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Second Income-tax Officer Vs. A. Johnson - Court Judgment

SooperKanoon Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1982)2ITD463(Mum.)
AppellantSecond Income-tax Officer
RespondentA. Johnson
Excerpt:
.....the facts of the case are as follows. the assessee is an individual having business in export of frog legs. in the course of the year, he had purchased frog legs from two parties, i.e., one sethia & co. at secundera-bad and one majid j.kasli at navsari. barring a few payments in draft or cheque, the rest of the payments made for the purchases were in cash. the ito was of the opinion that these payments would be hit by section 40a(3). he added rs. 1,79,787 on this account.2. the commissioner (appeals) deleted the addition. according to him, the assessee's purchases would be saved from the provisions of section 40a(3) by virtue of rule 6dd. this rule exempts payments in cash from the purview of section 40a(3) if the payments were made for the purpose of fish or fish products and.....
Judgment:
1. This is a departmental appeal against the order of the Commissioner (Appeals), in Appeal No. CIT(A)-X/A-III/28/1979-80 dated 2-6-1980 holding that the addition made under Section 40A(3) of the Income-tax Act, ]961 ('the Act') should be cancelled. The facts of the case are as follows. The assessee is an individual having business in export of frog legs. In the course of the year, he had purchased frog legs from two parties, i.e., one Sethia & Co. at Secundera-bad and one Majid J.Kasli at Navsari. Barring a few payments in draft or cheque, the rest of the payments made for the purchases were in cash. The ITO was of the opinion that these payments would be hit by Section 40A(3). He added Rs. 1,79,787 on this account.

2. The Commissioner (Appeals) deleted the addition. According to him, the assessee's purchases would be saved from the provisions of Section 40A(3) by virtue of Rule 6DD. This rule exempts payments in cash from the purview of Section 40A(3) if the payments were made for the purpose of fish or fish products and other allied items. The Commissioner (Appeals) was of opinion that frog legs dealt with by the assessee could be broadly considered as covered by the expression 'fish or fish products'. He derived support for this from the certificate issued by the Director of Fisheries, Government of Maharashtra, and from the certificate issued by the Dy. Director of Marine Products Export Development Authority.

3. The department is in appeal before us. Sri Gupta, for the department, strenuously argued that frog legs are not covered by the exemption provisions. There is a vast difference between frogs and fish. By referring to the dictionary, he pointed out that under no circumstances could frogs be considered as a part offish.

4. Assuming that it does, he further argued that Rule 6DD requires the payment to be made to the producers He submitted that it is not possible to say that these two parties are producers of frog legs. In fact, in Rule 6DD, there is no expression which could cover a product like frog legs. He further submitted that reliance placed on the certificates issued by various parties has no relevance in deciding the provisions of Rule 6DD. The Marine Products Export Development Authority may for their purpose treat frog legs as a marine product, but that is not relevant for Rule 6DD. He then referred to a decision of the Supreme Court to show that one should not import the meanings given in one statute while interpreting the expression used in another.

He further submitted that whether these two parties are producers or not, has not been looked into by the Commissioner (Appeals).

5. Shri Maheshwari, for the assessee, submitted that the certificates issued should be used in interpreting the provisions of Rule 6DD, He submitted that the department should not be allowed to raise the question whether the two parties concerned were producers of frog legs or not.

6. We have considered the facts of the case. It is an admitted position that payments have been made exceeding Rs. 2,500 otherwise than by a crossed cheque and, therefore, the provisions of Section 40A(3) would apply ; but shelter is taken under Rule 6DD. This rule states as follows : 6DD. No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a surn exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :- (ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or (iv) the produce of horticulture or agriculture, to the cultivator, grower or producer of such articles, produce or products.

Broadly, two issues emerge (i) are frog legs to be considered as fish or fish products within the meaning of the rule and (ii) are these two parties producers of such articles 7. A casual glance at the four items shown under Sub-rule (f) of Rule 6DD extracted above would show that there is a link connecting these items and that they are all articles connected with food. Thus, agricultural or forest produce are by and large used as foodstuffs. The produce of animal husbandry or dairy or poultry farming is undisputably connected with food. Fish or fish products are also basic foodstuff for men. The products of horticulture are also mainly for satisfying the needs of man for food. Thus, the rule appears to demarcate such products from the operations of the stringent provisions of Section 40A(3).

8. If we understand the import of the rule, then any product which is akin to the four items shown in the Sub-rule (i) will have to be brought within the exemption provisions of Rule 6DD. Thus, the item 'fish or fish products' would be intended to cover those items of food which are other than cereals, i.e., rice, wheat, etc., which are coming under Clause (i), or mutton, eggs, chicken, etc., which would come under Clause (ii). So, the term 'fish or fish products' denotes a genus and all items, which are allied to fish and which are edible, will have to be considered under this head. Thus, prawn, shrimps, lobsters, etc., which are definitely not fish, will have to be considered as fish or fish products for this purpose. If prawns, shrimps, etc., should be considered as fish for this purpose, we see no reason why it should not be extended to frog legs also.

9. We have also been shown extracts from the Import Trade Control Policy which has a heading offish and fish products. The details of this show that under this head would come all edible fish and fish products and preparations (including frog legs, lobster tails, shark fins, prawn powder, fish meal and fish oil and other edible fish extractions). We are, therefore, of opinion that the Commissioner (Appeals) is justified in holding that frog legs would be considered by Rule 6DD (sic).

10. The second issue in deciding the appeal is whether the two persons from whom the products have been purchased are the growers or producers of such articles. This point has not been looked into either by the ITO or the Commissioner (Appeals). In order to succeed, the asses-see has not only to show that frog legs would come under the rule but, he has also to show that the parties from whom they were purchased were producers of such articles. Unless they are the producers, the assessee would not be entitled to the benefit of the rule. It may be that these two persons were merely dealers in frog legs. They might have purchased it from other primary producers. This fact has to be looked into. For this purpose, we would restore the appeal to the register of the Commissioner (Appeals). He would examine whether the two parties from whom frog legs were purchased could be treated as producers of such articles or whether they were buying them from others and in turn selling them to the assessee. We do not find any merit in the objection raised by the assessee that this point should not be allowed to be raised by the department. It is very necessary for a proper disposal of the point at issue before us.

11. For statistical purposes, the appeal is partly allowed. The Commissioner (Appeals) would examine the facts with reference to these two parties and decide whether they are merely dealers or whether they are producers.


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