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1979 Supreme(All) 346
High Court of Allahabad
C.S.P. Singh, R.R. Rastogi, JJ.
Tarai Development Corporation – Appellant
Versus
Commissioner of Income-Tax – Respondent
Income-tax Reference 268 of 1975
Decided On : Jul 11, 1979
R.K. Gaulati, Ashok Gupta
Processed seeds are treated as an article obtained by the process of manufacture or production for purposes of Section 80J of the Income-tax Act, 1961.
Headnote:
INCOME TAX ACT, 1961 - SECTION 80J - PROCESSING OF SEEDS - WHETHER ENTITLED TO RELIEF UNDER SECTION 80J - YES
Fact of the Case:
The assessee, an incorporated company, claimed exemption under Section 80J of the Income-tax Act, 1961, for income derived from the sale of processed seeds. The ITO disallowed the exemption, but the AAC allowed it. The Tribunal held that the assessee was not entitled to relief under Section 80J.
Finding of the Court:
The court held that the assessee was entitled to relief under Section 80J. It found that the assessee was an industrial undertaking and that the processing of seeds amounted to manufacture or production of an article. The court also noted that processed seeds were treated as an article obtained by the process of manufacture or production for purposes of Sections 33, 80B, and 80-I of the Act.
Issues: Whether the assessee was entitled to relief under Section 80J in respect of income derived from the sale of processed seeds.
Ratio Decidendi: The court held that the assessee was entitled to relief under Section 80J because: * The assessee was an industrial undertaking. * The processing of seeds amounted to manufacture or production of an article. * Processed seeds were treated as an article obtained by the process of manufacture or production for purposes of Sections 33, 80B, and 80-I of the Act.
Final Decision: The court answered the question in the negative, against the department and in favor of the assessee. The assessee was entitled to its costs, which were assessed at Rs. 200.
C.S.P. Singh, J.
1. THE Income-tax Appellate Tribunal (Delhi Bench "A") has at the instance of the assessee referred the following question of law for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that income derived by the assessee from processing of seeds was not entitled to relief under Section 80J of the Income-tax Act, 1961, for the assessment year 1970-71 ?"
2. THE assessee is an incorporated company and the case relates to the first year of assessment. It returned an income of Rs. 47,726 and claimed exemptions under Sections 80-I and 80J of the Act. THE exemptions claimed were disallowed by the ITO. THE AAC allowed the exemption claimed under Section 80J, but refused that claimed under Section 80-I. THE department filed an appeal before the Tribunal, which was followed by a cross-objection by the assessee. THE Tribunal held that the assessee was not entitled to relief under Section 80J, but allowed exemption under Section 80-I. THE controversy in the present reference is as to whether the assessee was entitled to relief under Section 80J in respect of income derived by the sale of processed seeds. In order to resolve this controversy, it is necessary to advert to the method by which processed seeds are obtained by the assessee. THE assessee distributes foundation seeds to farmers, who are shareholders in the company. After the seeds are sown by the shareholders the seed production assistants of the company inspect the fields and advise the farmers regarding the mechanical use of pesticides, etc. After the produce is harvested, seed-samples are collected by the officers of the company, and tested for purity, viability and moisture content in the laboratory of the University at Pantnagar. On the samples meeting the required standard, the farmers are asked to supply their produce. THE seeds supplied are again tested, and if found suitable, approved for processing. THE seeds are then graded and cleaned by mechanical processes, and sorted out in three categories. THE approved category is treated with mixtures of various chemicals, and then passed to a mixing tank where the seeds and chemicals are mixed mechanically, as a result of which the chemical mixed is coated on each grain, and, thereafter, it is bagged and kept in godowns where precaution is taken to avoid any damage by pests. THE assessee on the sale of these seeds derived income in respect of which deduction under Section 80J has been claimed. THE relevant part of Section 80J reads as follows :
"(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking.........there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains......
(4) This section applies to any industrial undertaking which fulfils all the following conditions, namely :--...
(iii) it manufactures or produces articles, or operates one or more cold storage plant or plants, in any part of India, and has begun or begins to manufacture or produce articles or to operate such plant or plants, at any time within the period of thirty-three years next following the 1st day of April, 1948, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking."
It will be noticed that the advantage of Section 80J can be availed of by the assessee only in case it is an industrial undertaking, and either manufactures articles or produces articles within a period of thirty-three years following 1st April, 1948. The Tribunal has found correctly that the assessee is an industrial undertaking, and there is no dispute about it. The company was incorporated on February 27, 1969, and commenced business on June 6, 1969. The assessment year in question is 1970-71, the financial year for w
