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IN THE HIGH COURT OF DELHI AT NEW DELHI
I.T.A. No. 741/2007
% <u>Date of Decision: 08.09.2009</u>
The Commissioner of Income Tax Delhi-IXI
....Appellant
Through: Ms. Prem Lala Bansal
Versus
J.D. Farms
.....Respondents
Through Dr. Rakesh Gupta with Ms.Aarti Saini
CORAM:THE HON'BLE MR.JUSTICE A.K.SIKRI THE HON'BLE MR. JUSTICE VALMIKI J. MEHTA
- 1. Whether Reporters of Local papers may be allowed to see the Judgment? - 2.To be referred to the Reporter or not? - 3. Whether the judgment should be reported in the Digest?
A.K. SIKRI, J.
For orders, see file of ITA No.740/2007.
A.R. SIKKI JUDGE
VALMIKI J. MEHTA)
September 08, 2009 hp.
IN THE HIGH COURT OF DELHI AT NEW DELHI
I.T.A. Nos.740, 741, 755, 759 and 915/2007
Date of Hearing: 13.08.2009
Date of Decision: 8 .09.2009
The Commissioner of Income Tax Delhi-IXI
....Appellant
Through: Ms. Prem Lala Bansal
Versus
J.D. Farms
.....Respondents
Through Dr. Rakesh Gupta with Ms. Aarti Saini
CORAM :-THE HON'BLE MR.JUSTICE A.K.SIKRI THE HON'BLE MR. JUSTICE VALMIKI J. MEHTA
- 1. Whether Reporters of Local papers may be allowed to see the Judgment? - 2.To be referred to the Reporter or not? - 3. Whether the judgment should be reported in the Digest?
A.K. SIKRI, J.
In all these appeals the respondent/assessee is same, namely, M/s. J.D. Farms. It is in the business of poultry farming and the question is as to whether the business activity can be treated as manufacturing activity thereby giving the benefit of deductions under Section 80 HHA and 80-I of the Income Tax Act (in short 'the Act') to the assessee. For the sake
appeal was dismissed by the CIT(A) vide orders dated 19.3.2004. Still dissatisfied, the assessee approached the Income-Tax Appellate Tribunal (in short the 'ITAT') against the aforesaid orders of the CIT(A). Similar issue raised in the other appeals, the ITAT consolidated all these appeals and have passed orders dated 17.11.2006 allowing these appeals partly. It is the department who feels aggrieved and has approached this Court under Section 260A of the Act by means of these appeals.
In this backdrop, the following question of law has arisen for consideration in the present appeal:-
"Whether the ITAT was correct in law in allowing deduction under Section 80 HHA and 80-I of the Act to the assessee holding that the activity carried on by the assessee amounted to producing or manufacturing of an Article or thing?
In order to determine as to whether the business activity of the assessee amounts to manufacturing activity or not, it would be apposite to find out the exact nature of the activity. It is claimed by the assessee, which is found factually correct, that the activity of the assessee is not limited to the poultry farming. The eggs are hatched, chickens are fed and reared and then chickens are being slaughtered
the assessee comes within the meaning of expression "manufacturing or produce articles or things" occurring in Sections 32A(2)(iii) or 80J(4)(iii) of the Act and consequently, whether the assessee was an "industrial undertaking". The Revenue had taken four arguments, namely:-
"The first contention on behalf of the Revenue is that chicks, being animate creatures, cannot be termed as articles or things within the meaning of section 32A(2)(iii) or section 80J4(iii) of the Act. The second contention is that even if a chick could be construed as a article or thing it cannot be said that the assessee is producing chicks, that being a natural process of the development of the eggs. The third contention is that if the dictionary meaning of the word "articles or things" conveys different meaning, in that event the said words have to be interpreted in the context of the provisions of the Act, and regard must also be had to the legislative history of the provisions of the Act and the scheme of the Act and the fourth submission is that the assessee is not an industrial undertaking."
On the other hand, argument of the assessee was that hatching of eggs comes within the meaning of expression "production of an article or thing". It was emphasized that chickens were produced by mechanical process and therefore, the assessee was producing articles or things.
Argument was also raised that better and larger numbers of chickens
Act."
On an earlier occasion similar view was taken by the Madhya Pradesh High Court in Indian Poultry v. Commissioner of Income-Tax, 230 ITR 909. The assessee company in that case was carrying on business of rearing chicks to broiler by applying scientific process and technology. It claimed deductions under Section 80HH and 80-I of the Act. The question was answered in the following manner holding that the aforesaid process did not amount to manufacture:-
"Suffice it to say that the process which is involved in development of chicks into broilers is nothing but basically the chicks remain chicks only. There is no substantial change so as to acquire new commercial identity. Chicks are smaller ones and when they are reared for some time, they develop suitably for table purposes. Therefore, there is no change of the substance.
In this connection, two decisions of the Supreme Court of America may be referred to: (1) East Texas Motor Freight Lines v. Frozen Food Express (100 L. Ed. 917) and (2) Anheuser Busch Brewing Association v. United States (52 L. Ed. 336-338). Both these decisions of the Supreme Court of America have been approved by the Supreme Court of India also.
It is true that even if the chicks which develop into broilers and they are dressed and sold in the market, they still continue to be chicks only. Therefore, there is no substantial change in the matter. "Manufacture" implies a change, but
every change is not manufacture and yet every change in an article is the result of treatment, labour and manipulation and does not necessarily mean that on account of certain treatment and manipulation, a new identity has come to be acquired.
It the present case, the chicks are only reared for a few days and they are developed; thereafter they become broilers. Therefore, even after rearing, they remain chicks only."
This judgment was affirmed by the Supreme Court in Indian Poultry v. Commissioner of Income-Tax, 250 ITR 664. By that time view had already been taken by the Supreme Court in Venkateshwara Hatcheries (P) Ltd. (supra) and the Court held that the matter was covered by the said judgment as is clear from the following:-
"It is not in dispute that the case is covered against the assessee by the judgment of this court in CIT v. Venkateswara Hacheries P. Ltd. [1999] 237 ITR 174. The further point that was made by the assessee was that it not only reared the chicken but also dressed them for sale in the market and, therefore, a process of manufacture was carried out. But, it appears that there was no material laid before the Tribunal in this behalf. It is, therefore, not possible to conclude in the present matter that the dressing of poultry is tantamount to manufacture."
Another judgment which would of relevance and was strongly relied upon by the learned counsel for the Revenue is again the judgment of
2009:DHC:13350-DB
answer has to be that it remains chicken and only different parts of the chicken are sold.
14.We are, therefore, of the opinion that the process undertaken by the assessee would not come within the meaning of expression "production of an article or thing." The Income-Tax Appellate Tribunal wrongly distinguished the judgment of the Supreme Court in Venkateshwara Hatcheries (P) Ltd. (supra). Thus, we answer the question in favour of the Revenue and against the assessee. This appeal is accordingly allowed and setting aside the orders of the Tribunal we restore the assessment order passed by the AO in this behalf. There shall be no orders as to costs.
A.K. SIKRI)
September <u></u> 2009 hp.
VALMĪKI J. MEHTA