Judgment:
ORDER
K. Shivashankar Bhat, J.
1. Under s. 256(1) of the IT Act, 1961, ('the Act' for short) the following questions have been referred for our consideration in respect of the asst. yr. 1982-83 :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is engaged in manufacturing or producing of an article or a thing for the purpose of allowing deduction under s. 80HH
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that processing of raw beef and packing for export constitute manufacture or production of an article or a thing for the purpose of s. 80HH ?'
2. The relevant facts are that the assessee deals in marine products for the purpose of exports. It processes the marine products, freezes and thereafter packs the same as per export specifications. The assessee also buys meat in the market and subjects the same to several processes such as cleaning, removing bones and fat through chemical and scientific method; bifurcating chunks, trimming and finally packing the same in a fit condition for export market. The assessee uses machineries for this purpose.
3. The claim of the assessee for deduction under s. 80HH was allowed by the ITO. This view was set at naught by the Commissioner acting under s. 263 of the Act. However, the Appellate Tribunal has accepted the claim of the assessee under s. 80HH. Hence, this reference at the instance of the Revenue.
4. Mr. Raghavendra Rao, learned counsel for the Revenue, mainly relied on the decision of the Supreme Court in Dy. Commr. of ST (Law), Board of Revenue (Taxes), vs . Pio Food Packers : 1980(6)ELT343(SC) to contend that there has been no manufacturing process involved in the activity of the assessee and similarly no new article is produced. It was a case where the pineapple fruit was processed into slices for the purpose of being sold in sealed cans. In such a situation it was held that there was no consumption of the original pineapple fruit for the purpose of manufacture so as to fall within s. 5A of Kerala General ST Act. The Supreme Court observed that to attract the said provision the goods purchased should be consumed and consumption should be in the process of manufacture and the result must be the manufacture of other goods. This processing should involve in the change of the original commodity and the resultant product should be recognised as a new and distinct article. The Supreme Court has referred to the various meanings of the term 'manufacture' and held that in the said case there was no consumption of the original pineapple fruit for the purpose of manufacture.
5. The above decision is mainly concerned with the concept of consumption under the provisions of the Kerala General ST Act. Here we are concerned with the provisions of s. 80HH of the IT Act. The question is whether the assessee is an industrial undertaking and employs 10 or more workers in a manufacturing process carried on with the aid of power, etc. This section came up before the Kerala High Court in almost similar circumstance in CIT vs . Marwell Sea Goods : [1987]166ITR624(Ker) . Having regard to the purpose behind the provision the relevant terms were construed by the High Court so that its beneficial provision could be availed of by a deserving assessee. At page 627 the Bench observed :
'It is significant that like in s. 33, so also in s. 80HH, the words 'manufacture' or 'produce' appear. While both the words appear in clause (i) of sub-s. (2) of s. 80HH, only the word 'manufacturing' appears in clause (iv) of that sub-section. Counsel for the Revenue submits that the legislative intent is to exclude production process from the ambit of the section because clause (iv) of sub-s. (2) does not refer to production but only to 'manufacturing process'. Therefore, counsel says, production which does not involve a manufacturing process is excluded.
The benefit of s. 80HH is available whenever a new industrial undertaking is started in a backward area and that undertaking begins to manufacture or produce articles. The fact that clause (iv) of sub-s. (2) refers to the manufacturing process alone does not mean that production process is excluded. Every manufacturing process naturally involves production process, for the object of manufacture is the production of goods.
The question really is whether or not the prawns in question are articles produced or manufactured by the assessee so as to attract the benefit of the section. It is true that ordinarily the process by which the prawns are prepared for the market is not referred to in common parlance as manufacture or production. But it must be borne in mind that s. 80HH confers a benefit on the new industry for the ultimate development of backward areas.'
In CIT vs . Relish Foods : [1989]180ITR454(Ker) , once again the Kerala High Court had an occasion to consider the scope of s. 80HH. It was held that the purchasing, peeling, freezing and export of shrimps amounted to production and hence the assessee was entitled to deduction under s. 80HH. In Shankar Construction Co. vs . CIT : [1991]189ITR463(KAR) a Bench of this Court construed the term 'industrial undertaking' liberally. That was a case arising out of a claim for investment allowance, claimed by the assessee which was engaged in the construction of dams and channels.
6. In Chowgule & Co. Pvt. Ltd. & Anr. vs . Union of India : 1985ECR263(SC) the assessee was carrying on the business of mining iron ore and selling it in the export market after dressing, washing, screening and blending it. It was held that the blending of ore in the course of loading through mechanical ore handling plant amounted to processing of the ore.
7. Having regard to these principles it has to be held that the assessee is engaged in manufacture or production of an article. Before the Tribunal it was argued that the assessee was an industrial undertaking. The questions posed assume that the provisions of s. 80HH would be attracted but for the nature of the activity carried on by the assessee. We are of the view that the activities of the assessee would fall within the provisions of s. 80HH.
8. Consequently, the questions referred are answered in the affirmative and against the Revenue.
9. Reference answered accordingly.