COMMSSIONER OF INCOME-TAX vs. GUJARAT STATE EXPORT CORP.LTD.

ITR/294/1994HC GujaratGJHC24020370199423 August 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI19 pages
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What were the facts?

The assessee, Gujarat State Export Corporation, a State Government Corporation, claimed a deduction under Section 80HHC of the Income Tax Act, 1961, for the assessment year 1983-84. The assessing officer allowed the deduction. However, the Commissioner of Income Tax (CIT) initiated proceedings under Section 263, holding the assessment order erroneous and prejudicial to the revenue, and partially set aside the assessment order concerning the Section 80HHC deduction. The assessee appealed to the Income Tax Appellate Tribunal, which allowed the appeal. The CIT has now filed three references before the High Court of Gujarat challenging the Tribunal's order.

What did the High Court hold?

The High Court held that the Tribunal was right in law in holding that HPS groundnuts exported by the assessee did not come within the ambit of the expression “agricultural primary commodities” in Section 80HHC(2)(b)(i) of the Act, and that the assessee was entitled to deduction under Section 80HHC. The Court reasoned that while groundnuts might remain agricultural commodities, the processing involved in producing HPS groundnuts transforms them into a commercially different product, thus ceasing to be a 'primary' commodity. Applying the test from Aspinwall & Co. Ltd. v. Commissioner of Income Tax, the Court found that the processed HPS groundnuts are recognized in the trade as a new and distinct commodity. The Court also referred to Kishenlal Oil Mills, Hyderabad v. Commissioner of Sales Tax, Hyderabad, which distinguished between unshelled groundnuts and kernels. Therefore, the Tribunal's view that groundnuts in shell are agricultural primary commodities, but kernels exported after processing cease to be so, was upheld. The question was answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that HPS groundnuts exported by the assessee did not come within the ambit of the expression “agricultural primary commodities” in Section 80HHC(2)(b)(i) of the I.T. Act, 1961, and that deduction under Section 80HHC(i) of the Act was allowable? Assessee's contentions: The Tribunal had recorded a finding of fact that the exported goods, HPS groundnuts, were not agricultural primary commodities after undergoing various processes. Expert certificates supported this. The word 'primary' in the phrase 'agricultural primary commodities' should not be ignored. HPS groundnuts are known as a different commodity in the market. Reliance was placed on Commissioner of Income Tax v. Cynamid India Ltd. and Aspinwall & Co. Ltd. v. Commissioner of Income Tax. Revenue's contentions: The assessee exported groundnuts, which are agricultural primary commodities under Section 80HHC(2)(b)(i). The processes undertaken by the assessee did not change the fundamental nature or form of the groundnuts; only kernels were exported after removing shells. The commodity did not convert into another commodity. Reliance was placed on Commissioner of Income Tax v. Cynamid India Ltd. and The Belsund Sugar Co. Ltd. v. The State of Bihar.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 256(1),Section 143(3),Section 263

AI-generated summary — verify with the full judgment below

ITR/113/1994 1/19 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 113 of 1994 WITH INCOME TAX REFERENCE NO. 11 OF 1994 AND INCOME TAX REFERENCE NO.294 OF 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== COMMISSIONER OF INCOME TAX - Applicant(s)

Versus GUJARAT STATE EXPORT CORPN - Respondent(s) ============================================================== Appearance : MRS.M.M. BHATT for applicant - revenue MR.S.N.SOPARKAR, Sr. Advocate with MRS SWATI SOPARKAR for the Respondent - assessee ================================================================== CORAM :  HONOURABLE MR.JUSTICE

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