INCOME TAX ACT, 1961

--Deduction under section 10B--Manufacture or production Assessee engaged in business of gherkin pickles from gherkin--The only issue in the assessee's appeals was as to whether the assessee was entitled to the benefit of deduction under section 10B in regard to its business of manufacturing of gherkin pickles. It was the submission that gherkins were commonly known as cucumbers. Assessee purchased gherkins and put them through various processes for manufacture of gherkin pickles. Held: In the present case, the term 'difference name, character and use' comes into importance. The gherkin by itself is a vegetable. When it is processed and made into gherkin pickles, the name is given as 'gherkin pickles'. Its characteristic from that of a vegetable changes into a pickle and its use also changes. Gherkin as a vegetable is used for making food dishes or salads. It is eaten raw. It is used for beauty treatment. The gherkin pickles cannot be used in the same manner as the gherkin itself.

A perusal of the provisions of section 10B in the present case clearly shows that it is the provision of section 10B before its substitution w.e.f. 1-4-2001 which is applicable in the assessee's case. This is because the assessment year 2006-07 is the 7th year of its business and it remains undisputed that the assessee had started its production on 1-4-1999 and its first year of claim is 2000-01. Before its substitution, section 10B and the Explanation thereto has categorically held that 'manufacture' includes any 'process'. The conversion of the gherkins in the present case into gherkin pickles involves 'process'. This is also evident from the chart of the activity done by the assessee. Once it is held to be a 'process' for the purpose of the provisions of section 10B, it would have to be held that the assessee is doing 'manufacture'. Further a perusal of the provisions of section 2(29BA) though inserted by the Finance (No. 2) Act, 2009, with retrospective effect from 1-4-2009, clearly shows that 'manufacture' would mean a change in a non-living physical object or article or thing resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use. In the present case, the term 'difference name, character and use' comes into importance. The gherkin by itself is a vegetable. When it is processed and made into gherkin pickles, the name is 'gherkin pickles'. Its characteristic from that of a vegetable changes into a pickle and its use also changes. Gherkin as a vegetable is used for making food dishes or salads. It is eaten raw. It is used for beauty treatment. The gherkin pickles cannot be used in the same manner as the gherkin itself. Washing the gherkin pickles to obtain the gherkins would in noway help the case of the revenue insofar as the gherkin pieces so obtained from the washing of the gherkin pickles cannot be used for the same purpose as gherkin could normally be used. Further, a reading of the provisions of section 80-IC(2) talks of manufacture or production. The XIV Schedule to the Income Tax Act, 1961 which gives the list of articles or things or operations in Item I recognizes Fruit and Vegetable Processing Industries manufacturing or producing - (i) canned or bottled products. Obviously, the assessee is a Vegetable Processing Industry and as per the XIV Schedule itself, it is manufacturing or producing the bottled product of gherkin pickles. [Para 8] The decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment years 2001-02 to 2003-04, it is noticed that the co-ordinate Bench has held that there was no production or manufacture of article or thing. It is noticed that the co-ordinate Bench of this Tribunal had not taken into consideration the Explanation to section 10B where the term 'manufacture' included the 'process'. In the circumstances, in view of the decision of the jurisdictional High Court in the case of CIT v. Hi-Tech Arai Ltd. (2010) 321 ITR 477 (Mad) : 2010 TaxPub(DT) 0762 (Mad-HC) one must take a different view and one does so. In the circumstances, the assessee is entitled to the deduction under section 10B as the assessee is manufacturing gherkin pickles from gherkin for the purpose of deduction under section 10B. [Para 10]