COMMISSIONER OF INCOME TAX v. POYILAKADA FISHERIES (P) LTD.
IT Ref. No. 6 of 1997, decided on September 22, 1999.
HIGH COURT OF KERALA
P. K. R. Menon & N. R. K. Nair, for the Applicant : P. Balachandran, for the Respondent
ARIJIT PASAYAT, C.J. :
Pursuant to the direction given by this Court in an application under section 256 (2) of the IT Act, 1961 (in short ‘the Act’), the Tribunal, Cochin Bench, has referred followed question for opinion :
“Whether, on the facts and in the circumstances of the case, the assessee, engaged in the processing and export of shrimps, is entitled to the benefit of section 80HH and section 80-I of the IT Act, 1961 ?”
2. Factual position which is undisputed is as follows : Assessee is a private limited company engaged in the processing and export of shrimps, other marine products and also cashew kernels. For the asst. yr. 1984-85 deductions under section 80HH and section 80-I of the Act were claimed by the assessee. The same was rejected by the AO on the ground that manufacturing activities were not involved. In appeal however, the Commissioner of Income-tax (Appeals) [in short ‘CIT(A)]’, held that the assessee’s business in sea foods entailed processing and production of goods and hence it was entitled to the claim under section 80HH and section 80-I of the Act.
3. Aggrieved by the said order the assessee preferred an appeal before the Tribunal. Following the decision of this Court in CIT vs. Marwell Sea Foods (1987) 166 ITR 624 (Ker) : TC 25R.200, the assessee’s claim for deductions under section 80HH and section 80-I was allowed. Being not satisfied with the decision of the Tribunal, Revenue filed an application under section 256 (1) of the Act. The Tribunal rejected the application and thereafter, an application under section 256 (2) of the Act was filed, where direction was given to refer the question quoted above for opinion. Pursuant to the direction, the Tribunal has referred the question along with statement of case.
4. According to the Revenue, there is no manufacture or production of any article involved in the processing of shrimps. The shrimps or lobsters are purchased in different forms and exported as such on block freezing as frozen shrimps or lobsters, or shrimps are purchased as head on converted into headless or meat after deheading, peeling, deveining, etc. These processes do not alter the character or identity of the original shrimps and frozen shrimps or lobsters and they cannot be regarded as new articles different from the original ones. According to the assessee, the identity is different and, therefore, the process of manufacture would alter the character of the original shrimps.
5. At this juncture it is necessary to take note of decision of the apex Court in CIT vs. Relish Foods (1999) 152 CTR (SC) 500 : (1999) 237 ITR 59 (SC). In the said case the question that was referred to reads as follows :
“Whether, on the facts and in the circumstances of the case,
(i) the assessee’s business involves ‘production’?
(ii) the assessee is entitled to exemption under section 80HH of the IT Act, 1961 ?”
The apex Court held that the assessee was not entitled for exemption. In Sterling Foods vs. State of Karnataka (1986) 63 STC 239 (SC), it was held that the processed or frozen shrimps and prawns are commercially regarded as the same commodity as raw shrimps and prawns. When raw shrimps and prawns are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps and prawns and become other distinct commodities. There is no essential difference between raw shrimps and prawns and processed or frozen shrimps and prawns. In common parlance they remain same and continue to be known as shrimps and prawns. That being the position, the Tribunal was not justified in holding that the assessee was entitled to deduction under section 80HH and section 80-I of the Act.
The question referred is answered in the negative, in favour of the Revenue and against the assessee.
The reference is accordingly disposed of.