Ita/87/2009 Of M/S.tata Tea Limited v. Tara Agencies Reported In (2

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 21ST JANUARY 2010 / 1ST MAGHA 1931 ITA.No. 87 of 2009() -------------------- ITA.1138/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- M/S.TATA TEA LIMITED, TATA TETLEY DIVISION, (FORMERLY TATA TETLEY LIMITED) 73/74, K.P.K.MENON ROAD, WILLINGDON ISLAND, KOCHI-682 003, REPRESENTED BY ITS VICE PRESIDENT FINANCE MR.KRISHNAMOORTHY VENKATARAMANAN. BY SR. ADV. SRI.JOSEPH VELLAPPALLY ADV. SRI.JOSEPH KODIANTHARA SRI.TERRY V.JAMES RESPONDENT(S): --------------- THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1(1), ERNAKULAM. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 21/01/2010, ALONG WITH ITA NO.89 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. ....................................................................I.T. Appeal Nos.87 & 89 of 2009 .................................................................... Dated this the 21st day of January, 2010. C.R. JUDGMENT Ramachandran Nair, J. In the connected appeals filed by the assessee-company thequestion raised is whether the Income Tax Appellate Tribunal wasjustified in reversing the order of the first appellate authority byholding that appellant is not entitled to exemption from payment of taxunder Section 10B of the Income Tax Act on the profits derived fromit's 100% Export Oriented Unit engaged in blending, packing andexport of tea bags and tea packets. We have heard Senior counselSri.Joseph Vellappally appearing for the assessee-appellant and SeniorStanding Counsel Sri.P.K.R.Menon appearing for the respondent-Revenue. 2. Appellant-assessee has a division exclusively engaged inblending, packing and export of tea bags, tea packets and bulk tea -packs. This division enjoys recognition as a 100% Export Oriented ITA Nos.87&89/2009 Unit which is granted by the Development Commissioner, Ministry ofCommerce and Industry, Government of India. Income tax exemptionunder Section 10B of the Act claimed by the assessee for theassessment years 1996-97 onwards was granted upto the assessmentyear 2000-2001. However, for the assessment years 2001-2002 and2002-2003 to which these appeals relate, exemption was declined forthe reason that by Finance Act 2000 the definition of “manufacture”which included "processing" contained in Section 10B was deletedwith effect from 1.4.2001. The department's stand is that manufactureor production had a liberal meaning under the definition clausecontained in Section 10B until it's deletion with effect from theassessment year 2001-2002 which covered even processing andtherefore, blending and packing of tea for export was treated asmanufacture or production of an article qualifying for exemption.However, once the definition clause is deleted, “processing” does notqualify for exemption from the assessment year 2001-2002 onwards ITA Nos.87&89/2009 ITA Nos.87&89/2009 and so much so, assessee's activity being only processing notamounting to manufacture or production, is not entitled to exemptionunder Section 10B. However, Senior counsel appearing for theassessee has relied on recent Division Bench judgment of this court inI.T.A. No.100/2009 dated 17.8.2009 in the case of M/S.GIRNARINDUSTRIES declaring eligibility for exemption from payment of taxin respect of the income from same activity carried on by a unit in theSpecial Economic Zone at Kakkanad for the assessment year 2004-2005. The contention of counsel for the assessee is that scheme ofincome tax exemption available to units in the Special Economic Zoneunder Section 10A and units in the Free Trade Zone provided underSection 10AA and the exemption available to 100% Export OrientedUnits under Section 10B are very similar in nature and the wordings ofthe statutory provisions are similar in nature and so much so, going bythe earlier Division Bench judgment of this court assessee is entitled toexemption under Section 10B in respect of the profit derived by it from ITA Nos.87&89/2009 the 100% Export Oriented Unit. Senior counsel for the assessee alsostated that the assessee's case on facts is better because assessee is notonly engaged in packing of blended tea in retail and wholesale packs,but is also making a product called “tea bag” which is a product initself because it is not just packing of blended tea in packets. On goingthrough the provisions of Sections 10A, 10AA and 10B, we feel thescheme of exemption is very similar in nature and the wordings used inall the Sections are similar in nature. So much so, our decisionabovereferred should apply to this case as well. However, we noticefrom our judgment that there was an omission by this court to considerin that judgment the decision of the Supreme Court inCOMMISSIONER OF INCOME-TAX V. TARA AGENCIESreported in (2007) 292 ITR 444 relied on by the Senior StandingCounsel for the Revenue wherein the Supreme Court has clearly heldthat blending of tea does not amount to manufacture or production ofan article, but is only processing. Even though processing also ITA Nos.87&89/2009 qualified for exemption under the definition clause of “manufacture”contained in Section 10B and assessee was in fact granted exemptionupto the assessment year 2001-2002, the contention of counsel for theRevenue is that once the definition clause of “manufacture” is deletedfrom the assessment year 2001-2002, the processing that was until thencovered in the definition clause, no longer qualifies for exemption.The question, therefore, to be considered is whether the removal ofdefinition clause on manufacture by the Legislature through theamendment introduced by Finance Act, 2000 with effect from theassessment year 2001-2002 onwards is with the object of restricting thebenefit of exemption to 100% Export Oriented Units, only to goodsmanufactured or produced by them other than through processing. Inthe decision of this court abovereferred, this court considered theexemption clause in the light of the principles laid down by theSupreme Court in COMMISSIONER OF INCOME TAX VS.GWALIOR RAYON SILK MFG. CO. LTD. reported in (1992) 196 ITR 149, wherein the Supreme Court held as follows: “It is settled law that the expressions used in a taxingstatute would ordinarily be understood in the sense in whichit is harmonious with the object of the statute to effectuatethe legislative intention. It is equally settled law that, if thelanguage is plain and unambiguous, one can only lookfairly at the language used and interpret it to give effect tothe legislative intention. Nevertheless, tax laws have to beinterpreted reasonably and in consonance with justiceadopting a purposive approach. The contextual meaninghas to be ascertained and given effect to. A provision fordeduction, exemption or relief should be construedreasonably and in favour of the assessee.” ITR 149, wherein the Supreme Court held as follows: “It is settled law that the expressions used in a taxingstatute would ordinarily be understood in the sense in whichit is harmonious with the object of the statute to effectuatethe legislative intention. It is equally settled law that, if thelanguage is plain and unambiguous, one can only lookfairly at the language used and interpret it to give effect tothe legislative intention. Nevertheless, tax laws have to beinterpreted reasonably and in consonance with justiceadopting a purposive approach. The contextual meaninghas to be ascertained and given effect to. A provision fordeduction, exemption or relief should be construedreasonably and in favour of the assessee.” 3. In this context we notice that the decision of the SupremeCourt in TARA AGENCIES' case abovereferred was on assessee'sentitlement for weighted deduction on export market developmentallowance provided under Section 35B(1A) of the Act which is nolonger in the statute. In our view, the scheme of deduction of exportmarket development allowance earlier available and the scheme ofexemption on export profits are different in nature. It may be noticedthat exemption on export profit is available even to merchant exporters ITA Nos.87&89/2009 by virtue of the provisions contained under Section 80 HHC of theIncome Tax Act. Besides the exemption available on profits earned inexport business by traders, specific provisions are incorporated inSections 10A, 10AA and 10B providing for exemption to entire profitsearned by industrial units in Free Trade Zones, Special EconomicZones and industries which are declared 100% Export Oriented Units.While deciding the issue in the case of the industry located in theSpecial Economic zone in the case abovereferred, this court has takeninto account the definition of "manufacture" contained in Chapter IX of the Export Import Policy 2002-2007, which is as follows: ""Manufacture" means to make, produce, fabricate,assemble, process or bring into existence, by hand or bymachine, a new product having a distinctive name, characteror use and shall include processes such as refrigeration, re-packing, polishing, labelling, re-conditioning, repair,remaking, refurbishing, testing calibration, re-engineering.Manufacture, for the purpose of this Policy, shall alsoinclude agriculture, aquaculture, animal husbandry,floriculture, horticulture, pisciculture, poultry, sericulture,viticulture and mining." ITA Nos.87&89/2009 This court also noticed that the definition of "manufacture" contained in Section 2(r) of the Special Economic Zones Act, 2005, wasincorporated later under Section 10AA of the Income Tax Act witheffect from 10.2.2006, which is as follows: ""Manufacture" means to make, produce, fabricate,assemble, process or bring into existence, by hand or bymachine, a new product having a distinctive name, characteror use and shall include processes such as refrigeration,cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animalhusbandry, floriculture, horticulture, pisciculture, poultry,sericulture, viticulture and mining." The finding of this court is that the purpose of incorporation of Section 2(r) of the Special Economic Zones Act, 2005 into Section 10AA of the Income Tax Act is to provide a liberal meaning to the word"manufacture" which takes in even blending, refrigeration etc. It was noticed by this court that the definitions of "manufacture" contained inthe above definition clauses are very liberal which takes in evenprocessing like blending. The contention of counsel for the assessee is ITA Nos.87&89/2009 The finding of this court is that the purpose of incorporation of Section 2(r) of the Special Economic Zones Act, 2005 into Section 10AA of the Income Tax Act is to provide a liberal meaning to the word"manufacture" which takes in even blending, refrigeration etc. It was noticed by this court that the definitions of "manufacture" contained inthe above definition clauses are very liberal which takes in evenprocessing like blending. The contention of counsel for the assessee is ITA Nos.87&89/2009 that the purpose of removal of definition of "manufacture" fromSection 10B was not to provide a restricted meaning for that termcontained in the main Section because if that was so, then theLegislature would have only modified the definition clause. Further,definition of 100% Export Oriented Unit even after the amendment isretained in the said Section, which defines it as an undertaking whichhas been approved as a 100% Export Oriented Undertaking by theBoard appointed in this behalf by the Central Government in exerciseof powers conferred by Section 40 of the Industries (Development andRegulation) Act, 1951 and Rules made under that Act. It is pertinent tonote that the products for which assessee's unit is recognised as a 100%Export Oriented Unit are tea bags, tea in packets and tea in bulk packs.In fact, assessee is exclusively engaged in blending and packing of teafor export and is not manufacturing or producing any other article orthing. Still it is recognised as a 100% Export Oriented Unit by theconcerned authority within the meaning of that term contained in the ITA Nos.87&89/2009 definition clause of Section 10B of the Income Tax Act and thedepartment has no case that assessee's unit engaged in export of teabags and tea packets is not a 100% Export Oriented Unit. So muchso, in our view, if exemption is denied on the ground that productsexported are not produced or manufactured in the industrial unit of theassessee's 100% Export Oriented Unit, the same would defeat the veryobject of Section 10B. Further, industrial units engaged in the verysame activity; i.e. blending, packing and export of tea in the SpecialEconomic Zones and Free Trade Zones, will continue to enjoy taxexemption under Section 10A and Section 10AA respectively. Thestill worse position is that the appellant would be denied of exportexemption available under Section 80 HHC even to a merchantexporter. In our view, the decision of the Supreme Court in TARAAGENCIES case is not applicable for the purpose of consideringexemption for industries in the Export Processing Zones, Free TradeZones and to 100% Export Oriented Units covered by Sections 10, 10AA and 10B of the Income Tax Act. Therefore, following thejudgment of this court abovereferred we hold that assessee is entitled toexemption on the profit derived by it's 100% Export Oriented Unitengaged in blending, packing and export of tea bags and tea packets.Consequently we allow the appeals by reversing the orders of theTribunal and by restoring the orders of the first appellate authoritydeclaring appellant's entitlement for exemption. C.N.RAMACHANDRAN NAIRJudge pms V.K.MOHANANJudge