Commissioner of Income Tax vs Poyilakada Fisheries P. Ltd.

Arijit Pasayat, C.J. 1. Pursuant to the direction given by this court in an application u/s 256(2) of the Income Tax Act, 1961 (in short "the Act"), the Income Tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), has referred the following 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 Sections 80HH and 80-I of the Income Tax Act, 1961 ?"

The factual position which is undisputed is as follows : The assessee is a private limited company engaged in the processing and export of shrimps, other marine products and also cashew kernels. For the assessment year 1984-85 deductions under Sections 80HH and 80-I of the Act were claimed by the assessee. The same was rejected by the Assessing Officer on the ground that manufacturing activities were not involved. In appeal, however, the Commissioner of Income Tax (Appeals) (in short "the CIT (Appeals)), held that the assessee''s business in sea foods entailed processing and production of goods and hence it was entitled to the claim under Sections 80HH and 80-I of the Act.

Aggrieved by the said order, the Department preferred an appeal before the Tribunal. Following the decision of this court in Commissioner of Income Tax Vs. Marwell Sea Foods, , the assessee''s claim for deductions under Sections 80HH and 80-I was allowed. Being not satisfied with the decision of the Tribunal, the Revenue filed an application u/s 256(1) of the Act. The Tribunal rejected the application and thereafter an application u/s 256(2) of the Act was filed, where a direction was given to refer the question quoted above for opinion. Pursuant to the direction, the Tribunal has referred the question along with the statement of case.

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 and 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.

At this juncture it is necessary to take note of a decision of the apex court in Commissioner of Income Tax, Trivandrum Vs. Relish Goods, . In the said case the question that was referred reads as follows (page 60) :

"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 u/s 80HH of the Income Tax Act, 1961 ?"

The apex court held that the assessee was not entitled for exemption. In Sterling Foods, A Partnership Firm represented by its Partner Shri Ramesh Dalpatram Vs. State of Karnataka and Another, , 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 the 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 Sections 80HH and 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.