Case: M/S. Chillies Exports House Ltd Vs. Commissioner Of Income Tax

An identical question of law arises for consideration in this batch of three appeals. The appellant is the same firm in all the three appeals. Thee is a public limited company carrying on, inter alia, the business of exporting chillies to the United States of America, the USSR and Ceylon. The only question that arises for consideration is " whether the appellant is an industrial company as defined in the respective Finance Acts and can therefore be taxed only at 55 per cent. ? " The Revenue is the respondent in all the appeals Civil Appeal No. 3637 of 1983 is filed against the judgment of the Madras High Court dated December 18, 1981, in Tax Case No. 469 of 1978 (Reference No. 289 of 1978) and relates to the assessment year. Civil Appeal No. 8017 of 1995 is preferred against the judgment of the same High Court dated April 4, 1995, in Tax Case No. 998 of 1982 and relates to the assessment year7 (The judgment of the High Court is reported in. Civil Appeal No. 15346 of 1996 is preferred against the judgment of the same High Court dated June 27, 1996 in Tax Case (Reference) No. 893 of 1984 and relates to the assessment year. Regarding the assessment year, we are concerned with the Finance Act of 1974, section 2(8)(c) ; for the assessment year, Finance Act, 1976, section 2(9)(c) ; and for the assessment year, Finance Act (No. 2) of 1977, section 2(7)(c). A similar provision occurring as section 2(6)(c) of the Finance Act (No. 2) of 1971 and relating to thex assessment of the appellant for the assessment yearThe basic facts relevant to all the three appeals are not in dispute. The question that arises for consideration is whether thee is an " industrial company " within the meaning of the Finance Acts aforesaid (hereinafter referred to as the Act) and the tax should be levied at the concessional rate of 55 per cent. only. The assessee, a public limited company, is carrying on the business of sale and purchase of chillies. Chillies are exported to the USSR, the USA and Ceylon. The chillies purchased by they are sorted and graded as per Agmark specifications. Better quality chillies are picked up and sorted out for export and before export they are clipped and stemmed and subjected to fumigation under expert technical hands in order to prevent deterioration and with a view to give better polish and appearance and during that process they are treated with methyl bromide. A substantial part of the goods are exported. According to the assessee, it is engaged in the " business of processing of goods " and so entitled to the concessional rate ofx as per the Finance Act. The Revenue disputes this claim. According to it, no processing is involved and the goods purchased and exported are chillies and the assessee cannot be considered to be an " industrial company " carrying on the business of processing of goods. An identical matter came up for consideration before the Madras High Court relating to the samet for the assessment year2 and the court held that the assessee is not an industrial company coming within the meaning of section 2(6)(c) of the Finance (No. 2) Act of 1971. The said decision is reported in Addl. CIT v. Chillies Export House Ltd. When the matter came up for consideration in the subsequent years7 and, the earlier decision rendered for the assessment year2 (Addl. CIT v. Chillies Export House Ltd. was followed without discussion. In this batch of appeals, the appellant assails the reasoning and conclusion of the High Court contained in its judgment dated December 8, 1977, relating to the assessment year2 in Addl. CIT v. Chillies Export House Ltd. as incorrect and unsustainableWe heard counsel. The appellants counsel vehemently contended that the decision of the High Court rendered for the assessment year2 (Addl. CIT v. Chillies Export House Ltd., did not consider in an appropriate perspective the requirement of the relevant provisions of the Finance Act or the meaning to be given to the word " processing of goods ". As stated, thet purchased chillies. They were sorted and graded as per Agmark specifications. Better quality chillies were picked up and sorted out for export and before export they were clipped and stemmed and subjected to fumigation under expert technical hands in order to prevent deterioration and with a view to give better polish and appearance and during that process they were treated with methyl bromide. It is common ground that the appellant got the chillies fumigated by Mysodet Pvt. Ltd., Bangalore, by paying charges therefor under a contract. On the basis of these facts, the High Court in the earlier decision (Addl. CIT v. Chillies Export House Ltd. concluded that the relevant section of the Finance Act

Reasoning:
The entire matter requires a second look. A better investigation into the different activities carried on by the assessee which resulted in making the goods fit for export and how far the cumulative effect of those activities will amount to " the processing of goods " should be arrived at in the light of the various decisions referred to hereinabove. Since such an indepth investigation and analysis of the matter has not been made, we are of the view that the decision in the three instant appeals solely based on the earliest decision of the High Court of Madras, rendered in Addl. CIT v. Chillies Export House Ltd., when such materials were not available, cannot standOn hearing the rival pleas urged before us, it is evident that the various aspects highlighted in the decisions adverted to hereinabove as also the circular of the Central Board of Direct Taxes were not available to the Madras High Court when it rendered its main decision in Addl. CIT v. Chillies Export House Ltd. The ultimate conclusion as to whether the assessee was carrying on the business of processing of goods would depend upon the consideration of all relevant materials available in the case. The Madras High Court has eschewed from consideration one important activity carried on in the matter, namely, the activity relating to fumigation by the treatment with methyl bromide on the ground that it was done by another (Mysodet Pvt. Ltd., Bangalore) on behalf of the assessee. That is an irrelevant or immaterial factor. The sole question is, whether on a consideration of the totality of the activities including the one relating to fumigation by the treatment with methyl bromide which enables the goods to be exported as a marketable commodity, amounted to the business of processing of goods. The High Court had omitted to consider the matter in that perspective. It also does not stand to reason to state that the dictum laid down by ther Bench in Chowgules case (SC) has been departed from in the later decision rendered by anothere Bench in Delhi Cold Storage P. Ltd. v. CIT (SC). It appears that since in a cold storage there was only an act of preservationwithout any positive actionthis court was inclined to take the view that the company running the cold storage is not an industrial company and no process is involved. Fumigation requires positive action. The dictionary meaning of the said word is, " to treat (something contaminated or infected) with fumes or smoke " (Collins English Dictionary). Websters Comprehensive Dictionary International Editionpage 512, gives the meaning for the word, " fumigate " thus, " To subject to smoke or fumes, as for disinfection ". Archaicto perfume. Whether " refrigeration " and " fumigation " are of the same or similar import, or whether there is any difference, is a matter which requires a close look. It appears that though the goods purchased by the assessee were chillies, it had to undergo a series of activities in order to make it marketable or more marketable in the export marketa sensitive market. These and other considerations require proper evaluation and an in depth analysis and assistance from technical persons may be required to ascertain how far and to what extent the various activities carried on, by the assessee to render the chillies purchased locally as one of export quality can be termed as " carrying on the business of processing of goods ".The entire matter requires a second look. A better investigation into the different activities carried on by the assessee which resulted in making the goods fit for export and how far the cumulative effect of those activities will amount to " the processing of goods " should be arrived at in the light of the various decisions referred to hereinabove. Since such an indepth investigation and analysis of the matter has not been made, we are of the view that the decision in the three instant appeals solely based on the earliest decision of the High Court of Madras, rendered in Addl. CIT v. Chillies Export House Ltd., when such materials were not available, cannot