Dy. Commissioner of Income Tax vs Embrocia Farms (P) Ltd.

M.M. Kumar, J.—The revenue has approached this Court u/s 260A of the Income Tax Act, 1961 (for brevity the Act) challenging the view taken by the Tribunal, Amritsar Bench, Amritsar in its order dated 11-11-1998 passed in ITA No. 1181/Asr/1992 in respect of assessment year 1990-91. The revenue has claimed that following substantial question of law would arise for determination of this Court:

Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee which is running a poultry farm is entitled to deductions under Sections 80HH and 80I of the Income Tax Act, 1961 ?

Brief facts of the case are that the assessee respondent is a private limited company and is running a poultry farm. It had filed a return on 12-12-1990 declaring loss of Rs. 13,08,510. Along with the return, a statement was filed by the assessee claiming deductions under Sections 80HH and 80I of the Act at Rs. 40.738 and Rs. 48,885 respectively. The assessing officer disallowed the claim of the assessee made u/s 80HH of the Act at Rs. 40,738 holding that the business activities of the assessee respondent could not be considered as that of industrial undertaking which was the view taken in respect of assessment year 1984-85. Likewise, the claim of the assessee u/s 80I of the Act at Rs. 48,885 was also not accepted. The assessment was completed u/s 143(3) of the Act on 20-11-1991.

On appeal filed by the assessee, the Commissioner (Appeals), Jammu vide its order dated 20-8-1992 held that the assessee respondent was an industrial unit and therefore was entitled for deductions under Sections 80HH and 80I of the Act. Accordingly a direction was issued to the assessing officer to calculate the amount of such deduction as per law after giving an opportunity of hearing to the assessee. On further appeal, the revenue challenged the order before the Tribunal. The Tribunal vide order dated 11-11-1998 dismissed the appeal and placed reliance on its decision in ITA No. 207/Asr/1998 dated 4-11-1993 for the assessment year 1984-85. It is pertinent to mention that the assessee respondent is running a poultry farm and has been allowed specific deductions u/s 80JJ of the Act.

After hearing learned Counsel we are of the view that this appeal deserves to be accepted as the matter is covered in its favour. The Hon''ble Supreme Court in the case of Commissioner of Income Tax, Bangalore Vs. Venkateswara Hatcheries (P) Ltd. etc. etc., has come to the conclusion that poultry farm would not be covered by the expression ''industrial undertaking'' as the chicks are the natural and biological process. The observations of their Lordships in Venkateswara Hatcheriess case (supra) read as under:

...The formation of chicks is a natural and biological process over which the assessee has no hand or control. Infact what the assessee was doing was to help the natural or biological process of giving birth to chicks. The chicks otherwise; can also be produced by conventional or natural method and in that process also, the same time is taken when the chicks come out from the eggs. What the assessee by application of mechanical process does in the hatchery is to preserve and protect the eggs at a particular temperature. But the coming out of chicks from the eggs is an event of nature. The only difference seems to be that, by application of mechanical methods, the mortality rate of chicks is less and the assessee may get chicks more in number. This, however, would not mean that the assessee produces chicks and that chicks are ''articles or things''. We are, therefore, of the opinion that the assessee is neither an industrial undertaking nor does the business of hatchery carried out by the assessee fall within the meaning of Section 32A and Section 80J of the Act.

The Hon''ble Supreme Court also considered another argument of the assessee that poultry farm would be covered with the words "articles or things" and held that such an assessee could not be regarded as engaged in the business of producing ''articles or things''. Therefore, it would not be entitled to investment allowance u/s 32A of the Act and deductions under Sections 80HH, 80HHA, 80I and 80J of the Act. If the facts of the present case are examined in the light of the views expressed in Venkateswara Hatcheries'' case (supra) then the substantial question raised has to be answered in favour of the revenue and against the assessee. Accordingly the question is answered in favour of the revenue and against the assessee. Consequently the appeal is allowed and order of the Tribunal is set aside.