ORDER
D.K. Tyagi, J.M.
1. The above appeal filed by the appellant is directed against the order of the CIT(A)-XVI, Kolkata, dt. 25th Sept., 2006 relating to -asst. yr. 2004-05 on the following grounds of appeal:
1. That on the facts and in the circumstances of the case and evidences on records the CIT(A) erred in upholding the action of the AO in coming to the conclusion that the appellant was not engaged in the manufacture or produce of an article or thing and/or no new article or thing emerged which are distinctive in character or identity and thereby disallowing the claim of the appellant under Section 10B of the IT Act though it was demonstrated with evidence that the appellant was engaged in the business of ornamental fishes which was produced by them and new ornamental fishes with distinctive character and identity was produced.
2. That on the facts and in the circumstances of the case the CIT(A) erred in holding that the various process adopted by the appellant for the produce of the ornamental fishes amounted to rearing of the fishes and did not involve the process of production of the ornamental fishes, thereby denying the claim of the appellant under Section 10B of the IT Act.
3. That on the facts and in the circumstances of the case the CIT(A) further erred in coming to the conclusion and holding that the submissions made by the appellant were based on assertions and were not supported by evidences or accounts in spite of the fact of physical verification of the various process adopted by the appellant for the process of the ornamental fishes by the Department during the course of appeal proceedings.
4. That on the facts and in the circumstances of the case the CIT(A) erred in upholding the action of the AO in coming to the conclusion that there was no difference in the identity between the original fish and the produced ornamental fishes thereby further holding that there was no manufacture or produce by the appellant of an article or thing, which findings are erroneous and on non-appreciation of the facts of the case.
5. That on the facts and in the circumstances of the case the CIT(A) erred in upholding the action of the AO in coming to the conclusion that the appellant did not contribute to the formation of the ornamental fishes whereas the various process adopted with the plant and machinery resulted in the production of the ornamental fishes by the appellant and the claim was erroneously or wrongly disallowed under Section 10B of the IT Act.
6. That on the facts and in the circumstances of the case and without prejudice to the other grounds of appeal, the CIT(A) erred in upholding the action of the AO in equating the definition of the word export oriented undertaking with that of an industrial undertaking as defined in the other provisions of the Act whereas the definition of export oriented undertaking is defined under Section 10B itself and such definition should have been adopted as laid down in Section 10B and allowed the relief under Section 10B to the appellant on that meaning.
7. That on the facts and in the circumstances of the case the action of the AO and further upheld by the CIT(A) in disallowing the claim of deduction under Section 10B is bad in law.
8. That on the facts and in the circumstances of the case the non-allowance of the claim under Section 10B is unjust, illegal, arbitrary and excessive.
9. That the above grounds of appeal will be argued in details at the time of hearing and the appellant craves leave to submit additional grounds of appeal if any at or before the time of hearing and or alter, modify, reframe or vary any ground or grounds of appeal at or before the time of hearing.
2. Brief facts of the case are that the assessee is engaged in the production of ornamental fishes having its unit at 158, Dr. B.C. Roy, Dakshin Jagadal, 25 Parganas (S), Pin-743379. The assessee claimed that it is manufacturing/producing ornamental fishes as juvenile fishes are converted into ornamental fishes with the help of various processes and thereby bring into existence the ornamental fish which is a new article or thing with different name and character in the commercial world. The assessee claimed that such productions of ornamental fishes are 100 per cent export oriented thereby entitled for a tax benefit under Section 10B. However, for the year under consideration such claim of the assessee for deduction under Section 10B has been disallowed by the AO on following reasons:
(a) Fish being animate creatures it cannot be termed as article or thing.
(b) Even if fish is considered to be an article or thing it cannot be said that the appellant is producing fish as it is a natural process of development of eggs.
(c) The words articles or things have to be interpreted as per the provisions of the particular section and regard must also be paid to the intention of the legislature.
(d) The appellant is not an industrial undertaking and therefore it does not fall under the purview of Section 10B of the IT Act, 1961.
In coming to these conclusions the AO has relied upon the following case laws:
(i) CIT v. Venkateswara Hatcheries (P) Ltd. Etc. (1999) 153 CTR (SC) 105 : (1999) 237 ITR 174 (SC);
(ii) Indian Poultry v. CIT (2001) 166 CTR (SC) 503 : (2001) 250 ITR 664 (SC);
(iii) CIT v. Relish Food (1999) 152 CTR (SC) 500 : (1999) 237 ITR 59 (SC).
3. In appeal, the CIT(A) has upheld such order of AO holding that the claim of the assessee was not tenable on legal propositions as according to him ornamental fishes can neither be manufactured or produced nor such fishes are animate creature viz. ornamental fishes can be called as an article or thing within the meaning of Section 10B of the IT Act, 1961. The CIT(A) has also rejected the plea of the assessee that it was given license as a 100 per cent export oriented undertaking by Falta FPZ, Ministry of Commerce, Government of India holding that such granting of license is not concerned with the provisions of Section 10B of the IT Act, 1961 or a definition of the words “manufacture” or “produce” article or thing used in Section 10B of the IT Act, 1961. He has, therefore, entrusted the view of the AO and has sustained the disallowance of claim by the assessee under Section 10B of the IT Act, 1961. The assessee is aggrieved with such order of the CIT(A) and has now come in appeal on the abovementioned grounds of appeal.
4. In appeal before us, the learned counsel for the assessee while assailing the order of authorities below has first narrated the facts. He has also described the various processes undertaken by the assessee while converting the raw fishes into ornamental fishes and has contended that the assessee is performing the manufacturing processes of the ornamental fishes with the help of various plants, machineries installed by the assessee. He has contended that the ornamental fishes come into existence after a number of processes undertaken by the assessee with the help of plant, machinery and other technology and the ornamental fishes produced by the assessee are accepted as new distinct creation than the raw fishes and therefore, such production of ornamental fishes by the assessee certainly tantamounts to manufacture or produce of a new article or thing on which the assessee is entitled for various deductions allowable under the law. He has also annexed a paper book in support of his contention wherein he has submitted the details of plants and machineries, the production steps and activities by the assessee in manufacturing ornamental fishes. The learned Counsel has also attached the definition of various etymologies such as pisciculture which means “the artificial breeding and rearing of fish”. He has also enclosed a copy of Foreign Trade Policy 2004-09 by the Ministry of Commerce and Industries, Director General of Foreign Trade, wherein various definitions of various words have been given and at para 9.24 the word EOU has been described as “export oriented unit for which an LOP has been issued by the Development Commr.” and at para 9.37 the word “manufacture” has been described as “to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, remaking, polishing, labelling, reconditioning, repair, remaking, refurbishing, testing, calibration, re-engineering. Manufacture for the purpose of this policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture and viticulture”. The learned Counsel has pointed out that from the above definition of the word manufacture as per Foreign Trade Policy of the Government of India, it is apparent that the activity pisciculture tantamounts to manufacture. Continuing his argument the learned Counsel has pleaded that in the case of the assessee raw fishes are converted into ornamental fishes which are indeed of a separate character than the character of raw fishes as raw fishes can be consumed and ornamental fishes cannot be consumed and there is a distinct and separate market for ornamental fishes than that of raw fishes. The learned Counsel has thereafter narrated the various processes involved in the manufacture of ornamental fishes.
5. The learned Counsel had also made a request to the Bench for a visit to his unit where the assessee processed/manufactured ornamental fishes with the help of various processes and this Bench accepted the request of learned Counsel and visited the unit of the assessee along with the learned Departmental Representative.
6. The learned Counsel for the assessee has thereafter pointed out that the ratio of two decisions relied by the learned AO while disallowing the claim of the assessee is not applicable to the facts of the assessee’s case as in the case of India Poultry v. CIT (2001) 166 CTR (SC) 503 : (2001) 250 ITR 664 (SC), the issue before the Hon’ble Supreme Court was whether the business of rearing chicks into broilers would entitle the assessee the benefit of exemption as an industrial undertaking for the purpose of Section 80HH and Section 80-I or not. It was contended before the Hon’ble apex Court that the assessee not only reared the chicken but also dressed them for sale in the market and therefore process of manufacture was carried out. Learned Counsel has pointed out that in this decision, the Hon’ble Supreme Court held that there was no material in this behalf and therefore the claim was disallowed. Whereas in the case of CIT v. Relish Food (1999) 152 CTR (SC) 500 : (1999) 237 ITR 59 (SC) again the issue was whether the process of cutting of heads and tails, peeling and cleaning and freezing amounted to manufacture or not and it was held by the Hon’ble Supreme Court that there was no detailed description of what the assessee did to shrimps and therefore the bald statement that he peals and freezes them was not acceptable as manufacturing activity to the Court.
7. The learned Counsel has also stated that the other decision of Hon’ble Supreme Court in case of CIT v. Venkateswara Hatcheries (P) Ltd. Etc. (1999) 153 CTR (SC) 105 : (1999) 237 ITR 174 (SC) is also not applicable to the facts of the case as that case is in relation to the poultry farming and the Hon’ble Supreme Court has largely relied upon the rule of construction and legislation intentions in coming to its decision by earlier provisions of the IT Act under Section 10(27) of the Act. It has been submitted by the learned Counsel that the main crux of the matter before the Hon’ble Supreme Court in above case was in relation to deduction of export profit derived out of export of poultry from the business of poultry farming and therefore, the ratio of above decision of Supreme Court is not applicable to the facts of the assessee’s case.
8. It has, therefore, been contended by the learned Counsel that all the three decisions relied by the AO are distinguishable from the facts of the case of the assessee as the assessee has explained the entire process step by step for the production of ornamental fishes. It has been pleaded that the successful production of the ornamental fishes is a time-taking culmination of several complex activities requiring knowledge, skill, equipments, plant and machinery, chemicals, dyes and fertilizers, medicines and drugs and other procedures.
9. The learned Counsel has further submitted that the word manufacture and produce has not been defined in the IT Act but as laid down by various authorities it is apparent that the same should be recognized in the trade as a new distinct commodity. The Hon’ble Supreme Court in the case of Aspinwall & Co. Ltd. v. CIT (2001) 170 CTR (SC) 68 : (2001) 251 ITR 323 (SC), held that the word manufacture has not been defined and in the absence of definition, it has been given a meaning as is understood in common parlance and therefore, it is to be understood as meaning the production of articles produced from raw or prepared materials by giving such material new forms, qualities or combination whether by hand labour or machines.
10. It has been emphasised by the learned Counsel that from the above observations of Hon’ble Supreme Court it is amply clear that the assessee proved to be entitled for deduction as it is also bringing a new article into existence by processing raw material which is different in character and is known by different names in the commercial world and therefore the action of the authority in disallowing the same also was not at all correct.
11. The learned Counsel has thereafter contended that all the processes undertaken by the assessee for converting juvenile fishes into ornamental fishes tantamount to manufacturing and also submitted details of processes undertaken by the assessee for converting such juvenile fishes into ornamental fishes. The learned Counsel has thereafter contended that the processes undertaken by the assessee for converting juvenile fishes into ornamental fishes tantamount to manufacturing of new articles or things and has relied on following decisions:
(i) CIT v. Shiv Oil & Dal Mills (2006) 281 ITR 221 (All);
(ii) Andaman & Nicober Islands Forest & Plantations Development (2005) 198 CTR (Cal) 76 : (2006) 280 ITR 118 (Cal);
(iii) CIT v. Darshak Ltd. (2001) 165 CTR (Kar) 17 : (2001) 247 ITR 489 (Kar);
(iv) CIT v. Mysore Minerals Ltd. (2001) 166 CTR (Kar) 142 : (2001) 250 ITR 725 (Kar);
(v) CIT v. S.L. Agarwala & Co. (1992) 101 CTR (Ori) 222 : (1992) 197 ITR 239 (Ori);
(vi) CIT v. M.R. Gopal (1965) 58 ITR 598 (Mad);
(vii) CIT v. Lakhtar Cotton Press Co. (P) Ltd. (1983) 142 ITR 503 (Guj);
(viii) Nu-look (P) Ltd. v. CIT (1986) 50 CTR (Del) 142 : (1986) 157 ITR 253 (Del);
(ix) Aspinwall & Co. Ltd. v. CIT (supra);
(x) CIT v. Geo Tech Foundations & Constructions (2000) 158 CTR (Ker) 586 : (2000) 241 ITR 90 (Ker);
(xi) M.B. Chemicals v. Dy. CIT (2001) 70 TTJ (Pune)(TM) 278 : (2001) 76 ITD 1 (Pune)(TM);
(xii) Addl. CIT v. New Nandi Seeds Corporation (2006) 101 TTJ (Ahd) 725 : (2006) 99 ITD 702 (Ahd);
(xiii) Asstt. CIT v. Panchayal Industrial 7 SOT 86 (Cochin);
(xiv) Pushpam Synthetics (P) Ltd. v. Asstt. CIT (2006) 5 SOT 257 (Mumbai).
The learned Counsel has also placed copy of Form No. 56G, letter of permission by the appropriate authority to the assessee for manufacture and production of ornamental fishes, copy of license as a 100 per cent export oriented undertaking under the Falta Export Processing Zone and certificate from the Fish Aqua Culture and Fish Port Office, Government of West Bengal, where fish production award has been given to the assessee for production of ornamental fishes during the financial year 2002-03. All such copies are available in the paper book filed by the assessee.
12. The learned Counsel has also placed his reliance on various definitions of the word manufacture and processing and placed a copy thereof in the paper book contending that pisciculture tantamounts to manufacture. The learned Counsel has also contended that process undertaken by the assessee could not be termed at par with the case of CIT v. Venkateshwara Hatcheries and Ors. (supra). It has been submitted by the learned Counsel that facts of the case in case of Venkateshwara Hatcheries (supra) are altogether different to the facts involved in the present case as in this case the assessee is not producing or manufacturing the same thing which would have produced or which would have been available without deploying any processing or manufacturing. It has further been contended that once the assessee fulfils all the criteria of 100 per cent export oriented zone and the license has been granted by the Ministry of Commerce, treating the unit of assessee as processing unit, the action of the Revenue in treating the-assessee company as not entitled for the benefit under Section 10B was not correct as the assessee is certainly involved in the manufacturing process of ornamental fishes.
13. The learned Counsel has pointed out that in almost identical case this Tribunal in case of Ektara Export (P) Ltd. 1046/Kol/2005 has held that the assessee company should be treated to have undertaken manufacturing activities.
14. Concluding his argument, the learned Counsel has submitted that the provisions of Section 10B grant incentive for promoting growth and development and earning considerable foreign exchange by value addition and such provisions are to be interpreted liberally and in favour of the assessee and for making this submission, he has relied on the following decisions:
(i) CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 104 CTR (SC) 243 : (1992) 196 ITR 149 (SC);
(ii) Bajaj Tempo Ltd. v. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC);
(iii) Bhargavy P. Sumathykutty v. Janaki Sathyabhama and Ors. (1996) 131 CTR (Ker) 316 : (1996) 217 ITR 129 (Ker).
15. In his rival submission, the learned Departmental Representative relied fully on the order of tax authorities. Rebutting the contention of the learned Authorised Representative of the assessee, it has been pleaded by learned Departmental Representative that the issue involved in this case is squarely covered by the order of the Supreme Court in cases of Venkateshwar Hatcheries (supra), Indian Poultry (supra) and Relish Food (supra) which had been relied by the AO also wherein the Hon’ble Supreme Court has held that the assessee company was not entitled for benefit under Sections 80HH and 80-I as the activities of processing to convert chicks into broiler cannot tantamount to manufacturing or processing activity. It has been submitted by the learned Departmental Representative that the facts in the present case are identical as in the present case also as the assessee is applying simple method in changing raw juvenile fishes into ornamental fishes and therefore the fact of the case is almost identical to the facts of the case involved in the above three cases relied by the AO while denying benefit of deduction under Section 10B to the assessee and therefore such action of the AO and CIT(A) should be upheld.
16. We have given our careful consideration to the rival submissions and have perused the orders of the tax authorities. We have also considered the paper book filed and the case laws relied upon. We also have taken into consideration the processing activities as seen by us while visiting the premises of the assessee along with the learned Departmental Representative while deciding the issues.
17. In this case the Revenue has considered the processing of juvenile fishes into ornamental fishes not eligible for deduction under Section 10B as such conversion of juvenile fishes into ornamental fishes could not be considered as manufacturing activity within the meaning of Section 10B of the Act, by relying on the order of Supreme Court in the case of Venkateshwara Hatcheries and Ors. (supra). The assessee on the other hand has contended that the conversion activity of juvenile fishes into ornamental fishes certainly tantamounts to the manufacturing activity as the assessee by such conversion is bringing altogether a new article or item which is distinct and separate from the original entity. The assessee has further contended that such conversion activity of juvenile fishes into ornamental fishes could not be considered at par with the activity of rearing of chicks into broilers and therefore the decisions of Hon’ble apex Court, relied by the Revenue are not applicable to the facts of the case.
18. The assessee has contended that the conversion activity of juvenile fishes into ornamental fishes i.e., pisciculture certainly carries the character of manufacturing. The assessee has also relied on the various decisions in support of his contention that it was manufacturing ornamental fishes. We find it appropriate to discuss the decision briefly as under.
19. In case of CIT v. Shiv Oil & Dal Mills (supra) it was held that the Tribunal had found that after purchasing the oil, it was subjected to a process or treatment and what was sold by the assessee was not the same thing as was originally purchased. The Tribunal was right in allowing the benefit of Sections 80HH and 80-I of the Act to the assessee in respect of refining of the oil from the oil purchased from the local market inasmuch as the process of refining amounts to production as contemplated under the sections.
20. Whereas in case of Andaman & Nicober Islands Forest & Plantations Development (supra), it was held that de-embarking and seasoning tree trunks and converting them into logs would amount to production of a new commercial article or thing within the meaning of Sections 32AB, 80HH and 80J. The assessee was entitled to the benefit of deductions thereunder for the asst. yrs. 1984-85 and 1985-86.
21. Hon’ble Karnataka High Court in the case of CIT v. Darshak Ltd. (supra), held, dismissing the appeal, that the assessee was transforming the plain glassware into decorative glassware with a process which was irreversible and the end-product was distinct and different in character and it was marketed as a commodity different from the plain glass. The assessee was entitled to the benefit of Section 80-I of the Act.
22. In another case Hon’ble Karnataka High Court in the case of CIT v. Mysore Minerals Ltd. (supra) held, that the Tribunal had found that the big iron ingot and the smaller pieces were commercially different. In view of the categorical factual finding recorded by the Tribunal that a different and distinctive commercial commodity came into existence, the assessee was entitled to investment allowance.
23. Hon’ble Orissa High Court in case of CIT v. S.I. Agarwala & Co., (supra) held, that the Tribunal had found that the big iron ingot and the smaller pieces were commercially different. In view of the categorical factual finding recorded by the Tribunal that a different and distinctive commercial commodity came into existence, the assessee was entitled to investment allowance
24. Hon’ble Madras High Court in CIT v. M.R. Gopal (supra) held that the process employed in converting boulders into small stones with the aid of machinery is a manufacturing process and the undertaking is an “industrial undertaking” and as such entitled to the exemption under Section 15C.
25. Hon’ble Gujarat High Court in case of CIT v. Lakhtar Cotton Press Co. (P) Ltd., (supra) held, that loose cotton in bulk quantity with lighter density was, as a result of pressing, converted into cotton bales and to that extent it underwent a change and, therefore, the assessee-company fell within the definition of an “industrial company” because it processed cotton into cotton bales and was entitled to the concessional rate of tax within the meaning of Sections 2(7)(c) and 2(8)(c) of the Finance Acts, 1973 and 1974, respectively.
26. Hon’ble Delhi High Court in the case of Nu-Look (P) Ltd. v. CIT (supra) held, reversing the decision of the Tribunal, that when the assessee made readymade garments, it used its own cloth to make the clothes or garments and in the case of its customers who brought their own cloth, the assessee did the same thing by making garments for the customers but out of customer’s cloth : there was essentially no difference in the two activities. The making of clothes or garments to the order of the customers was also manufacturing or processing of goods.
27. The Hon’ble Supreme Court in the case of Aspinwall & Co. Ltd. v. CIT (supra) held, reversing the decision of the High Court, that the assessee after plucking or receiving the raw coffee berries made them undergo nine processes to give them the shape of coffee beans. The final product was absolutely different and separate from the input. The change made in the article resulted in a new and different article which was recognized in the trade as a new and distinct commodity. The coffee beans had an independent identity from the raw material from which they were produced. Conversion of the raw berry into coffee beans was a manufacturing activity. The assessee was, therefore, entitled to the investment allowance under Section 32A.
The word “manufacture” has not been defined in the IT Act. In the absence of a definition, the word “manufacture” has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the articles results in a new and different article then it would amount to manufacturing activity.
28. Hon’ble Kerala High Court in the case of CIT v. Geo Tech Foundations & Constructions (supra) observed that the test for determining whether manufacturing can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new distinct commodity.
29. Pune Bench of Tribunal in case of M.B. Chemicals v. Dy. CIT (supra) held as under:
There was no dispute about the test to be applied to decide whether a particular processing activity amounts to manufacture or not. The test has been laid down by the apex Court and various High Courts in unmistakable terms. The test is whether the processing has resulted in a commercially different product or not. The test to be applied is clear but the problem arose in its application, in the present case.
On the basis of the evidence filed by the assessee before the Revenue authorities and the Tribunal, it had to be held that a commercially different commodity had come into existence. The certificates filed from various pharmaceutical laboratories were indicative of the fact that candy sugar is a different commodity from sugar and that it is not only known by a different name but has also different uses and serves different purposes from ordinary grade sugar. Sales-tax cases which held that candy sugar is only a different form of sugar were distinguishable inasmuch as they were dealing with a different legislative provision.
The various certificates produced by the assessee from the pharmaceutical laboratories showed that candy sugar is a different commodity from sugar. The above conclusion is also supported by the decision of the Andhra Pradesh High Court in the case of Surana & Co. v. State of A.P. (1977) 40 STC 192 (AP). The decision in Chunnilal Motilal v. CST (1965) 16 STC 297 (MP) is an authority for the proposition that those cases based on Central Excise entry are distinguishable and also for the proposition that in common parlance ‘mishri’ or candy sugar cannot be regarded as sugar, and that the two are commercially different commodities.
Simply because the finished product has the same chemical composition as the raw material from which it is made, it does not follow that the process involved does not amount to manufacture. In the light of the above, it was hardly a disqualification that the chemical content of candy sugar was not different from sugar. In order that the process to which an article is subjected should be a manufacturing process, it is not essential that the article must change its nature. It is enough if it becomes a different commercial article. This is the proposition laid down by the Allahabad High Court in the case of Badri Prasad Prabha Shanker v. CST 14 STC 208 (All).
In the present case, in the light of evidence furnished before the Tribunal it was clear that candy sugar is put to different uses from sugar and it is generally known as a different commercial commodity. Candy sugar is used by pharmaceutical companies and it had been ascertained in the course of the hearing that 45 per cent of the sales of candy sugar by the assessee had been effected to pharmaceutical companies.
If the consumer asks for sugar, he does not get candy sugar from the dealer. If he asks for candy sugar, he does not get sugar either. Therefore, the JM was correct in holding that the process carried on by the assessee amounted to manufacturing process and that the assessee was entitled benefit under Section 80-I.
30. The Revenue has also relied on the three decisions of the Hon’ble apex Court which have already been mentioned hereinabove. In case of Venkateshwara Hatcheries (supra) it was held as under:
Held, allowing the Revenue’s appeals and dismissing the assessee’s appeals, that from a perusal of the steps taken by the assessee for the production of chicks, it was clear that the assessee did not contribute to the formation of chicks. The formation of chicks is a natural and biological process over which the assessee had no hand or control. In fact, what the assessee was doing was to help the natural or biological process of giving birth to chicks. The chicks otherwise could 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 did in the hatchery was 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’. The assessee is neither an industrial undertaking nor does the business of hatchery carried out by the assessee fall within the meaning of Sections 32A and 80J of the Act. Consequently, the assessee is not entitled to investment allowance under Section 32A of the Act and special deductions under Sections 80HH, 80HHA, 80-I and 80J of the IT Act.
31. Whereas in the case of CIT v. Relish Food, (supra) the Hon’ble apex Court held as under:
Held, reversing the decision of the High Court, (i) that there was no detailed description of what the assessee did to the shrimps it bought, other than the bald statement that it peeled and froze them. 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 do not become other distinct commodities. There is no essential difference between raw shrimps and prawns and processed or frozen shrimps. The assessee was not entitled to the special deduction under Section 80HH for the asst. yr. 1977-78.
And in case of Indian Poultry v. CIT (supra), the Hon’ble Supreme Court again reiterated its view taken in above two cases.
32. We, after perusing the ratio of decision in the case of Venkateshwara Hatcheries and Ors. (supra) relied on by the AO, find that the issue before the Hon’ble Supreme Court in cases of Venkateshwara Hatcheries (supra) and Indian Poultry (supra) was regarding rearing of chicks into broilers whereas in the case of Relish Food (supra) the issue was whether processing or cutting of heads and tails of shrimps tantamounts to manufacturing activity or not.
33. In our considered opinion, rearing of chicks into broilers does not take the character of manufacturing as such rearing of chicks into broilers is well possible even without manufacturing activity; the same is also true in the case of cutting of heads and tails of shrimps whereas in the present case, the assessee is converting juvenile fishes into ornamental fishes not only in its ordinary form but also by reversing the sex of fishes which is not possible without undertaking number of processes and such ornamental fishes are quite distinct and separate from the ordinary juvenile fishes. The assessee has also submitted a detailed description of various processes (which were also produced before the authority below) adopted for the production of ornamental fishes which are reproduced hereunder for the sake of clarity:
The raw material in the case of the appellant which is the raw fish is procured from the wild and also from breeders.
• The appellant is having around 800 holding tanks at the designated unit, wherein such juvenile raw fishes are preserved.
• The holding tank contains different categories of. water suitable for different species of raw fishes and the different water qualities is produced in the appellant’s unit using reverse osmosis plant, chemical dosing and biological processing.
• At this stage, the juvenile raw fishes are treated against various diseases and injuries and are made accustomed to the food of captivity. For fish treatment drugs as tetracycline, chloramphenicol, formalin, and other broad spectrum fungicides and antibiotics are used.
• The selected raw fishes are conditioned under the controlled and suitable water conditions laid down for them and the process of artificially breeding takes place using different methods on different species of fishes. Artificial breeding is where the males are made to mate in artificial water conditions laid down by them in separate water tanks conditioning them to produce further specific fishes.
• The livebearers (fishes that give birth to young ones) are identified from amongst the various holding tanks and the females with eggs are placed in round vats and the males are introduced to fertilize the eggs within the female womb.
• The females give birth to live youngs whose sex is not determinable and the appellant by using hormones for sex reversal ensures breeding of male fishes as they become more colourful after injecting biological dyes and pigment for export of the ornamental fishes.
• The young fishes are fed on artificial food blended with the hormone alphamethyle testosterone. By this method all the young fishes turn into males. The purpose for doing this is to get a higher market value since females are relatively colourless and fetch a much lower value and the intention of the appellant is to get the male gender so that after further processing brilliantly coloured ornamental fishes could be produced. Exclusive sale of male fishes ensures that importing countries cannot further breed the strain.
• The said process takes approximately four to six weeks.
• In the holding tanks the sizes of produced ornamental fish are regulated depending on buyers, demands. Further growth can be controlled i.e. for example if the exporters, demand is for 2 inches size fish, that size can be controlled and maintained by adopting process such as increase in stocking density and reduction in growth causing foods.
• The fishes are thereafter subject to artificial colouring by injecting biological dyes and pigments mixed with medicaments. Some of the dyes used are methylene blue, tetrazine yellow, potassium permanganate (purple) and red dye. By this method the entire colour can be changed and/or also localized colour scheme could be given to different areas of the fish.
• After injecting the colour scheme, the fishes are subjected to ultraviolet rays in the temperature controlled atmosphere for 48 hours. By this method the fish’s colour becomes permanent and also the process neutralizes any injuries caused to the fish and adverse reactions in the body.
• Some species of fishes are converted to brilliantly coloured fish by the addition of chemicals such as astaxanthin and canthazanthin to the fish food. When the fishes are fed with the above-prepared food under controlled temperatures, they develop colours and are further processed by the use of dyes and pigments as above.
• The fish food, packing materials, and the water for keeping the fishes in captivity and for exporting them are produced by the appellant, using various machineries.
• The ornamental fishes produced by the assessee are unfit for human consumption and can no longer survive in nature if released back to nature.
• The assessee can produce identical number of ornamental fishes as per the customer’s quantity requirements of identical colour combined fishes with the same strains and colour combination through the above process which can never happen biologically.
34. The assessee has also furnished the complete list of plant and machinery used by it for such production which is as under:
Internal power filters,
External power filters,
Power heads,
Thermostatic heaters,
Vortex blowers,
Ozone generators,
Biological filters,
Reverse osmosis water treatment systems,
Water softening equipment,
Multi nozzle aeration pumps,
Diaphram type air pumps,
Hand nets,
Mechanical biological filter (air operated),
Glass tanks,
Cement tanks,
Plumbing fixtures for water supply,
Network of aeration pipes for supply of air under pressure,
Oxygen cylinders,
Bag sealing machines,
Modified atmosphere gas filling and sealing machine,
Band sealer,
Central rook heating apparatus (radiation type),
Refrigeration equipment,
Water testing equipment and kit,
Microscope,
Diesel generating set,
Central servo stabiliser system.
35. Whereas the packing process is as under:
(a) The ornamental fishes are taken out from the aquariums using specialized nets and are manually counted and placed in plastic bags, which are produced in the unit.
(b) The bag contains appromixately three litres treated water and medicines. Pure oxygen is filled in the bags and the mouth sealed manually or with the help of gas flushing and ceiling machine. Such bags are placed in insulated cartons, which are also assembled in the unit.
(c) At the time of packing tranquillisers are also used on the fishes to keep them calm during transport.
(d) During transportation the temperatures inside the boxes must be between 22-25 degree Celsius. In summers ice packs are used to maintain cool temperature and in winter a higher temperature of water is used for packaging.
The appellant is performing all the activities from producing the ornamental fishes to packaging them for export under superior technology and skills.
36. From the perusal of the above description of various processes, list of plant and machinery and packaging process, it is evident that the assessee is certainly involved in the manufacturing of ornamental fishes as such ornamental fishes are only manufactured by the assessee after a number of processes undertaken by it including the sex reversal, which is not at all possible without manufacturing or processing activity. The assessee has also made available the literature in support of above processing activity for manufacturing of ornamental fishes which clearly established the claim of the assessee that it was producing ornamental fishes which are many-fold valuable than the juvenile fishes. Apart from above fact, we have also noted the fact that the above processing activity undertaken by the assessee has not been controverted or rebutted by the learned Departmental Representative and same is also evident from the inspection of such factory premises by this Bench along with the learned Departmental Representative. Considering the above fact, we find that the claim of assessee to have manufacturing ornamental fishes finds support from the ratio of decision relied by learned Authorised Representative and particularly the decision of Hon’ble Supreme Court in case of Aspinwall & Co. Ltd. (supra).
37. As evident from the process undertaken by the assessee, the assessee is making a total change of raw fishes which is only possible with the help of process of manufacturing. Some of such processes and features are as under:
(i) Change in the sex of fishes at the beginning of their life by blending hormones in artificial food.
(ii) This results in change of colour of fishes and value addition to the fishes.
(iii) Giving different colours to fishes by injecting chemicals to fishes as per requirement of importers and the market.
(iv) These manufactured fishes are of different character as they cannot survive in the natural environment and require special/artificial conditions by the assessee.
(v) The manufactured fishes are different in use also as same cannot be consumed and are of only ornamental value.
(vi) The ornamental fish loses its character after manufacturing and cannot be reverted back to its original form i.e. juvenile fish.
(vii) All other activities which have already been mentioned in the process chart submitted by the assessee are reproduced elsewhere in this order and not controverted by the Revenue.
38. Since the assessee has undertaken a number of processes for manufacturing ornamental fishes and such processing activity was undertaken by a number of machineries installed by the assessee apart from the fact that it was also granted license by the competent authority and to undertake such processing activities, in our considered opinion, the assessee is fulfilling all the conditions of production as laid down in Section 10B of the Act and, therefore, it is eligible for deduction as specified in Section 10B of the Act. While coming to such conclusion we find support from the order of this Tribunal in case of Ektara Exports (P) Ltd. (supra), wherein it was held that the assessee should be given benefit under Section 10A of the Act.
39. We, therefore, considering the facts and circumstances involved in this case and also considering the processing activities of the assessee and the ratio of decisions of various Benches of Tribunal, High Courts including apex Court are of the opinion that the assessee company was certainly involved in the manufacturing activity of producing ornamental fishes from juvenile fishes as the ornamental fishes produced by the assessee are absolutely different and separate in character and identity from juvenile fishes and such change made in juvenile fishes with the help of number of processes has resulted into a new and different article which is recognized in the trade as a new and distinct commodity i.e., ornamental fishes and therefore, such change made in juvenile fishes into ornamental fishes certainly amounts to manufacturing activity and therefore in our considered opinion, the authorities below were not correct in disallowing the claim of the assessee under Section 10B of the Act. We, therefore, set aside such order of learned CIT(A) in confirming the action of AO in denying the benefit of deduction under Section 10B and direct the Revenue to allow the benefit under Section 10B to the assessee and accordingly accept the grounds raised in this regard.
40. In the result, the assessee’s appeal is allowed.