COMMISSIONER OF INCOME TAX Vs. STERLING FOODS GOA

JUDGEMENT

(1.) BY this reference under section 256(1) of the Income -tax Act, 1961, at the instance of the Revenue, the Income -tax Appellate Tribunal has referred the following question of law to this court for opinion : 'Whether, on the facts and in the circumstances of the case, is the Appellate Tribunal right in law in upholding the order of the Commissioner of Income -tax (Appeals) who held that the activity of the assessee is a manufacturing process and is entitled for exemption under section 80HH ?'

(2.) THE assessee is a partnership -firm. It derives its income from sale of prawns. In its assessment for the assessment year 1979 -80, the assessee claimed deduction under section 80HH of Income -tax Act, 1961 ('the Act'), from its income derived from sale of prawns on the ground that the activity processing of prawns before putting them for sale amounted to manufacture and production of articles within the meaning of the said section. The claim of the assessee was rejected by the Income -tax Officer as according to him and activity of processing prawns for the purpose of sale did not amount to manufacture or production of goods or articles within the meaning of section 80HH of the Act. The assessee appealed to the Commissioner of Income -tax (Appeals). The Commissioner of Income -tax (Appeals) accepted the contention of the assessee and held that the processing of prawns amounted to manufacture or production of goods or articles. On appeal by the Revenue, the Income -tax Appellate Tribunal ('the Tribunal') confirmed the order of the Commissioner of Income -tax (Appeals). Hence, the Revenue has come to this court by way of reference for opinion on the question whether 'processing of prawns' amounts to 'manufacture or production of goods or articles' within the meaning of section 80HH of the Act.

(3.) SECTION 80HH of the Act provides for allowance of deduction to an assessee of an amount equal to twenty per cent. of his profits and gains derived by him from an industrial undertaking which fulfils the conditions specified in sub -section (2) thereof including the condition that 'it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area'. Section 80HH, so far as relevant, reads : '80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. - (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, he allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely : (i) it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area; ........ (iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power ..... (4) The deduction specified in sub -section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business or the hotel starts functioning : Provided that - (i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and (ii) in the case of the business of a hotel which has started functioning, after the 31st day of December, 1970, but before the 1st day of April, 1973, this sub -section shall have effect as if the reference to ten assessment years were a reference to ten assessment years as reduced by the number of assessment years which expired before the 1st day of April, 1974 ........'