ORDER–Withdrawing deduction under s. 80HHC.
Ratio:
The groundnuts obtained after processing of groundnuts in shell did not come within ambit of expression. “agricultural primary commodities” in section 80HHC(2)(b)(i), therefore revisional order withdrawing the deduction granted earlier was not valid.
Held:
It is obvious that the commodities that are exported are not agricultural primary commodities. Agricultural primary commodities are groundnuts in shell. The kernels that are ultimately exported are obtained after processing and as a result of the said processing they ceased to be agricultural primary commodities. Consequently, deduction under section 80HHC(I) would be allowable. The HPS groundnuts which are exported by the assessee do not come within the ambit of expression “agricultural primary commodities” in section 80HHC(2)(b)(i). Consequently, the Commissioner was not justified in directing the Income Tax Officer to withdraw deduction granted in the original assessment order under section 80HHC(1).
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
Income Tax Act 1961 s.80HHC
ORDER
R.L. Sangani, Judicial Member
1. This appeal by the assessee for assessment year 1983-84 is directed against order dated 28-3-1990 passed by the Commissioner of Income-tax Gujarat-I, Ahmedabad in exercise of powers under Section 263 of the Income-tax Act, 1961.
2. The assessee was a State Government Corporation carrying on business of export of various commodities. The assessment for assessment year 1983-84 was completed by the Income-tax Officer under Section 143(3) of the Act on 17-3-1986 determining the total income of Rs. 10,50,400. The assessee had claimed deduction under Section 80HHC amounting to Rs. 1,28,07,322 which was allowed by the Income-tax Officer. The learned Commissioner initiated proceedings under Section 263 of the Act. He noticed that the exports included exports of HPS groundnuts of Rs. 11,99,83,060. According to him HPS groundnuts were “agricultural primary commodities” and as such in view of provisions in Section 80HHC(2) (b)(a) of the Act, deduction under Section 80HHC(1) was not allowable on these exports. He rejected the plea of the assessee that the HPS groundnuts did not come within the ambit of the expression “agricultural primary commodities”. He accordingly directed the Income-tax Officer to withdraw the said deduction. Against that order the assessee has come in appeal before the Tribunal.
3. The submission on behalf of the assessee is that HPS groundnuts did not come in the category of “agricultural primary commodities” and as such deduction under Section 80HHC(1) was allowable. Reliance was placed on the decision of Hyderabad High Court in Kishenlal Oil Mills v. CST [1955] 6 STC 650. Reliance was also placed on N.B. Abdul Gafoor v.ITO [1989] 29 ITD 227 in which the question involved was whether the tendu leaves acquired by the assessee under forest contract would come in the category of agricultural primary commodity. Further reliance was placed on the decision in Hemsons Industries v. ITO [1987] 23 ITD 364 (Hyd.) in which the question was whether decortication of groundnuts could be said to be manufacturing activity. On the other hand, the submission on behalf of the Department was that HPS groundnuts came within the category of “agricultural primary commodities” and as such the learned Commissioner was justified in holding that deduction under Section 80HHC(1) was not allowable. In support of this submission, the learned Departmental Representative has referred to certain decisions.
4. We have considered the rival submissions. Deduction under Section 80HHC(1) is allowable on exports of all goods or merchandise other than those specified in Clause (b) of Sub-section (2) of Section 80HHC. It is an admitted position that other conditions for allowance of said deduction are fulfilled. Consequently, the only question to be decided is whether HPS groundnuts come within the ambit of goods and commodities mentioned in Clause (b) of Sub-section (2) of Section 80HHC. The learned Commissioner has relied on Sub-clause (i) of Clause (b) of Sub-section (2) of Section 80HHC which reads “agricultural primary commodities, not being produce of plantations”. The crucial question therefore to be decided is whether HPS groundnuts come within the ambit of the expression “agricultural primary commodities” in Section 80HHC(2)(b)(i) of the Act. If HPS groundnuts come within the ambit of said expression then deduction under Section 80HHC(1) would not be allowable while if they do not come within the ambit of said expression, deduction under Section 80HHC(1) would be allowable.
5. The expression “agricultural primary commodity” has not been defined in the Act. It is, however, obvious that the commodity in question should be an agricultural commodity and further it should be a primary commodity in the sense that it should not have been obtained after processing. The expression “agricultural” indicates that the commodity is the product of agricultural operations on land. After the agricultural commodity is obtained by such operation if certain processing is done, the said commodity would cease to be agricultural primary commodity.
6. As far as HPS groundnuts which are exported by the assessee are concerned, admittedly they are HPS groundnut kernels. The groundnuts in shell are decorticated mechanically to remove the shell and its seeds (kernels) then pass through mechanical sieve shaker fitted with different graded sieves for removing small seeds and foreign matter. The required graded kernels are then collected and further sorted and graded manually by experienced workers (mainly women) using sieves as per required specification. The sound kernels, after being tested for ascertaining absence of aflatoxins are then exported. These facts which were placed before the learned Commissioner were not disputed and are supported by relevant certificates produced by the assessee. It is obvious that the commodities that are exported are not agricultural primary commodities. Agricultural primary commodities are groundnuts in shell. The kernels that are ultimately exported are obtained after processing and as a result of the said processing they ceased to be agricultural primary commodities. Consequently, deduction under Section 80HHC(1) would be allowable. We are supported in this view of the latter by the decision of A.P. High Court in Kishenlal Oil Mills’ case (supra). The A.P. High Court in said decision was interpreting expression ‘groundnut’ in Sub-rule (2) of Rule 5 of Hyderabad General Sales-tax Rules. It was held that the expression ‘groundnut’ would mean unshelled groundnut produced by the agriculturists and not the kernel. The A.P. High Court made distinction between groundnut which was known as ‘Mumfalli’ and kernel which known as ‘Singdana’ and according to the said High Court the expression ‘groundnut’ in Sub-rule(2) of Rule 5 would not include kernel.
7. The decisions on which the Department has relied are not directly on this point and all of them are distinguishable. In CIT v. Karjan Co-operative Cotton Sale Ginning & Pressing Society Ltd. [1981] 129 ITR 821 the Gujarat High Court was concerned with interpretation of the expression “the marketing of the agricultural produce of its members” in Section 80P(2)(iii) of the Act. The expression with which we are concerned is “agricultural primary commodity” which is quite different. In Anjali Hotels (P.) Ltd. v. CIT [1988] 170 ITR 419 (Ker.) and CIT v. Buhari Sons (P.) Ltd. [1983] 144 ITR 12 (Mad.) the question was whether hotel was an industrial company. That question is entirely different and discussion in those decisions is of no assistance in the present case. Similarly, the decision in BroachDist. Co-operative Cotton Sales Ginning & Pressing Society Ltd. v. CIT [1989] 177 ITR 418 (SC) pertains to interpretation of the expression “marketing of agricultural produce”. As already stated that expression is different from the expression with which we are concerned in the present appeal. Similarly, other decisions on which the learned Departmental Representative has relied viz. Buhari Sons (P.) Ltd. (supra) and Addl. CIT v. Ryots Agricultural Produce Co-operative Marketing Society Ltd. [1978] 15 ITR 709 (Kar.) are of no assistance.
8. For reasons already given we hold that the HPS groundnuts which are exported by the assessee do not come within the ambit of expression “agricultural primarycommodities” in Section 80HHC(2)(b)(i) of the Act. Consequently, the learned Commissioner was not justified in directing the Income-tax Officer to withdraw deduction granted in the original assessment order under Section 80HHC(1) of the Act. The order of the learned Commissioner is therefore, liable to be set aside.
9 to 11. [These paras are not reproduced here as they involve minor issues].