Decided on May 31,1982



T.R. Thiruvengadam, Accountant Member - (1.) THIS appeal relating to the assessment year 1978-79 is by the revenue. The only point urged in this appeal is that the AAC, Calicut, has erred in holding that investment allowance is admissible under Section 32A of the Income-tax Act, 1961 ('the Act'), on the 'plate freezer'.
(2.) The assessee purchases sea food, mainly shrimps and exports them after subjecting them to processes of de-heading, peeling, de-veining and freezing. For the purpose of freezing, the assessee had installed a plate freezer. It is not in dispute that it is a new machinery installed by the assessee. The assessee claimed investment allowance of Rs. 39,500 being 25 per cent of the cost of Rs. 1,58,000. The ITO did not allow this on the ground that the new machinery installed is not for the purpose of construction, manufacture or production of any one or more of the articles or things specified in the Ninth Schedule to the Act. In so disallowing he has reproduced the words contained in Section 32A(2)(6) as it stood before its amendment by the Finance (No. 2) Act, 1977 with effect from 1-4-1978. By this amendment the reference to manufacture or production of the articles specified in the Ninth Schedule was removed. Sub-clause (iii) as introduced provided for the deduction of the investment allowance in respect of construction, manufacture or production of any article or thing not being an article or thing specified in the Eleventh Schedule. It is this modified provision that is relevant for the assessment year 1978-79. This was brought to the notice of the AAC by the assessee in its appeal and the AAC took due notice of this. He directed to allow the assessee's claim taking into account only this aspect, namely, the amendment with effect from 1-4-1978 in Section 32A. The revenue in its appeal contends that the assessee is not entitled to the investment allowance under Section 32A. The departmental representative submitted that both the ITO and the AAC had confined themselves only to a limited aspect of Section 32A(2)(b)(iii), viz., whether it is, in any way, excluded from being considered under this provision by reason of a reference or non-reference in the relevant Schedules to the Act. It is submitted that the more important question, viz., whether the assessee is manufacturing or producing any article or thing was not considered by them. It is pointed out that under both Sub-clauses (ii) and (iii) of Clause (b) of Section 32A(2), it is necessary that there should be either manufacture or production of an article or thing. The assessee is a small scale industrial undertaking and, therefore, it is only Sub-clause (ii) of Section 32A(2)(6) that would apply. The assessee merely purchases shrimps and other sea food and subjected them to such processes as are necessary for export. It is submitted that it cannot be said that in doing these processes, the assessee can be considered to be either manufacturing or producing any article or thing. Reliance is placed in this connection on the consolidated order of the Tribunal dated 21-2-1978 in IT Appeal Nos. 331 and 332 (Coch.) of 1976-77 where the business was also in purchase and export of sea food after subjecting them to these processes. The claim there was made under Section 80J of the Act. It is pointed out that the Tribunal held that the assessee in that case was not entitled to the relief under Section 80J as it would not be considered to manufacture anything. It is pointed out that the Tribunal in that order has held that even after the freezing process employed by the assessee the product remained the same and no different commodity came into existence. On the basis of this order of the Tribunal, it is submitted, that in this case also there is no change in the article even after the verious processes are employed and, therefore, the assessee cannot be said to produce an article much less manufacture. The departmental representative in fairness brought to our notice another order of the Tribunal dated 22-10-1980 in IT Appeal Nos. 265 and 329 (Coch.) of 1978-79 wherein, considering the relief under Section 80HH in respect of a business of freezing and export of shrimps (similar to the one carried on by the assessee here), it was held that because the raw fish and the end product are not same since the end product by no amount of processing can be restored to its original condition, the exportable item is an article produced by the assessee by a method of processing. It was held in that order that the assessee was entitled to the relief under Section 80HH.
(3.) THE departmental representative brought to our notice a decision of the Kerala High Court dated 20-8-1981 in the case of Boroth Oil Mills Co. Ltd. in [TRC No. 59 of 1981]. This was a case arising under the Kerala Sales Tax Act. It is pointed out by the departmental representative that it has been held in this decision that in a commercial sense prawns which are purchased by the assessee there and prawns exported after processing for the purpose of such export are one and the same commodity. In view of this decision, it is contended that there is no manufacture or production. It is argued that manufacture or production definitely involves change in the commodity ; since such a change is absent here it cannot be said that the assessee is manufacturing or producing an article or thing ; and, therefore, the assessee is not entitled in the investment allowance.;

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