New Nandi Seeds Corporation v. The Commissioner Of Income Tax(Appeals) Xviii, & 1....Opponent(S

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 538 of 2004 With TAX APPEAL NO. 1512 of 2006 With TAX APPEAL NO. 2399 of 2010 With TAX APPEAL NO. 2400 of 2010 TO TAX APPEAL NO. 2401 of 2010 With TAX APPEAL NO. 215 of 2007 With TAX APPEAL NO. 217 of 2007 TO TAX APPEAL NO. 218 of 2007 With TAX APPEAL NO. 1706 of 2007 With TAX APPEAL NO. 1100 of 2007 With TAX APPEAL NO. 935 of 2009 With TAX APPEAL NO. 936 of 2009 With TAX APPEAL NO. 937 of 2009 With TAX APPEAL NO. 880 of 2009 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER O/TAXAP/538/2004 JUDGMENT ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ NEW NANDI SEEDS CORPORATION....Appellant(s) VersusTHE COMMISSIONER OF INCOME TAX(APPEALS) XVIII, & 1....Opponent(s) ================================================================ Appearance: MR SN SOPARKAR, ADVOCATE for the Appellant(s) No. 1MR NITIN K MEHTA, ADVOCATE for the Opponent(s) No. 1 - 2 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 12/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of these appeals, the appellant of Tax Appeal No. 538/2004, has challenged the judgment and order dated 29.10.2004 passed by the Income Tax Appellate Tribunal, Ahmedabad O/TAXAP/538/2004 JUDGMENT Bench “A” in ITA No. 1110/Ahd/2004 for AY 2000-01. 1.1In Tax Appeal No. 1512/2006, the Revenue has challenged the judgment and order dated 25.4.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 867/Ahd/2005 for AY 2001-02. 1.2In Tax Appeal No. 2399/2010, Tax Appeal No. 2400/2010 & Tax Appeal No. 2401/2010, the Revenue has challenged the judgment and order dated 14.6.2010 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1479 & 1480, 1481/Ahd/2007 for AY 1999-00, 2002-03 & 2003-04. 218/2007, the Revenue has challenged the judgment and order dated 16.2.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1894, 1983 and 615/Ahd/2000 for AY 1997-98, 1994-95 and 1996-97. 1.4In Tax Appeal No. 1706/2007, the Revenue has challenged the judgment and order dated 30.12.2005 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1601/Ahd/2001 for AY 1998-99. 1.5In Tax Appeal No. 1100/2007, the Revenue has challenged the judgment and order dated 19.1.2007 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 2317/Ahd/2006 for AY 2003-04. 1.6In Tax Appeal No. 935/2009, the Revenue has challenged the judgment and order dated 6.10.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1668/Ahd/2008 for AY 2003-04. 1.7In Tax Appeals Nos. 936/2009 and Tax AppealNo. 937/2009, the Revenue has challenged the judgment and order dated 25.4.2008 passed by Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1448 & 1449/Ahd/2004 for AY 1991-92 and 2000-01. Revenue has challenged the judgment and order dated 30.12.2005 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1601/Ahd/2001 for AY 1998-99. 1.5In Tax Appeal No. 1100/2007, the Revenue has challenged the judgment and order dated 19.1.2007 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 2317/Ahd/2006 for AY 2003-04. 1.6In Tax Appeal No. 935/2009, the Revenue has challenged the judgment and order dated 6.10.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1668/Ahd/2008 for AY 2003-04. 1.7In Tax Appeals Nos. 936/2009 and Tax AppealNo. 937/2009, the Revenue has challenged the judgment and order dated 25.4.2008 passed by Income Tax Appellate Tribunal, Ahmedabad in ITA No. 1448 & 1449/Ahd/2004 for AY 1991-92 and 2000-01. 1.8In Tax Appeal No. 880/2009, the Revenue has challenged the judgment and order dated 12.9.2008 passed by the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 2593/Ahd/2008 for AY 2005-06. O/TAXAP/538/2004 JUDGMENT 2.1 While admitting Tax Appeal No. 538/2004 on 27.12.2004, this Court has framed the following substantial question of law: “Whether on the facts and in the circumstances of the case, the appellant assessee is entitled in law to the deduction u/s. 80I and 80IA of the Income-tax Act, 1961 for the assessment year 2000-01 in question ?” 2.2 While admitting Tax Appeal No. 1512/2006 on 25.7.2007, this Court has framed the following substantial question of law: circumstances of the case the Appellate Tribunal was right in law and facts in holding that the activity oftesting,gradation,drying, fumigation and coating of seeds would be an activity of manufacturing and production of seeds and thereby, entitled to deduction us/ 80IA of the Income Tax Act, 1961 ? 2.3 While admitting Tax Appeal No. 2399/2010 O/TAXAP/538/2004 JUDGMENT on 23.11.2011, this Court has framed the following substantial questions of law: (I) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow deductions u/s. 80I of the Act of Rs. 71,70,683/- and u/s. 80IA of the Act of Rs. 10,48,158/- ?” (II)Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 15,94,656/- being the processing expenses relating to certified seeds ?” 2.4 While admitting Tax Appeal No. 2400/2010 on 23.11.2011, this Court has framed the following substantial questions of law: (I) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow deductions u/s. 80IA of the Act of Rs. 14,43,077/- ?” (II)Whether the Appellate Tribunal is O/TAXAP/538/2004 JUDGMENT right in law and on facts in deleting the addition of Rs. 18,17,666/- being the processing expenses relating to certified seeds ?” 2.5 While admitting Tax Appeal No. 2401/2010 on 23.11.2011, this Court has framed the following substantial questions of law: (I) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow deductions u/s. 80IB of the Act of Rs. 117,75,770/- ?” (II)Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 12,90,861/- being the processing expenses relating to certified seeds ?” 2.6 While admitting Tax Appeal No. 215/2007 on 20.9.2007, this Court has framed the following substantial questions of law: (A) Whether on the facts and circumstances of the case, the O/TAXAP/538/2004 JUDGMENT 2.5 While admitting Tax Appeal No. 2401/2010 on 23.11.2011, this Court has framed the following substantial questions of law: (I) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow deductions u/s. 80IB of the Act of Rs. 117,75,770/- ?” (II)Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 12,90,861/- being the processing expenses relating to certified seeds ?” 2.6 While admitting Tax Appeal No. 215/2007 on 20.9.2007, this Court has framed the following substantial questions of law: (A) Whether on the facts and circumstances of the case, the O/TAXAP/538/2004 JUDGMENT Appellate Tribunal was right in holding that the activity of the respondentwasamanufacturing activity with regard to trading of seeds ?(B) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the processing charges on seeds incurred as handling and pesticide charges ?” 2.7 While admitting Tax Appeal No. 217/2007 on 20.9.2007, this Court has framed the following substantial questions of law: (A) “Whether on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the reopening of assessment was bad in law ? (B) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the activity of the respondentwasamanufacturing activity with regard to trading of seeds ?” 2.8 While admitting Tax Appeal No. 218/2007 on 20.9.2007, this Court has framed the following substantial question of law: 2.9 While admitting Tax Appeal No. 1706/2007 on 3.3.2008, this Court has framed the following substantial questions of law: O/TAXAP/538/2004 JUDGMENT (B) Whether on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the processing charges on seeds incurred as handling and pesticide charges ?” 2.10While admitting Tax Appeal No. 1100/2007 on 14.12.2007, this Court has framed the following substantial question of law: 935/2009, 936/2007 & 937/2009 on 10.12.2004, this Court has framed the following substantial question of law: “Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) in deleting the addition of Rs. O/TAXAP/538/2004 JUDGMENT 12,60,251/- made on account of processing charges for certified seeds ?” 2.12While admitting Tax Appeal No. 880/2009 on 7.9.2010, this Court has framed the following substantial question of law: “Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in confirming the deletion of addition of Rs. 17,61,888/- made on account of processing charges of certified seeds ?” 3.At the out set, it is to be noted that in Tax Appeal No. 538/2004, the assessee has challenged the order dated 29.10.2004 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “A” in ITA No. 1110/Ahd/2004 for AY 2000-01, whereby, the Tribunal has held against the assessee and in favour of Revenue holding that process of seeds is not amanufacturing process, whereas, in other Tax Appeals, the Tribunal after relying on the O/TAXAP/538/2004 JUDGMENT decision of this Court in the case of Commissioner of Income-Tax v. Navbharat Seeds Pvt. Ltd. which has been confirmed by the Hon’ble Supreme Court, has taken the view that the processing of seeds is a manufacturing process. O/TAXAP/538/2004 JUDGMENT decision of this Court in the case of Commissioner of Income-Tax v. Navbharat Seeds Pvt. Ltd. which has been confirmed by the Hon’ble Supreme Court, has taken the view that the processing of seeds is a manufacturing process. Question: Whether processing of seeds is manufacturing activity ? 4.Learned counsel Mr. Soparkar appearing for the assessee while making his submissions has taken us through the process which is certified by the Director, Gujarat State Seed Certification Agency, Ahmedabad, which is produced in the additional paper-book, reads as under: “The field level activities mentioned in the enclosed note, are carried out by the growers under the supervision an guidance of staff of the producer i.e. M/s. New Nandi Seeds Corporation, Ahmedabad from sowing of foundation seed till harvest. The officers of Seed Corporation Agency, inspect the seed plot frequently and take the count to ascertain the purity of standing crop. All activities in respect of O/TAXAP/538/2004 JUDGMENT processing, packing and storage at Processing Plant of the producer i.e. M/s. New Nandi Seeds Corporation, where the growers are not in picture at all.” 4.1 Mr. Soparkar has taken us through the number of notes which was submitted for production and storage of the Bajra seeds and also the table whereby Navbharat Seeds Pvt. Ltd. and process done by the Nandi Seeds Corporation has been narrated with the certificate issued by the Gujarat State Seed Certification Agency, Ahmedabad and pointed out that the issue which was identical covered by the decision of the Tribunal in the case of Navbharat Seeds Pvt. Ltd., which was carried in appeal by the Department by way of Tax Appeal No. 58/1993, where the Tribunal’s view was confirmed by this Court on 13.7.1993. The same was also carried before the Hon’ble Supreme Court which was also confirmed. 4.2Mr. Soparkar learned counsel thereafter has taken us through the decision of the Hon’ble Supreme Court in the case of State of Rajsthan and others v. Rajsthan Agriculture Input Dealers’ Association and others, reported in (1996)5 SCC 479, where, the Hon’ble Supreme Court has observed in para- 4 & 7 as under: “4. Strong reliance was placed by Mr. Aruneshwar Gupta, learned counsel for the appellants on Kishal Lal v. State Aruneshwar Gupta, learned counsel for the appellants on Kishal Lal v. State of Rajsthan and Ors,- 1990 Suppl.) SCC 742 to contend that for the purposes of Section 2(1)(i) and the Schedule of the Act, the expression “agricultural produce” is an inclusive definition which could even include processed items from foodgrains. Thus processed foodgrains on becoming seeds, as alleged by the respondents would all the same remain foodgrains requiring the respondents to take licence under the Act. Secondly, it was urged that by virtue of Notification dated 16[th ]May, 1980, certified seeds and foundation seeds of a description alone were excluded from the purview of the Schedule and no other seed. commodity distinct from foodgrains as commonly understood. That distinction was borne in mind by the High Court in allowing the writ petition of the respondents, and in our view rightly.” 4.3 Mr. Soparkar learned counsel has also relied on the decision of the Hon’ble Supreme Court in the case of Krishi Utpadan Mandi Samiti and others v. Pilibhit Pantnagar Beej Ltd. & Anr., reported in (2004)1 SCC 391, and contended that any seeds produced, which is not fit for human consumption, is a manufacture process. He has also relied on para-34, 35 and 40 of the above decision, which reads as under: commodity distinct from foodgrains as commonly understood. That distinction was borne in mind by the High Court in allowing the writ petition of the respondents, and in our view rightly.” 4.3 Mr. Soparkar learned counsel has also relied on the decision of the Hon’ble Supreme Court in the case of Krishi Utpadan Mandi Samiti and others v. Pilibhit Pantnagar Beej Ltd. & Anr., reported in (2004)1 SCC 391, and contended that any seeds produced, which is not fit for human consumption, is a manufacture process. He has also relied on para-34, 35 and 40 of the above decision, which reads as under: “34.It was submitted by the first respondent that all the abovementioned stages of certification are as per the provisions of the Rules and that right from the inception to the time when the seed is sold in the market, it is done under regulation issued to govern each and every stage of seed production and certificates are only issued after the seed is found to achieve the minimum standards of genetic identity and genetic purity. It was also pointed out that no such certification standards exist for foodgrains sold by farmers to the Mandi Samiti. Thus, the production of seeds is an integrated process and needs to be regulated at every stage, right from the inception, in order to maintain genetic identity and genetic purity. 35. There is no nexus between whether the seed has been chemically treated or not and the levy of market fees. Since the seed is a separate commodity from grain, the same is not covered under Schedule I of the Adhiniyam and as such no market fee is leviable over the sale and/or purchase of the same. 40. Wheatseedconvertedinto certified seed is unfit for human consumption and, therefore, market fee levy is impermissible.” 4.4 Mr. Soparkar learned counsel has also relied on the decision of the Hon’ble Supreme Court in the case of Aspinwall and Co. Ltd. vs. Commissioner of Income-tax, reported in [2001] 251 ITR 323, more particularly, at page 326, where the Hon’ble Supreme Court has described nine processes, which reads as under: “It was noticed that the Tribunal had inspected the factory premises to have a first-hand knowledge of the operations carried on by the assessee-company. The inspection was made by the Tribunal in the presence of both thepartiesthroughtheir representatives.Thefactual O/TAXAP/538/2004 JUDGMENT observation of the Tribunal as a result of the inspection found that the following nine processes are result of the inspection found that the following nine processes are involved in curing of coffee: (1) Receipt of coffee from the estates; (2) Storage of coffee in covered godowns; (3) Drying of coffee to the required standards prescribed by the coffee board in drying yards; (4) Hulling/pealing/polishing; (5) Grading of coffee mechanically; (6) Colour sorting; (7) Garbling and manual grading; (8) Out-turning of garbled coffee; and (9) Bulking. The Tribunal also found that to deal with the nine processes, the assessee has the factory area where godowns for storage of uncured/clean coffee, coffee drying yards, machine rooms, garbling sheds, etc., are located.” 4.5 Further while concluding at page 327, the Hon’ble Supreme Court has observed as under: “The word “manufacture” has not been defined in the Act. In the absence of O/TAXAP/538/2004 JUDGMENT godowns; (3) Drying of coffee to the required standards prescribed by the coffee board in drying yards; (4) Hulling/pealing/polishing; (5) Grading of coffee mechanically; (6) Colour sorting; (7) Garbling and manual grading; (8) Out-turning of garbled coffee; and (9) Bulking. The Tribunal also found that to deal with the nine processes, the assessee has the factory area where godowns for storage of uncured/clean coffee, coffee drying yards, machine rooms, garbling sheds, etc., are located.” 4.5 Further while concluding at page 327, the Hon’ble Supreme Court has observed as under: “The word “manufacture” has not been defined in the Act. In the absence of O/TAXAP/538/2004 JUDGMENT a definition of the word “manufacture” it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity.” “Adverting to the facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and different article which is recognised in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from the raw material from which it was manufactured. A distinct change comes about in the finished product. The submission of learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted.Theprocessisa manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may O/TAXAP/538/2004 JUDGMENT consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffeee beans which is a commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity.” 4.6In that view of the matter, Mr. Soparkar learned counsel has contended that it is manufacturing process. Mr. Soparkar learned counsel has also sought reliance on the following decisions of the Hon’ble Supreme Court; namely in the case of Income Tax Officer v. Arihant Tiles & Marbles P. Ltd., reported in 320 ITR 79, and in the case of Commissioner of Income Tax v. Oracle Software India Ltd., reported in 320 ITR 546 and in the case ofIndia Cine Agencies v. Commissioner of Income-Tax, reported in 308 ITR 98. He has also drawn our attention to the decision of the Allahabad High Court in the the case ofIndia Cine Agencies v. Commissioner of Income-Tax, reported in 308 ITR 98. He has also drawn our attention to the decision of the Allahabad High Court in the case of Tarai Development Corporation v. Commissioner of Income-Tax, Lucknow, reported in 120 ITR p. 342, where a similar question arose for consideration and process held to be the manufacturing process. 4.7He has also relied on the decision of the Madras High Court in the case of the case ofIndia Cine Agencies v. Commissioner of Income-Tax, reported in 308 ITR 98. He has also drawn our attention to the decision of the Allahabad High Court in the case of Tarai Development Corporation v. Commissioner of Income-Tax, Lucknow, reported in 120 ITR p. 342, where a similar question arose for consideration and process held to be the manufacturing process. 4.7He has also relied on the decision of the Madras High Court in the case of Commissioner of Income-Tax v. E.I.D. Parry (India) Ltd., reported in 218 ITR 713 and the decision of the Bombay High Court in the case of Commissioner of Income-Tax v. Jalna Seeds Processing and Refrigeration Co. Ltd., reported in 246 ITR 156 and contended that the Tribunal has committed an error in holding that it is not a manufacturing process. 4.8 Mr. Soparkar learned counsel has also drawn our attention to para-5 of the judgment and order of Tribunal, which reads as under: “5. After considering the rival submissions and going through the material on record, we find that the assessee is engaged in processing and distribution of agricultural seeds. The assessee purchases and supplies foundation seeds to growers and the same are cultivated by agriculturists in their fields and they are offered to assessee to purchase. Assessee purchases the seeds subject to his germination test. In case seeds are not upto the mark the same are returned back to the growers at their risk. Even transport charges are born by the growers. It shows that assessee has no risk dealing with the growers. Assessee purchases the seeds after his so called random test of germination. Fumigation is applied on seeds if these are to be stored for longer period. Prior to it seeds testing, seeds gradation, seeds drying is done whichdoesnotinvolveany manufacturing or production activity. As wee have mentioned earlier that fumigation is done only on the seeds which are to be stored but even after fumigation it does not change the nature of seeds at all, it simply make them resistant to certain pest at storage level. As far as application of pesticide is concerned, it is done so that seeds may not be damaged at germination level. But seeds remain the same. There is neither genetic or any other irreversible chemical change takes place in the seeds purchased by assessee. The various case laws relied on by assessee do not help the assessee because issue in those case on by assessee do not help the assessee because issue in those case was that good grains were changed into seeds as held by the Hon. Supreme Court in the judgment dated 28.11.2003 in Case No. Appeal (Civil) 6301 of 2001 in the case of Krishi Utpadan Mandi Samiti & Ors. v. Pilibhit Pantnagar Beej Ltd. & Anr.(s) as under:- “It is undoubtedly true that food grains per se could be used as under:- “It is undoubtedly true that food grains per se could be used as seeds for being sown and achieving germination, but in that form they retain the dual utility of being food grains as well as seeds. By process of coating and applying insecticides, O/TAXAP/538/2004 JUDGMENT on by assessee do not help the assessee because issue in those case was that good grains were changed into seeds as held by the Hon. Supreme Court in the judgment dated 28.11.2003 in Case No. Appeal (Civil) 6301 of 2001 in the case of Krishi Utpadan Mandi Samiti & Ors. v. Pilibhit Pantnagar Beej Ltd. & Anr.(s) as under:- “It is undoubtedly true that food grains per se could be used as under:- “It is undoubtedly true that food grains per se could be used as seeds for being sown and achieving germination, but in that form they retain the dual utility of being food grains as well as seeds. By process of coating and applying insecticides, O/TAXAP/538/2004 JUDGMENT otherchemicalsandpoisonous substances to the good-grain meant to be utilised as seeds, one of its basic character, i.e. its consumption as food by human beings or animals or for extraction for the like purpose, gets irretrievably lost and such processed seeds become a commodity distinct from food grains as commonly understood. That distinction was borne in mind by the High Court in allowing the writ petition of the respondents, and in our view rightly.” But in the instant case only seeds are purchased from farmers that too without any risk sharing at cultivation level with grower. In such a situation any agreement or arrangementonpaperwith agriculturists renders no help to assessee for allowing deduction under section 80-I & 80IA. Assessee should produce different commodities out of raw materials with the help of systematic activity to be entitled to claim deductions u/s. 80-I and 80IA of the Act, which has not been done by assessee in this case. In this case seed is raw material and end product is seed. Assessee is not purchasing food grains but only seeds are being purchased from growers so there is no question of any genetic or chemical irreversible change in raw material. So the ratio of the decision of Hon. Supreme Court in the case of Krishi Utpadan mandi Samity & Ors, v. Pilibhit Pantnagar Bej Ltd. & Anr(s) (supra) is of no help to the assessee. Various decisions based on the decision in the case of Krishi Utpadan O/TAXAP/538/2004 JUDGMENT Mandi Samity & Ors. v. Pilibhit Pantnagar Beej Ltd. & Anr.(s)(supra) also do not help the assessee. Even the contents of partnership deed of assessee firm, agreement entered by the assessee with agriculturists does not help the assessee. The details of salary and process render no help to assessee as far as allowability of deduction under section 80-I and 80-IA is concerned. It is only paper work. In view of the above discussion, we are of the view that no interference from our side is called for and the appeal is liable to be dismissed. We order accordingly.” 4.9 In view of the decision of the Tribunal, Mr. Soparkar has contended that the Tribunal has committed an error in coming to the conclusion that the assessee is not carrying on the manufacturing activities. He has further contended that Assessing Officer, CIT(Appeals) and Tribunal have not considered the letter dated 26.2.2003. The relevant para-4 of the said letter reads as under: “4. We have duly employed more than ten workers in the new unit (driven by power). This is clear even from the statements of Shri Girdharilal L. Jaipal, Mukadam, recorded on 15.6.2001 during survey u/s. 133A. It clearly says that in addition to 8 workers O/TAXAP/538/2004 JUDGMENT 4.9 In view of the decision of the Tribunal, Mr. Soparkar has contended that the Tribunal has committed an error in coming to the conclusion that the assessee is not carrying on the manufacturing activities. He has further contended that Assessing Officer, CIT(Appeals) and Tribunal have not considered the letter dated 26.2.2003. The relevant para-4 of the said letter reads as under: “4. We have duly employed more than ten workers in the new unit (driven by power). This is clear even from the statements of Shri Girdharilal L. Jaipal, Mukadam, recorded on 15.6.2001 during survey u/s. 133A. It clearly says that in addition to 8 workers O/TAXAP/538/2004 JUDGMENT regularly employed by the Company, his 10 workers were working with him. In addition thereto, in the packing division, 13 to 15 workers were working. Thus, as per his statement itself, total number of workers employed works out to about 33, which is much more than minimum number of workers i.e. 10, prescribed under Section 80(2)(iv) of the Income Tax Act, 1961. Even otherwise, we state that on an average over the year we are employing more than 30 workers in our processing units at Isnapur. We have already furnished list of employees consisting of approximately 75 persons vide our letter dated 4[th ]February, 1993 i.e. during the original assessment proceedings. We have with us vouchers, evidencing the payment made to these persons by way of wages. Labour employed through contractors form part of number of workers employed in the unit. This is supported by the decision of the Gujarat High Court in the case of CIT v. V. Narania & Co. (252 ITR 884). Further there can be no hard and fast rules by which one can determine whether there has been substantial compliance with the prescribed limit of at least 10 workers employed in the undertaking even though number of workers employed during some part of the previous year may be less than 10. This is supported by the decisions of (I) CIT v. Sawyers’s Asia Ltd. (1980) [122 ITR 259] (Bom) (ii)CIT v. Ormerods (I) (P) Ltd. (1989) [176 ITR O/TAXAP/538/2004 JUDGMENT 470] (Bom) and (iii) CIT v. Harit Synthetic Fabrics (P) Ltd. (1986) [162 ITR 640] (Bom). 4.10Mr. Soparkar learned counsel contended that the finding of the Tribunal is contrary to the evidence on record. 5.1 Mr. Mehta learned counsel for Revenue has tried to distinguish two decisions of Supreme Court and contended that in view of decision of the Hon’ble Supreme Court in the case of Seedsman Association, Hyderabad and Ors. v. Principal Secretary to Govt. A.P. & Ors., reported in (2004) 9 SCC 56, where both the decisions of the Supreme Court are considered in paras 8 & 9, which read as under: “8. We have given our careful consideration to the submissions made by learned counsel for the parties. There are two decisions of this Court touching upon the controversy in hand. The first one is State of Rajsthan v. Rajasthan Agriculture Input Dealers’ Assn. In this case, the High Court took the view that when goodgrains of particular varieties were treated and subjected to chemical process for preservation, those grains become commercially known as “seeds”. If, however, a dealer was found dealing in foodgrains under the garb of seeds, the authorities were not precluded from prosecuting the offender in a criminal court. The judgment of the High Court was upheld on the following premise:(SCC p. 483, para 7) “8. We have given our careful consideration to the submissions made by learned counsel for the parties. There are two decisions of this Court touching upon the controversy in hand. The first one is State of Rajsthan v. Rajasthan Agriculture Input Dealers’ Assn. In this case, the High Court took the view that when goodgrains of particular varieties were treated and subjected to chemical process for preservation, those grains become commercially known as “seeds”. If, however, a dealer was found dealing in foodgrains under the garb of seeds, the authorities were not precluded from prosecuting the offender in a criminal court. The judgment of the High Court was upheld on the following premise:(SCC p. 483, para 7) “7. It is undoubtedly true that foodgrains per se could be used a seeds for being sown and achieving germination, but in that form they retain the dual utility of being foodgrains as well as seeds. By process of coating and applying insecticides, other chemicals and poisonous substances to the foodgrain meant to be utilised as seeds, one of its basic character i.e. its consumption as food by human beings or animals or for extraction for the like purpose, gets irretrievably lost and such processed seeds become a commodity distinct from foodgrains as commonlyunderstood.That distinction was borne in mind by the High Court in allowing the writ petition of the respondents, and in our view rightly.” 9.A similar controversy has recently been examined again by this Court in Krishi Utpadan Mandi Samiti v. Pilibhit Pantnagar Beej Ltd. The High Court allowed the writ petition of the respondent Company, namely Polibhit Pantnagar Beej Ltd. and issued a writ ofmandamusrestrainingthe Agricultural Market Committee from interfering in the business of the O/TAXAP/538/2004 JUDGMENT Company in certified seeds and from demanding and realizing market fee on the transaction of unprocessed or processed certified seeds. The case set up by the Company was that the business of the Company is to purchase “breeder seeds” from the Agricultural Research Institute and thereafter to produce “certified seeds”. The first step of production is to distribute these breeder seeds to the listed and scheduled farmers. The breeder seeds are sown and are germinated under strict supervision of the statutory Seed Certification Agency, set up under the Seeds Act, 1966. The harvest isselectedcarefullyunder supervision of the Agency. The lots which do not conform to specifications are rejected. The standardized seeds so obtained are called “foundation seeds”. These foundation seeds are thereafter again supplied to the listed farmers varietywise within intimation to the Agency. The farmers sow these foundation seeds which are also supervised by the Agency. This crop is thus germinated under strict supervision of the Agency and the lots rejected are not taken back by farmers. After harvesting the approved standardized certified seeds, the lots are fumigated for preservation and the samples of each lot are tested in the laboratories of the Seed Certification Agency. The rejected lots and losses at processing are returned to farmers only after the foundation seeds are certifiedasconformingto specifications, the lots are subjected to treatment with insecticides (cell O/TAXAP/538/2004 JUDGMENT phose, quick phose) and pesticides (thiram and barastin) at the time of packing. The Company had filed certificates issued by the Seed CertificationAgencyandother O/TAXAP/538/2004 JUDGMENT phose, quick phose) and pesticides (thiram and barastin) at the time of packing. The Company had filed certificates issued by the Seed CertificationAgencyandother relevant documents to show that they are not dealing in sale and purchase of foodgrains or wheat but only in certified seeds and that the stock stored by them were not of wheat but of certified seeds of wheat under the supervision of the U.P. Seed Certification Agency. Having regard to the material produced by the Company, it was held that as the wheat seed converted into certified seed is unfit for human consumption, the levy of market fee is not permissible. 5.2 Mr. Mehta has also drawn our attention to para-5 of the order of Tribunal and contended that the process is not identical to the case of Navbharat Seeds (P) Ltd., and therefore, assessee is not entitled to deduction under sec. 80IA of the IT Act. Mr. Mehta further contended that at least 10 employees are there, and therefore, even if it is a manufacturing process, they are not entitled to the benefit of sec. 80IA of the IT Act. Mr. Mehta has also pointed out that change of use will not be a conclusive proof in the manufacturing process. Mr. Mehta has heavily relied on the decision of the Tribunal in Tax Appeal No. 538/2004 preferred by the assessee. 6.Before proceeding further with the matter, the question which was posed for our consideration are whether he is entitled to the benefit or not. The Tribunal in the subsequent years which are also subject matter of Navbharat Seeds (P) Ltd. which has been confirmed by this Court as well as by Hon’ble Supreme Court. We have gone through the chart which is produced on record at page 186 to 191, which is as under: Board,Departmentof Agriculture and Co-operation, MinistryofAgriculture, Government of India. The companyisproducing, processingandmarketing certified seeds. Gujarat State Seeds Certification Agency inspect the seed production field, processing plant and testseedsinnotified Government Laboratories and issue tags for each and every bag.3(1) Production of Hybrid Seeds.3.1(a) Company is producing hybrid The system of selecting the Being a commercial seeds through its contract area is a universal system transactionno growers. Contract growers are hence; we also select the comment required selected according to yield area with same criteria, from State Seed potentiality of the area, depending upon the crop.Certification availabilitycompactare Agency.irrigation facility and plots The major crop dealt with us having no isolation problem is Bajra, for which the block (isolationdistance).The of production area is larger contract is entered into with than that in case of Cotton. each and every sub-producer in So we enter into an agreement the beginning of season. with a group of grower Accounting period for this is instead of individual grower. 1.10.81 to 30.9.82. However, Copy of one such agreement is agreement with sub-producer has submittedtothethen got to be entered into before assessing officers in respect commencement of the season of assessment proceeding of concerned. Accordingly, two AY1991-1992,however, specimen agreements Dt. 26.5.81 enclosed herewith again.and2.6.81whichwere effectively in force in this Most of the terms and accounting year are enclosed condition are identical to herewith along with English those in case of agreement of Translation (appendix 1).Navbharat Seeds Pvt. Ltd.3.2(b)After selection of contract Required quantity of Male and Nocomment growers and seed plots, company Female i.e. Foundation Seed requiredfrom distribute foundation seed i.e. is supplied to the growers by StateSeed male and female parents through us. We have to bear some Certification its technical staff, to the portion of the cost of Agency.sub-producers. The foundation foundation seed so supplied.seeds are distributed to contract growers free of cost or at concessional rate or at cost depending on contractual agreement.3.3Actually, it is not a sale but The registration procedure of Themandatory only an account adjustment for seedplotswithState requirementof jointventureofseed Certification Agency is same submission/ production. Each and every seed for everybody. We have to varificationof plot so organized is to be submit before the Seed sourceof registered with Government Seed Certification Agency with foundation seed is Certification Agency in the empty containers and tags to narrated in Para-1 name of Company as main establish,theauthentic of the enclosed producer and farmer as sub-source of foundation seed certificateof producer.supplied to growers.GSCCA. 3.4(c) Technical guidance; After We have a very large team of This is narrated distribution of foundation experiencedfieldstaff, in on the first seeds, company’s technical headed by a Ph.D. Scientist page of enclosed staff give guidance to the to carry, supervise and guide certificate from farmer about the planting of the growers in respect of GSCCA.male and female plants in rows technical problems in process (planting ratio) and inspect of sowing, raising the crop, the seed plots so organized rouging the field to maintain timetotime.Company’s geneticpurityand technical staff supervises the hybridisation of male and work of regueing, crossing and female parents. Our staff other cultivation practices remain present in the field asper the crop. Rogueing, in while harvesting, thrashing O/TAXAP/538/2004 JUDGMENT O/TAXAP/538/2004 JUDGMENT O/TAXAP/538/2004 JUDGMENT weight component difference germination and vigor along between seeds. The seed then with plant stem, gloom, treated with 1% mercurial clinkers and dust etc. known fungicides and DDT in Slurry as inert matter are removed Seed Treator. This is done to with the help of sieves and protect seed against seed borne air blower. The good seeds and soil borne micro-organisms.havinggoodvigorand germinationcapacityis separated and then subjected to treatment of poisonous pesticides, which boost the capacity of seed to resist the attack of pest and disease in the field of farmers, who sow the seed for commercial cultivation. 6In case of hybrid cotton seed This treatment is applicable raw hybrid seed is treated in a in case of cotton seed only.tank with concentrated H. This process will dissolve fuzz, lint and wax of seed coat. After that with lime solution the seed is neutralized. These processes will make the seed free flowing. The same seed is then run on Air Screen Cleaner,Gr