Conversion of Un-garbled Pepper to be fit for Human Consumption is not ‘Production’ for granting IT Deduction: Kerala HC [Read Judgment]

deduction

A division bench of the Kerala High Court recently ruled that conversion of un-garbled pepper to be fit for human consumption would not amount to ‘production’ for the purpose of deduction under section 10B of the Income Tax Act.

A bench of Justice K. Vinod Chandran & Ashok Menon was hearing an appeal filed by M/s Nishant Export against the order of the Assistant Commissioner of Income Tax, wherein the issue was as to the eligibility of the assessee to claim deduction under Section 10B of the Income Tax Act as a hundred per cent export-oriented unit, which deduction is available to the extent of 90% of the profits and gains derived from the export business.

The assessee engaged in the business of procurement of un-garbled pepper, which by a process got garbled and the same is exported. Meanwhile, assessee converted the unit into a hundred per cent export-oriented unit, which is one of the conditions for claiming the benefit under Section 10B.

The above said claim of the assessee was rejected on the ground that the process of converting un-garbled pepper into garbled one not amounted to production or manufacturing.

The first appellate authority found favor to the assessee, but the Tribunal disallowed the deduction under section 10B since the processing of un-garbled pepper into garbled would not be a manufacture or production.

Being aggrieved assessee carried the matter to the High Court of Kerala wherein senior advocate for Assessee E.K Nandakumar has relied on the decision in Tata Tea Ltd. v. Assistant Commissioner of Income Tax contended that blending and packing of tea was held to be a “manufacture” despite; for the relevant year, the definition of manufacture which included processing was deleted from the statute.

The relied on the decision in the case of Deputy Commissioner of Sales Tax v. PIO Food Packers and observed that“Manufacture implies a change, but every change is not manufactured, and yet every change in an article is the result of treatment, labor, and manipulation. But something more is necessary ……… There must be transformation; a new and different article must emerge, ‘having a distinctive name, character or use’.”

Finally, Court held that the process of garbling to make pepper edible does not give rise to a different commodity distinct from the raw pepper purchased and the assessee was not entitled to claim deduction under Section 10B of the Income Tax Act 1961.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader