ORDER
This appeal by the revenue is for the assessment year 1985-86. The only effective ground of objection by the revenue is against the order of the learned Commissioner (Appeals) in allowing deduction under section 80HHC of the Income Tax Act, 1961, in respect of ginger, turmeric, Kapurkachli, Kolinjan, Methi seeds, etc., on the ground that the commodities imported could not be considered as primary agricultural products. The case of the revenue is that the Commissioner (Appeals) should have confirmed the order of the assessing officer in view of the facts that the processes employed by the assessee did not result in converting the primary agricultural commodity into a different commodity.
2. The facts of the case are briefly as under: The assessee filed the return admitting total income of Rs. 1,04,260 on 5-11-1985 for the assessment year 1985-86. The assessment was completed on 13-10-1987 under section 143(1) of the Act. Subsequently, it was noticed that the assessee claimed deduction under section 80HHC amounting to Rs. 3,53,999 at 1 per cent of the turnover and 5 per cent of the incremental turnover. The claim was on items like turmeric, Kapoorkacholi, Kolinjan, etc., which are primary agricultural commodities on which, no deduction is allowable under section 80HHC. Since in the subsequent years no such deduction was allowed by the assessing officer and this was upheld by the first appellate authority, the assessing officer reopened the assessment under section 147 obtaining the approval of the competent authority. Notice under section 148 was issued. In response to the notice, the assessee filed the return on 8-3-1991 disclosing the same income as shown earlier. It was the case of the assessee that these items are not primary agricultural commodities though these items have to pass through some more mechanical processes before they are sold in the market. The assessee also objected to the reopening of the assessment relying on the decision of the Kerala High Court in P.K. Mohammed (P) Ltd. v. CIT (1980) 162 ITR 587 (Ker). The assessing officer held that the decision of the Supreme Court in Indian & Eastern Newspaper Society v. CIT(1979) 119 ITR 996 (SC), relied on by the assessee does not help the assessee as the facts are distinguishable. According to him, the audit party only brought the attention of the department to the mistake in allowing the deduction under section 80HHC in full in the instant case; whereas in the case before the Supreme Court the audit party gave its opinion on a point of law which could not be considered as information enabling the assessing officer to initiate reassessment proceedings under section 147(b) of the Act. Further the case was reopened because of the subsequent order passed by the assessing officer wherein he had concluded that ginger, turmeric, Kolinjan, Kapurkachili, Methi seeds, etc., are primary agricultural commodities and, therefore, they are not entitled to the relief under section 80HHC.
3. On merits, the assessing officer held that the process narrated by the assessee would only indicate that there was no process as alleged by the assessee. The only process carried out was general in nature which are done in order to make a product marketable such as cleaning, washing drying and fumigating. According to the assessing officer there is no mechanical process involved in none of these processing, if at all. Therefore, he held that what the assessee sold was primary agricultural commodities and hence the assessee was not entitled to the relief under section 80HHC. The assessing officer also held that for the assessment year 1984-85, none of these items were included in section 2(6) of the Kerala Plantation Tax Act, 1960 and this position held good for the assessment year under consideration also. The matter was carried beforg the learned first appellate authority.
4. Regarding the reopening of the assessment, the learned first appellate authority held that it is valid in law as the reopening was done not on the basis of the audit report but on the subsequent stand taken by the department.
5. It was also the case of the assessee before the learned Commissioner (Appeals) that the assessee was entitled to the deduction under section 80HHC relating to the following commodities :
Ginger,
Cardamom,
Turmeric,
Kapurkachli,
Kolinjan,
Garbled pepper; and
Methi seeds.
The Commissioner (Appeals) noticed that out of the above, the assessing officer allowed deduction only in respect of cardamom and garbled pepper. It was submitted before the learned Commissioner (Appeals) that as regards ginger, the commodity dealt with by the assessee was not green ginger but was dried ginger known as ‘Chukku’ in Malayalam. The quality, appearance and the use of dried ginger are entirely different from those of green ginger. The conversion is through a long process. The green ginger is first peeled to remove the roots and also skins. It is then washed to remove the dust and thereafter it is dried well. Drying process takes place by exposure to the sun and also by other manual and mechanical process. After this process green ginger is treated by mechanical as well as manual process and gain it is washed, dried and once again cleansed, removing the skin. Thereafter the process of fumigation is done. As far as turmeric is concerned, the skin is removed, then washed. Thereafter, it is boiled in big pans and dried in the open yard. Once again it is washed, dried and the dust particles are removed. Thereafter the commodity is garbled and fumigated. Coming to Kapurkachli the same process is carried on. Therefore, the case of the assessee was that these are goods processed and as a result they become distinct from the primary agricultural commodities. Therefore, the assessee contended that these are not the same items contemplated under section 80HHC(2)(b)(i) of the Act. It was the case of the revenue before the first appellate authority that none of the processes mentioned by the assessee did not result in converting the primary agricultural commodity into a different commodity so as to avail the benefit envisaged under section 80HHC. According to the assessee, the process is a simple process which enables the assessee to market the commodities and nothing more.
6. On merits, the first appellate authority came to the conclusion that what the assessee marketed or exported is not primary agricultural commodities. According to the Commissioner (Appeals) the commodity has undergone a substantial process and what the assessee exported is quite different from the original stuff. He accordingly held that green ginger is different from dried ginger, so also turmeric and other items. The learned Commissioner (Appeals), therefore, directed the assessing officer to allow deduction under section 80HHC in respect of ginger, turmeric, Kapurkachli, Kolinjan, Methi seeds, etc. Aggrieved by the above order, the revenue is in appeal before the Tribunal.
7. The learned Departmental Representative submitted that the process the assessee had done did not convert the commodities into a new commodities. The assessee was only cleaning, removing the dust and other extraneous particles and drying the commodities either by mechanical or manual process and then fumigating. After undergoing all these processes, the commodity remains the same as it retains its original character. Accordingly to him, dry ginger and green ginger are the one and same commodity. In the dry ginger only the water element comes down. Peeling and removing dust particles do not make the commodity different from primary agricultural commodity. So also the case with other items like, turmeric, Kapurkachli, Kolinjan and Methi seeds. Relying on the decision of the Supreme Court in the case of CIT v. Relish Foods (1999) 8 DTC 395 (SC) : (1999) 237 ITR 59 (SC), the learned Departmental Representative submitted that the order of the Commissioner (Appeals) is liable to be set aside. The learned Departmental Representative further relied on the following observations of the Apex Court in the above case; in support of his contention :
“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.”
8. Opposing the above, the learned counsel for the assessee submitted that the case law relied on by the learned Departmental Representative is not to be applied to the assessee’s case. He submitted that though the decision went against the assessee in that case, it was only because of the fact that it was too late in the day to send back the matter for fresh appreciation of facts. In that case, the assessment year involved was 1977-78 and the matter came up before the Hon’ble Apex Court after 20 years. In the light of the above facts, the Hon’ble Apex Court declined to remand the matter for fresh appreciation of facts. Therefore, the learned counsel for the assessee submitted that the decision in Relish Foods’ case (supra) does not lay down any general principle to be followed. Inviting our attention to the decision of the Cochin Bench of the Tribunal in case of Income Tax Officer v. M.M. Abdul Hamid & Sons (1993) 46 ITD 149 (Coch-Trib), the learned counsel submitted that the decision of the learned Commissioner (Appeals) deserves to be upheld. On similar facts, in that case, the counsel submitted, the Tribunal held that dried cocoa seeds was not primary agricultural produce, and by a few days fermentation like process, the character of the seeds had not undergone any change, either in its quality or nature or form. The learned counsel for the assessee further submitted that under the Kerala Agricultural Sales Tax Act, green ginger is exempted whereas dried ginger is taxed, at the last purchasing point, because it has undergone considerable change and it has become a commercially viable commodity.
9. In reply to the above, the learned Departmental Representative reiterated that the commodity remained the same after the process mentioned by the assessee and hence the relief is not available to the assessee. For this proposition, the learned Departmental Representative relied on the decision of the Tribunal, Cochin Bench, in the case of Assistant CIT v. U. Shahul Hameed & Bros. (1995) 52 ITD 8 (Coch-Trib). In this case, the Tribunal held that tendu leaves which had been subjected to process of drying and being sprinkled with water to make them fit for manufacturing beedies could not be considered a forest produce for purpose of section 44AC.
10. I have heard rival submissions and gone through the orders of the revenue authorities, and the decisions cited. For an easy appreciation it is necessary to reproduce section 80HHC as it stood at the relevant point of time:
“80HHC. Deduction in respect of export turnover:
(1) Where the assessee, being an Indian company or a person (other than a company), who is resident in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section be allowed, in computing the total income of the assessee, the following deductions, namely :
(a) a deduction of an amount equal to one per cent of the export turnover of such goods or merchandise during the previous year;
(b) a deduction of an amount equal to five per cent of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year ; and
(c) (a) This section applies to all goods or merchandise (other than those specified in clause (b)) if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange.
(b) The goods or merchandise referred to in clause (a) are the following, namely:-
(i) agricultural primary commodities, not being produce of plantations;”
A reading of the above section makes it clear that this section applies only to primary agricultural commodities, not being produce of plantation. The word ‘primary’ is defined in the Concise Oxford Dictionary, (Seventh Impression) as “earliest”, “original”, “of the first rank in a series”, “belonging to first stage of development” etc. It cannot, therefore, be said that dried ginger is a primary agricultural commodity. So also the case with cardamom, turmeric and other items. When these commodities are subjected to some process, they do not retain their original character of primary agricultural commodities. In the case relied on by the learned Departmental Representative viz.- Relish Foods’ case (supra), the Hon’ble Supreme Court approved the decision of the Hon’ble Bombay High Court in the case of CIT v. Sterling Foods (Goa) ( 1993) 213 ITR 851 (Bom). The issue before the Bombay High Court was with regard to the meaning of the terms ‘manufacture’ or ‘production’ used in section 80HH of the Income Tax Act, 1961. The Hon’ble Bombay High Court held that prawns processed for the purpose of export do not loose their original character. No new commodity or article emerged as a result of such processing. The Hon’ble Supreme Court in Relish Foods’ case (supra) disapproved the decision of the Hon’ble Kerala High Court in CIT v. Relish Foods (1989) 180 ITR 454 (Ker) wherein the High Court held the view that purchasing, peeling, freezing and export of shrimps amounted to production of an article or thing. In other words, in both cases, the issue before their Lordships was whether this process amounted to production or manufacture, but not the issue which is now before the Tribunal. The issue now before the Tribunal is whether after processing as detailed above, the green ginger, turmeric, cardamom, Kapurkachli, Kolinjan, Garbled pepper and Methi seeds still retained their original nature of primary agricultural commodities. It is difficult to hold that they still retain the character of primary agricultural commodities. The commodities after subjecting them to processing have undergone a change in their nature. In the light of the above, I am of the view that the decision relied on by the learned Departmental Representative is not applicable to the facts of the instant case.
After the processing mentioned above, these commodities have changed their original form of primary agricultural commodities. I, therefore, do not find any merit in the appeal by the revenue .
11. In the result, the appeal by the revenue fails and is dismissed.