Ita/13/2009 Of Nishant Export v. Asst.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 25TH DAY OF JANUARY 2018 / 5TH MAGHA, 1939 I.T.A.No.13 of 2009 AGAINST THE ORDER IN I.T.A.NO.439/COCH/2006 DATED 14.08.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN. --- APPELLANT(S)/RESPONDENT IN I.T.A.:- ----------------------------------- NISHANT EXPORT, VII/179, JEW TOWN, KOCHI 2, REPRESENTED BY ITS MANAGING PARTNER, MR.MANISH.J.BAFNA. BY ADVS.SRI.E.K.NANDAKUMAR SRI.ANIL D. NAIR SRI.P.BENNY THOMAS RESPONDENT(S):- ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, MATTANCHERRY. BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.P.K.R.MENON. BY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25-01-2018,ALONG WITH I.T.A.NO.499 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- I.T.A.NO.13 OF 2009 APPENDIX APPELLANT'S ANNEXURES:- ------------------------ ANNEUXRE-ATRUE COPY OF THE ASSESSMENT ORDER FOR 2003-04 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX TO THE APPELLANT DATED 30.11.2005.ASSISTANT COMMISSIONER OF INCOME TAX TO THE APPELLANT DATED 30.11.2005. ANNEUXRE-B TRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DARTED 19.04.2006. ANNEXURE-CTRUE COPY OF THE TRIBUNAL ORDER DATED 14.08.2008 ISSUED TO THE APPELLANT. RESPONDENT'S ANNEXURES:- ------------------------- NIL. vku/- [ true copy ] “C.R.” K. Vinod Chandran & Ashok Menon, JJ. ------------------------------------------------------- I.T.A.Nos.13 of 2009 & 499 of 2009 ------------------------------------------------------- Dated, this the 25[th] day of January, 2018 JUDGMENT Vinod Chandran, J: We are often faced with situations in which, consideringan appeal under Section 260A of the Income Tax Act, 1961 [forbrevity “IT Act”] on pure questions of law the assessee and theDepartment are both disabled in having a finality to the matter forreason of the entire questions arising in the lis having not beendecided by the Tribunal. The instant cases are one such instancewhich would have warranted a remand after 10 years of the appealpending in this Court. 2. The appellant has raised the following questions of law, in both the appeals, for our consideration and decision: (i) In the facts and circumstances of the case ought not theIncome Tax Appellate Tribunal have held that appellantwas entitled for deduction under Section 10B of theIncome Tax Act 1961?Income Tax Appellate Tribunal have held that appellantwas entitled for deduction under Section 10B of theIncome Tax Act 1961? (ii) In the facts and circumstances of the case, ought not theTribunal have held that the conversion of ungarbledpepper to be fit for human consumption amounts toproduction and therefore is entitled for deduction underSection 10B of the Act?Tribunal have held that the conversion of ungarbledpepper to be fit for human consumption amounts toproduction and therefore is entitled for deduction underSection 10B of the Act? (i) In the facts and circumstances of the case ought not theIncome Tax Appellate Tribunal have held that appellantwas entitled for deduction under Section 10B of theIncome Tax Act 1961?Income Tax Appellate Tribunal have held that appellantwas entitled for deduction under Section 10B of theIncome Tax Act 1961? (ii) In the facts and circumstances of the case, ought not theTribunal have held that the conversion of ungarbledpepper to be fit for human consumption amounts toproduction and therefore is entitled for deduction underSection 10B of the Act?Tribunal have held that the conversion of ungarbledpepper to be fit for human consumption amounts toproduction and therefore is entitled for deduction underSection 10B of the Act? 3. The assessment years are 2003-04 and 2005-06 and theappeals before the Tribunal itself were filed in the year 2006 and 2007respectively. The issue was as to the eligibility of the assessee to claimdeduction under Section 10B of the IT Act as a hundred per centexport-oriented unit, which deduction is available to the extent of 90%of the profits and gains derived from the export business. Theassessee was engaged in the procurement and export of pepper. Theassessee procured un-garbled pepper, which by a process got garbled;making it fit for human consumption and was exported. The assesseehad been claiming allowance under Section 80HHC for its exportturnover as computed under sub-section (3); when it also had sale inthe domestic market. In the relevant assessment year the assesseeturned out to be a hundred per cent export-oriented unit, which is oneof the conditions for claiming the benefit under Section 10B. 4. The assessee's claim for allowance under Section 10Bwas rejected, on two counts. One that the process involving conversioninto garbled pepper was not a “manufacture” or “production” and it wasonly a processing which did not qualify for allowance under Section10B. The second ground on which the disallowance was made was thereconstitution of the partnership firm, which was found to visit theassessee with consequences arising under sub-section (2) of Section10B; disentitling them from the benefit. 5. On an appeal by the assessee, the first appellateauthority, on both the grounds, found in favour of the assessee. 6. The Tribunal found that processing of un-garbled pepper into garbled would not be a “manufacture” or “production”. Since theassessee was so dis-entitled to claim deduction under Section 10B,the Tribunal did not consider the other question as to whether therewas reconstruction of a business already in existence when thepartnership was reconstituted. 7. The learned Counsel for the assessee has relied on the decision in Tata Tea Ltd. v. Assistant Commissioner of Income Tax [(2010) 234 CTR (Ker) 90] to contend that blending and packing of teawas held to be a “manufacture” despite; for the relevant year, thedefinition of manufacture which included processing was deleted fromthe statute. 8. The learned Senior Counsel for the Department,however, would rely on earlier Division Bench decisions of this Court in Deputy Commissioner of Sales Tax, Ernakulam v. Sheth Brothers[(1983) 52 STC 40 & (1983) 52 STC 41], which are squarely applicableon facts. 9. The issue in Sheth Brothers was whether un-garbledand garbled pepper are two different commercial commodities underthe Kerala General Sales Tax Act, 1963 [for brevity “KGST Act”]. The - 4 - Court categorically held that 'whatever it be, as a matter of fact,ungarbled pepper and garbled pepper cannot be two differentcommercial commodities'. In the context of a precedent on identicalfacts, we are inclined to answer the questions of law framed againstthe assessee and in favour of the Revenue. 8. The learned Senior Counsel for the Department,however, would rely on earlier Division Bench decisions of this Court in Deputy Commissioner of Sales Tax, Ernakulam v. Sheth Brothers[(1983) 52 STC 40 & (1983) 52 STC 41], which are squarely applicableon facts. 9. The issue in Sheth Brothers was whether un-garbledand garbled pepper are two different commercial commodities underthe Kerala General Sales Tax Act, 1963 [for brevity “KGST Act”]. The - 4 - Court categorically held that 'whatever it be, as a matter of fact,ungarbled pepper and garbled pepper cannot be two differentcommercial commodities'. In the context of a precedent on identicalfacts, we are inclined to answer the questions of law framed againstthe assessee and in favour of the Revenue. 10. The learned Counsel appearing for the assesseeargued that the decision in Sheth Brothers was in the context of theKGST Act which may not have application under the IT Act. We areunable to countenance such a contention, especially since the findingthat un-garbled and garbled pepper are not two distinct commoditieswas not based on any specific provision in the statute. Yet again wenotice that under Section 80HHC the benefit is to any industrialundertaking carrying on 'manufacture' or 'processing'. The benefitunder Section 10B is to any undertaking carrying on 'manufacture' or'production'. Hence the statute itself recognizes the distinction between“manufacture”, “production” and “processing”. A manufacture orproduction necessarily has to lead to a different commodity while aprocessing may not result in a new commodity being brought out. We,hence, decline to entertain the contention as raised by the learnedCounsel. 11. Apposite here would be reference to Deputy Commr. of Sales Tax v. PIO Food Packers [(1980) 46 STC 63 (SC)]. Therein, the issue was whether after purchase, pineapple is washed, inedible portion removed and sliced; which slices are added with sugar as apreservative and canned under temperature and put in boiling water for sterilisation, gives rise to a different commodity. The learned Judgesheld so: “On a total impression, it seems to us, the pineappleslices must be held to possess the same identity as theoriginal pineapple fruit”. Their Lordships relied on the following judgment and the extracts whichare shown hereunder: “Referring to Anheuser-Busch Brewing Association v.United States [52.L.Ed.336, 338, the court said: “Manufacture implies a change, but every change is notmanufacture, and yet every change in an article is the result oftreatment, labour and manipulation. But something more isnecessary …...... There must be transformation; a new anddifferent article must emerge, 'having a distinctive name,character or use'.” And further: “At some point processing and manufacturing willmerge. But where the commodity retains a continuingsubstantial identity through the processing stage we cannotsay that it has been 'manufactured'.” The process of garbling to make pepper edible does not give rise to adifferent commodity distinct from the raw pepper purchased. 12. However, before leaving the matter, we have to notice that if the decision was otherwise, then there would have been a remand necessitated for considering whether the reconstitution of thefirm dis-entitles the assessee from claiming relief under Section 10B.Hence, it would always be ideal for the Tribunal to consider the entireissues arising in an appeal, so that the parties can have a quietus tothe matter. As we have noticed earlier, the appeal, on questions of law,is being considered after a decade-and-a-half from the assessmentyear. If the final fact finding authority, the Tribunal, has not consideredthe entire questions arising on facts, then a remand would benecessitated which would drag on the matter for another decade.In the context of the questions of law raised by theassessee having been answered against the assessee, the instantappeals are rejected. No costs. remand necessitated for considering whether the reconstitution of thefirm dis-entitles the assessee from claiming relief under Section 10B.Hence, it would always be ideal for the Tribunal to consider the entireissues arising in an appeal, so that the parties can have a quietus tothe matter. As we have noticed earlier, the appeal, on questions of law,is being considered after a decade-and-a-half from the assessmentyear. If the final fact finding authority, the Tribunal, has not consideredthe entire questions arising on facts, then a remand would benecessitated which would drag on the matter for another decade.In the context of the questions of law raised by theassessee having been answered against the assessee, the instantappeals are rejected. No costs. Sd/-K.Vinod ChandranJudge vku/- Sd/- Ashok MenonJudge [ true copy ]