All Decided on 22-4-1997
Counsel for the Parties :
For the Appellant : T.A. Ramachandran, and K. R. Ramamani, Sr. Advocates, Mrs. Janaki Ramachandran, Advocate.
For the Respondent : J. Ramamurthi, Sr. Advocate, Tara Chandra Sharma, B.K. Prasad, and C. Radha Krishnan, Advocates.

Headnote:TAXATION-Finance Act of 1974 -Section 2(8)-Assessment year 1974-75-Assessee, a public limited company, carrying on business of sale and purchase of chillies-Chillies are exported to USSR, USA and Ceylon-Chillies purchased by assessee company are sorted and graded as per Agmark specifications-Before export they are subjected to fumigation-Claim of assessee that it is engaged in the business of processing of goods and so entitled to concessional rate of income tax as per Finance Act- Whether assessee is an industrial company within the meaning of Finance Acts ?-Scope of ward processing contained in Finance Acts-Matter remitted of High Court for a denovo consideration according to law-Circular No. 347 dated 7.7.1982 issued by Central Board of Direct Taxes to be considered.
Held : The Madras High Court has eachewed from consideration one important activity carried on in the matter, namely, the activity relating to the fumigation by the treatment with methyl bromide on the ground that it was done by another (M/s. Mysodet Pvt. Ltd., Bangalore) on behalf of the assessee. That is an irrelevant or immaterial factor. The sole question is, whether on a consideration of the totality of the activities including the one relating to the fumigation by the treatment with methly bromide which enables the goods to be exported as a marketable commodity, amounted to the business of processing of goods. The High Court has omitted to consider the matter in that perspective. It appears that though the goods purchased by the assessee were chillies, it had to undergo a series of activities in order to make it marketable or more marketable in the export market-a sensitive market. These and other considerations require evaluation and an indepth analysis and assistance from technical persons may be required to ascertain how far and to what extent the various activities carried on, by the assessee to render the chillies purchased locally as one of export quality can be termed as "carrying on the business of processing of goods". The entire matter requires a second look. A better investigation into the different activities carried on by the assessee which resulted in making the goods fit for export and how far the cumulative effect of those activities will amount to "the processing of goods" should be arrived at in the light of the various decisions referred to hereinabove. (Para 8)

JUDGMENT

Paripoornan, J.-An indentical question of law arises for consideration in this batch of three appeals. The appellant is the same firm in all the three appeals. The appellant-assessee is a public limited company carrying on inter alia the business of exporting chillies to United States of America, USSR and Ceylon. The only question that arises for consideration is "whether the appellant is an industrial company as defined in the respective Finance Acts and can therefore be taxed only at 55% ? The revenue is the respondent in all the appeals.

2. Civil Appeal No. 3637 of 1983 is filed against the judgment of the Madras High Court dated 18.12.1981 in Tax Case No. 469 of 1978 (reference No. 289 of 1978) and relates to the assessment year 1974-75. Civil Appeal No. 8017 of 1995 is preferred against the judgment of the same High Court dated 4.4.1995 in Tax Case No. 998 of 1982 and relates to the assessment year 1976-77 (Judgment of the High Court is reported in 220 ITR 411). Civil Appeal No. 15346 of 1996 is preferred against the judgment of the same High Court dated 27.6.1996 in Tax Case (Reference) No. 893 of 1984 and relates to the assessment year 1977-78. Regarding the assessment year 1974-75, we are concerned with the Finance Act of 1974, Section 2(8)(c); for the assessment year 1976-77 Finance Act, 1976, section 2(9)(c); and for the assessment year 1977-78 Finance Act No. 2 of 1977 section 2(7)(c). A similar provision occurring as section 2(6)(c) of the Finance Act No. 2 of 1971 and relating to the income tax assessment of the appellant for the assessment year 1971-72 was construed by the Madras High Court and the decision was rendered on 8.12.1977 and the judgment is reported as Additional Commissioner of Income-Tax, Madras-I v. Chillies Export House Ltd.1.

3. Since the language of different Finance Acts relating to the issue in controversy is substantially the same, we shall quote the earliest provision contained in the Finance Act of 1974 relating to the assessment year 1974-75. It is as follows :-

"2. Income-tax. -

(8) For the purposes of this section and the First Schedule,-

(a) ...........

(b) ...........

(c) "Industrial Company" means a company which is mainly engaged in the business of generation of 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."

xxx xxx xxx xxx

"Paragraph F

In the case of a company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956),-

Rates of income-tax

I. In the case of a domestic company.-

(1) Where the company is a company in which the public are substantially interested,-

(i) in a case where the total income does not exceed Rs. 1,00,000

(ii) in a case where the total income exceeds Rs. 1,00,000

45 per cent. of the total income;

55 per cent. of the total income;

(2) Where the company is not a company in which the public are substantially interested, -

(i) in the case of an industrial company-

(a) on so much of the 55 per cent.;" total income as does not exceed Rs. 2,00,000

(emphasis supplied)

4. The basic facts relevant to all the three appeals are not in dispute. The question that arises for consideration is whether the appellant-assessee is an "industrial company" within the meaning of the Finance Acts aforesaid (hereinafter referred to as the Act) and the tax should be levied at the concessional rate of 55% only. The assessee, a public limited company, is carrying on the business of sale and purchase of chillies. Chillies are exported to USSR, USA and Ceylon. The chillies purchased by the assessee company are sorted and graded as per Agmark specifications. Better quality chillies are picked up and sorted out for expo

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