COMMISSIONER OF INCOME TAX Vs. HEMSONS INDUSTRIES

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Hyderabad, herein has referred the following questions under Section 256 of the Income-tax Act, 1961 (for short "the Act"), to this court for opinion at the instance of the Commissioner of Income-tax, Andhra Pradesh-II Hyderabad.

(2.) THE assessee carries on business of purchase and sale of groundnuts, decortication of groundnuts into kernel and selling the same. THE assessee at the relevant point of time had a factory on lease at Anantapur and its own factory at Kadiri. For the assessment year 1984-85, the assessee filed its return of income showing an income of Rs. 2,15,886. THE assessment was completed on August 18, 1996, at a total income of Rs. 4,72,760 by the Income-tax Officer. At this stage itself, it may be noticed that along with the return the assessee did not file an audit report. THE Income-tax Officer opining that the requirements of Section 80HH were not satisfied, declined to grant the benefit under the said Section as claimed by the assessee. THE assessee made a claim of exemption under Section 54D in respect of a sum of Rs. 6,24,817 towards compensation and solatium received by it out of compulsory acquisition of the land on the ground that the compensation money was utilised for setting up of a new factory. THE Income-tax Officer disallowed the claim on the ground that the assessee did not acquire the land at Gooty, but the land was taken only on tease. Further, the Income-tax Officer held that capital gains arising on the sale of the building could not be exempted under Section 54D on the ground that the assessee is not an industrial undertaking engaged in manufacturing activity. On appeal, the Commissioner of Income-tax (Appeals) confirmed the finding of the Income-tax Officer. On second appeal by the assessee to the Appellate Tribunal, the Tribunal opined that the decortication of groundnuts constituted a manufacturing activity and in so opining it placed reliance on the decision of this court in Omkamal Agarwal v. CIT [1968] 67 ITR 329 and of the Madras High Court in CIT v. M. R. Gopal [1965] 58 ITR 598 and also the judgment of the Supreme Court in Ganesh Trading Co. v. State of Haryana . Further, the Tribunal found that the assessee had taken a site on lease at Kadiri and constructed a new building and installed machinery worth of Rs. 2 lakhs and this was done by transferring the capital from the Anantapur factory. It was also found, as a matter of fact, that no machinery from the Anantapur factory has been transferred to the Kadiri factory. In the premise of these established facts, the Tribunal applying the ratio of the judgment in Textile Machinery Corporation Ltd. v. CIT , came to the conclusion that the Kadiri factory was an independent entity and, therefore, the assessee is entitled to the relief envisaged under Section 80HH of the Act for the assessment year 1984-85. At this stage, it is also relevant to note that the case of the assesses that the acquisition had taken place on September 10, 1983, and within three years it established an industrial undertaking at Gooty is not disputed by the Department. THE Tribunal recording the findings as stated above, allowed the appeal of the assessee.

(3.) IT should be noticed at the threshold that the question whether decortication of groundnuts into kernel involves a manufacturing activITy or not is essentially a question of fact. The learned Tribunal on consideration of the judgment of this court in Omkarmal Agarwal's case [1968] 67 ITR 329 and that of the Madras High Court in M. R. Gopal's case [1965] 58 ITR 598 and also of the Supreme Court in Ganesh Trading Company's case , came to the conclusion that the decortication of the groundnuts into kernel involves manufacturing activITy. The only thing to be seen is whether that view of the Tribunal is perverse or based on some acceptable material evidence.