2007 Supreme(SC) 939

2007(5) Supreme 480
Supreme Court of India
(From Kerala High Court)
Ashok Bhan & Dalveer Bhandari, JJ.
Commissioner of Income Tax, Kerala — Petitioner
versus
M/s Tara Agencies — Respondent
Appeal (civil) 3568 of 2001
Decided on : 09-07-2007
(Arising from the judgment dated 18th January, 2000 passed in ITR No. 10 of 1996 by the High Court of Kerala at Ernakulam.)

Important Point
In order to derive benefit under section 35B (1A), the goods have to be either manufactured or produced by the small scale industrial undertaking. The term “processing” has not been included in section 35 B(1A) of the Act, therefore, the respondent is not entitled for weighted deduction under section 35B(1A) of the Act. (Para 68)

Headnote:Income Tax Act, 1961, Section 35B (1A) – Explanation – Interpretation of - Small-scale exporter means a person who exports goods manufactured or produced in any small scale industrial undertaking or undertakings owned by him - Assessee engaged in purchase of different qualities of tea and blending the same for the purpose of export - Whether entitled to weighted deduction on expenditure incurred for its export for the A.Y 1979-80 under the said section? – Income Tax Officer rejected the claim of the assessee – Aggrieved by the decision of ITO, respondent filed appeal before Commissioner of Income Tax (Appeals) – Appeal by respondent was allowed by the Commissioner of Income Tax (Appeals) - Endorsed by the Income Tax Appellate Tribunal which held that the respondent assessee was entitled to weighted deduction under section 35B (1A) of the Act.- Revenue preferred appeal before High Court – High Court dismissed appeal applying the test: whether the processing of original commodity brought into existence a commercially different and distinct commodity? High Court reiterated the decision of the Tribunal- Revenue filed appeal against the decision of High Court.

       Held : The activity of the respondent assessee in the present case also amounts to “processing”. Section 35(1)(b) governing the instant case incorporated the terms “manufacture” and “production” and omitted the term “processing”. Therefore, the respondent assessee cannot be extended the benefit of section 35(1)(B) of the Income Tax Act. (Para 59)

       Held : The processing is only an intermediate stage of production and/or manufacture. The processing of tea of the respondent assessee falls short of either manufacturing or production, therefore, because of the language of section 35(1)(B) of the Income Tax Act, the respondent assessee cannot be extended the benefit which has been extended to the assessees in Nilgiris and Chowgules cases. (Para 60)

       Since the legislature in its wisdom has not used the term processing in section 35(1)(B) of the Act, it would be erroneous to incorporate the word in the section and then interpret the Statute. (Para 61)

       On clear construction and interpretation of section 35B(1A) of the Act, we are clearly of the opinion that the respondents activity amounts to “processing” only and the activity does not amount to either “production” or “manufacture”. The term “processing” has not been included in section 35 B(1A) of the Act, therefore, the respondent is not entitled for weighted deduction under section 35B(1A) of the Act. (Para 68)

       Finance Act, 1978, section 35B (1A) & (2) – Whether the assessee’s activity of blending different varieties of tea to produce an end product falls within the meaning of this section to be eligible for deduction - Construction and meaning of terms “manufacture”, “production” and “process” -The Tribunal disallowed claim on the ground that there was no processing as the end product remained the same and the entire process was manual. The High Court allowed appeal by the respondent and held that activity of the assessee amounted to processing.

       Held : We have to bear in mind a significant difference in the language employed in section 8 of the Bombay Sales Tax Act, 1953 in Nilgiris case and the language of section 35(1)(B) of the Income Tax in the present case. The difference is that the term “processing which has been specifically incorporated in Nilgiris case has been specifically omitted in the present case. Similarly, in Chowgules case, the term” processing has been incorporated in the statute and the activities of the assessees both in Chowgules and Nilgiris cases were held to be processing and, in these respective cases, the assessees were held to be entitled to the benefit under the respective statutes. In the present case, same benefit cannot be extended to the respondent assessee because the word processing has been specifically omitted in the statute. The activities of the assessees both in Nilgiris and Chowgules cases amount to processing. The activity of the respondent assessee in the present case also amounts to processing. Section 35(1)(b) governing the instant case incorporated the terms manufacture and production and omitted the term processing. Therefore, the respondent assessee cannot be extended the benefit of section 35(1)(B) of the Income Tax Act. (Para 59)

       Interpretation of Statutes - It is the bounden duty and obligation of the court to interpret the statute as it is. It is contrary to all rules of construction to read words into a statute which the legislature in its wisdom has deliberately not incorporated. (Para 67)

       Income Tax Act, 1961, Section 35(1)(B) - Bombay Sales Tax Act, 1953, Section 8 – Distinction between - A significant difference in the language employed in section 8 of the Bombay Sales Tax Act, 1953 in Nilgiri’s case and the language of section 35(1)(B) of the Income Tax in the present case. The difference is that the term “processing” which has been specifically incorporated in Nilgiri’s case has been specifically omitted in the present case. (Para 59)

       Central Excise Act, 1944 – Section 2(f) Parts (i) and (ii) – The term “manufacture” – Definition of – Discussed - ’Manufacture’ includes any process incidental or ancillary to the completion of a manufactured product; and Which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to “manufacture” – The expressions “manufacture”, “production” and “process” – elaborated and discussed.

       Facts of the Case :

       The assessee is a registered firm engaged in the business of export of tea. The respondent assessee purchased tea of diverse grades and brands and blended the same by mixing different kinds of tea. In this appeal, we are called upon to examine whether the business activity of the respondent assessee falls within the ambit of production, manufacturing or processing? The respondent assessee would be entitled to weighted deduction under section 35B(1A) of the Act in case the goods exported were manufactured or produced in small scale industrial undertaking but, in case it falls short of production or manufacture, then the respondent would not be entitled to the benefit under section 35B(1A) of the Act. The said benefit, according to the relevant statute, is restricted to only goods produced or manufactured in the small scale industrial undertaking for export. The benefit cannot be extended in case the goods are merely processed by the small scale industrial undertaking. In order to derive benefit under section 35B (1A) the goods have to be either manufactured or produced by the small scale industrial undertaking.

       The Income Tax Officer disallowed the claim of the respondent assessee.

       The respondent assessee aggrieved by the said order preferred an appeal before the Commissioner of Income Tax (Appeals). The appeal filed by the respondent assessee was allowed on the ground that the respondent assessee was a small scale industrial unit in the light of certificate of registration granted to it by the Directorate of Industries, Kerala State.

       In an appeal filed by the appellant against the decision of the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal endorsed the view of the Commissioner of Income Tax (Appeals).

       The Tribunal in its order relied on the decisions of the Calcutta High Court in G.A. Renderian Ltd. v. Commissioner of Income-Tax, West Bengal-I 1984 (145) ITR 387 and also of this court in Chowgule & Co. (P) Ltd. & Another v. Union of India & Others, (1981) 1 SCC 653 and held that the respondent assessee was entitled to weighted deduction under section 35B (1A) of the Act.

       The Revenue challenged the judgment of the Tribunal before the High Court. The High Court upheld the judgment of the Tribunal. The Revenue, aggrieved by the impugned judgment of the High Court, has preferred this appeal.

       Mr. Mohan Parasaran, learned Additional Solicitor General appearing on behalf of the appellant submitted that the activity of the respondent, namely, blending of tea, packaging and selling the same does not amount to manufacture or production of a commercially new and different product. According to Mr. Parasaran, the activity of the respondent assessee can at the most amount to processing of tea. According to him, the processing is an intermediate stage of the final product. Therefore, the respondent assessee is not entitled to the weighted deduction under section 35B (1A) of the Act because under the said section, the benefit has been confined to the exporters engaged in the export of goods manufactured or produced in any small scale industrial undertaking owned by them. According to Mr. Parasaran, there is no doubt that the assessee has a small scale undertaking but its activity does not fall either in the category of manufacturing or producing. The benefit under this section can be extended to the assessee if the goods exported are either manufactured or produced and not when the goods are merely processed.

       On the other hand, Mr. Bhargava Desai, learned counsel appearing on behalf of the respondent assessee submitted that the respondent buys various varieties of packed tea of different grades and prices in public auction covering various tea gardens. These diverse varieties of tea are all different in size, liquor and other characteristics of tea. The respondent assessee has to make purchases in order to meet the requirement of blending to achieve the same quality, taste and form of tea which the respondent has to sell to its customers. According to Mr. Desai, the present case is squarely covered by the decision in Chowgules case and consequently the respondent assessee is entitled to the weighted deduction under section 35B (1A) of the Act.

       Findings of the Court :

       The respondent assessee would be entitled to weighted deduction under section 35B(1A) of the Act in case the goods exported were manufactured or produced in small scale industrial undertaking but, in case it falls short of production or manufacture, then the respondent would not be entitled to the benefit under section 35B(1A) of the Act.

       Result : Appeal allowed.