Dr. B.P Saraf, J.:— By this reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion:
“Whether, on the facts and in the circumstances of the case, is the Appellate Tribunal right in law in upholding the order of the Commissioner of Income-tax (Appeals) who held that the activity of the assessee is a manufacturing process and is entitled for exemption under section 80HH?”
2. The assessee is a partnership-firm. It derives its income from sale of prawns. In its assessment for the assessment year 1979-80, the assessee claimed deduction under section 80HH of the Income-tax Act, 1961 (“the Act”), from its income derived from sale of prawns on the ground that the activity of processing of prawns before putting them for sale amounted to manufacture and production of articles within the meaning of the said section. The claim of the assessee was rejected by the Income-tax Officer as according to him the activity of processing prawns for the purpose of sale did not amount to manufacture or production of goods or articles within the meaning of section 80HH of the Act. The assessee appealed to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and held that the processing of prawns amounted to manufacture or production of goods or articles. On appeal by the Revenue, the Income-tax Appellate Tribunal (“the Tribunal”) confirmed the order of the Commissioner of Income-tax (Appeals). Hence, the Revenue has come to this court by way of reference for opinion on the question whether “processing of prawns” amounts to “manufacture or production of goods or articles” within the meaning of section 80HH of the Act.
3. There is no controversy in regard to the nature of the activity carried on by the assessee. The assessee purchases raw prawns, subjects the same to the process of cutting the heads and tails, cleaning, etc., and thereafter sells the same. According to the assessee, this process adopted by him amounts to manufacture or production of prawns.
4. Section 80HH of the Act provides for allowance of deduction to an assessee of an amount equal to twenty per cent. of his profits and gains derived by him from an industrial undertaking which fulfils the conditions specified in sub-section (2) thereof including the condition that “it has begun or begins to manufacture or produce articles after the 31st day of December, 1970, in any backward area”. Section 80HH, so far as relevant, reads:
“80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas. — (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof.
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:
(i) it has begun or begins to manufacture or produce articles after the 31st flay of December, 1970, in any backward area;….
(iv) it employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power….
(4) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or the business of the hotel starts functioning:
Provided that,—
(i) in the case of an industrial undertaking which has begun to manufacture or produce articles, and
(ii) in the case of the business of a hotel which has started functioning,
after the 31st day of December, 1970, but before the 1st day of April, 1973, this sub-section shall have effect as if the reference to ten assessment years were a reference to ten assessment years as reduced by the number of assessment years which expired before the 1st day of April, 1974….”
5. It is clear from the above that section 80HH applies to those industrial undertakings only which “manufacture or produce articles”. The manufacturing process mentioned in clause (iv) of sub-section (2) refers to the process undertaken to achieve the above object, i.e, “to manufacture or produce articles”. Sub-section (4) also uses the same expression “begins to manufacture or produce articles”. This section nowhere uses the expression “processes goods or articles”. A similar expression has been used in section 80J of the Act which provides for deduction in respect of profits and gains from newly established industrial undertakings on fulfilment of the conditions specified therein. Here also, the benefit is available only to those industrial undertakings which “manufacture or produce” articles. As against this, we may refer to the provisions of section 33B of the Act which deal with grant of rehabilitation allowance to certain industrial undertakings. Under this section “industrial undertaking” has been defined to mean any undertaking which is mainly engaged, inter alia, “in the manufacture or processing of goods or in mining”. Similarly, while defining an “industrial company” in the Finance Acts, the expression “processing” has also been used. Reference may be made in this connection to the definition of “industrial company” given in sub-clause (c) of clause (8) of section 2 of the Finance Act, 1975, which defines an “industrial company” to mean a company which is mainly engaged, inter alia, “in the manufacture or processing of goods or in mining”.
(emphasis* added).
6. On a careful reading of the expression “manufacture or produce articles” used in section 80HH of the Act in the light of the expressions “in the manufacture or processing of goods” appearing in section 33B of the Act and section 2(8)(c) of the Finance Act, 1975, it is clear that the Legislature has specifically used the expression “processing” in juxtaposition to “manufacture” wherever it intended to extend the benefit to an industrial undertaking which is engaged in the processing of goods or articles and avoided using that expression in cases where it intended to confine the benefit only to industrial undertakings engaged in the “manufacture or production” of goods or articles. Evidently, the Legislature has used a narrower expression in section 80HH than the one used in section 33B of the Act and section 2(8)(c) of the Finance Act, 1975. This is a clear indication of the legislative intention behind using the expression “manufacture or produce articles” in section 80HH in contradistinction to “manufacture or processing of goods” used in section 33b of the very act and in the finance act referred to above. In such a situation, the question that arises for consideration is whether the expression “produce or manufacture articles” used in section 80HH of the Act can be construed to include the activity of “processing of prawns” within its ambit.
7. Mr. Dilip Dwarkadas, appearing for the assessee submits that “processing of prawns” would amount to “manufacture or production of articles” within the meaning of section 80HH of the Act and relies on the decisions of the Kerala High Court in CIT v. Manvell Sea Foods, [1987] 166 ITR 624; the Calcutta High Court in CIT v. Union Carbide India Ltd., [1987] 165 ITR 550 and the Karnataka High Court in CIT v. Baraka Overseas Traders, [1993] 201 ITR 827 in support thereof. Learned counsel for the Revenue, Mr. G.S Jetley, on the other hand, submits that the Legislature while enacting section 80HH, having confined the benefit of that section in explicit terms only to industrial undertakings which manufacture or produce articles, the said benefit cannot be extended to undertakings which do not manufacture or produce articles but merely process the same, by giving an artificially extended and unnatural meaning to the expression “manufacture or production”. According to Mr. Jetly, “manufacturing” and “processing” are two different activities. Every act of manufacture may involve processing but every “process” does not tantamount to “manufacture”. The submission of counsel is that the Legislature did not intend to extend the benefit of section 80HH to the industrial undertakings engaged in the processing of goods. Reliance is placed in support of this contention on the decisions of the Supreme Court in Chowgule and Co. P. Ltd. v. Union of India, [1981] 47 STC 124; State of Maharashtra v. Shiv Datt and Sons, [1992] 84 STC 497; Sterling Foods v. State of Karnataka, [1986] 63 STC 239 and Deputy Commr. of Sales Tax v. Pio Food Packers, [1980] 46 STC 63. According to Mr. Jetly, the decisions of the Kerala, Calcutta and Karnataka High Courts relied upon by learned counsel for the assessee do not lay down the correct law on the subject.
8. We have carefully considered the rival submissions. We have also perused the provisions of section 80HH which restrict the benefit of that section to industrial undertakings which “manufacture or produce articles”. We have also noted how in the very same enactment Parliament, where it intended to do so, has extended the benefits under certain other provisions to industrial undertakings engaged in the business of processing of goods also by using the expression “manufacture or processing of articles” in contradiction to “manufacture or production of articles” used in sections 80HH and 80J of the Act. Situated thus, two questions fell for determination. First, whether section 80HH can be read in such a manner so as to include “processing” within the ambit of “manufacture or production” of articles as has been done by the Kerala High Court. Second, whether “processing of prawns” amounts to “manufacture or production of articles” within the meaning of section 80HH of the Act.
9. So far as the first question is concerned, for the reasons set out below, we find it extremely difficult to agree with the decisions of the Kerala, Calcutta and Karnataka High Courts relied upon by learned counsel for the assessee. In our opinion, the language of section 80HH being plain, clear and unambiguous, the legislative intent has to be gathered from the statute itself. This principle of interpretation is too well-known to need any elaboration. As observed by the Supreme Court in Polestar Electronic. (Pvt.) Ltd. v. Addl. CST, [1978] 41 STC 409, if there is one principle of interpretation more well-settled than any other, it is that a statutory enactment must ordinarily be construed according to the plain natural meaning of its language and that no words should be added, altered or modified unless it is plainly necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable, or totally irreconcilable with the rest of the statute. This rule of literal construction is firmly established and it has received judicial recognition from the courts in India in numerous cases. Therefore, where the language of the statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the Legislature. It is only from the language of the statute that the intention of the Legislature must be gathered, for the Legislature means no more and no less than what it says. It is not permissible for the court to speculate as to what the Legislature must have intended and then to twist or bend the language of the statute to make it accord with the presumed intention of the Legislature. The clear provision of the statute cannot be given an artificial extended meaning by resorting to the so-called principles of interpretation. The duty of the court always is to find out what the Legislature really meant by the expression which it has used. For that purpose, it may consider the context and any other parts of the Act which throw light upon the intention of the Legislature. It must not be forgotten that the duty of the court is to interpret the law made by the Legislature with a view to ascertaining its true intention and not to interpret it in a manner which may run counter to the legislative intent and purpose.
10. In the instant case, on a careful reading of section 80HH of the Act in the light of scheme thereof and other provisions of the Act referred to above, it is clear that the Legislature intended to extend the benefit of deduction under section 80HH only to the industrial undertakings which manufacture or produce articles. This section was not intended to be applied to industrial undertakings which are engaged in “processing of goods” not amounting to manufacture or production of articles. There may be processes undertaken by an industrial undertaking which may result in conversion of the article into a new commercial commodity or may change the nature and character of the article in such a manner that it may lose its original identity and get transformed into an entirely new commodity. In such cases “manufacture” can be said to have taken place. But in ‘cases where no such transformation takes place, each and every process applied to an article cannot be tantamount to “manufacture or production” of goods or articles.
11. The expressions “manufacture”, “production” and “processing” have been interpreted by the courts in India including the Supreme Court in a catena of cases from time to time. “Processing” means subjecting a commodity to a process or treatment so as to develop it or make it fit for the market. Processing is, thus, an operation on an article so that it undergoes a change.
12. In Chowgule and Co. Pvt. Ltd. v. Union of India, [1981] 47 STC 124, the Supreme Court was required to consider whether blending of ore in the course of loading it into the ship through the mechanical ore handling plant constituted manufacture or processing of ore. The Supreme Court applied the test: does the processing of the original commodity bring into existence a commercially different and distinct commodity? On application of this test, it was held that the blending of different qualities of ore possessing differing chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve any process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a result of blending is commercially the same article, namely, ore, though with different specifications than the ore which is blended and, hence, it cannot be said that any process of manufacture is involved in the blending of ore. In the aforesaid case, the Supreme Court further considered whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is blended. The Supreme Court discussed at length the various definitions of “processing” and held that the blending of ore in the course of loading through the mechanical handling plant amounted to “processing” of ore.
13. From the aforesaid discussion, it is clear that the true test for determining whether there is any manufacture is: whether the commodity subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity.
14. Manufacture, as observed by the Supreme Court in Dy. CST v. Pio Food Packers, [1980] 46 STC 63, is the end-result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed, there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where the commodity retains a continuing substantial identity through the processing stage, it cannot be said that there has been manufacture.
15. In Pio Food Packers' case, [1980] 46 STC 63 (SC), the question for consideration before the Supreme Court was whether the preparation of pineapple slices for sale in sealed cans amounted to manufacture. The facts were that pineapples purchased by the assessee were washed and then the inedible portion, the end crown, the skin and the inner core were removed, thereafter the fruit was sliced and the slices were filled in cans, sugar was added as a preservative, the cans were sealed under temperature and then put in boiling water for sterilisation. On these facts, the Supreme Court held that there was no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form and by reason of being canned it is capable of storage without spoiling. The additional sweetness in the canned pineapple arises from the sugar added as preservative. The pineapple slices possess the same identity as the pineapple fruit. It was held by the court that although a degree of processing was involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it or adding sugar to preserve it.
16. Thus though manufacture also implies a change, every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary to term it as manufacture. There must be transformation; a new and different article must emerge, “having a distinctive name, character or use”. (Decision of U.S Supreme Court in East Texas Motor Freight Lines v. Frozen Food Express, 100 L. Ed. 917, referred to in Deputy CST v. Pio Food Packers, [1980] 46 STC 63 (SC)). Then and only then can manufacture be said to take place.
17. Similarly, the word “production” has a wider connotation than the word “manufacture”. While every manufacture can be characterised as production, every production need not amount to manufacture. As observed by the Supreme Court in CIT v. N.C Budharaja and Co., [1993] 204 ITR 412, the word “production” or “produce” when used in juxtaposition with the word “manufacture” takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods.
18. The position that emerges from the above discussion can be summed up thus:
The three expressions “processing”, “manufacture” and “production” used in various taxing statutes, are not interchangeable expressions. Though often used in juxtaposition, they convey different concepts and refer to different activities. “Processing” is a much wider concept. The nature and extent of processing may vary from case to case. Every process does not tantamount to “manufacture”. It is only when the “process” results in the emergence of a new and different article having a distinctive name, character or use, that “manufacture” can be said to have taken place. Similarly, “production” is wider than “manufacture”. As a result, every production need not amount to manufacture though every manufacture can be characterised as “production”.
19. In view of the above discussion, we are of the clear opinion that the benefit of section 80HH is available to industrial undertakings which “manufacture or produce articles”. Industrial undertakings engaged in “processing of goods or articles” not amounting to “manufacture or production” are not entitled to the benefit of this section.
20. So far as second aspect as to whether processing of prawns amounts to manufacture is concerned, we find that the decision of the Supreme Court in Sterling Foods v. State of Karnataka, [1986] 63 STC 239 is a complete answer. In that case, the Supreme Court was required to consider whether shrimps, prawns and lobsters, when subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, retain their original character and identity or become another distinct commodity. The Supreme Court observed that the test which has to be applied for the purpose of determining whether a commodity subjected to processing retains its original character and identity is as to whether the processed commodity is regarded in the trade by those who deal in it as distinct in identity from the original commodity or it is regarded, commercially and in the trade, the same as the original commodity. It is necessary to point out that it is not every processing that brings about change in the character and identity of a commodity. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences change. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead recognised as a new and distinct commodity that it can be said that a new commodity, distinct from the original, has come into being. The test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity.
21. Applying the above test, it was held by the Supreme Court in Sterling Foods' case, [1986] 63 STC 239 that processed or frozen shrimps, prawns and lobsters are commercially regarded as the same commodity as raw shrimps, prawns and lobsters. When raw shrimps, prawns and lobsters are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps, prawns and lobsters and become another distinct commodity. They are in common parlance known as shrimps, prawns and lobsters. There is no essential difference between raw shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters. The difference is that processed shrimps, prawns and lobsters are ready for the table while raw shrimps, prawns and lobsters are not, but still both are, in commercial parlance, shrimps, prawns and lobsters. It is undoubtedly true that processed shrimps, prawns and lobsters are the result of subjecting raw shrimps, prawns and lobsters to a certain degree of processing but even so they continue to possess their original character and identity as shrimps, prawns and lobsters notwithstanding the removal of heads and tails, peeling, deveining and cleaning which are necessary for making them fit for the table. Equally it makes no difference in character or identity when shrimps, prawns and lobsters are frozen for the purpose of preservation and transfer to other places including far off countries in the world. There can, therefore, be no doubt that processed or frozen shrimps, prawns and lobsters are not a new and distinct commodity but they retain the same character and identity as the original shrimps, prawns and lobsters. In that view of the matter, it is clear that “processing of prawns” for making them fit for the market is not a process of manufacture. No manufacture of articles or prawns takes place as a result of the process undertaken by the assessee.
22. In the premises, we are of the clear opinion that by subjecting of prawns to processing for the purpose of export they do not lose their original character. No new commodity or article emerges as a result of such processing. The processed prawns retain their identity as prawns. No manufacture, therefore, can be said to take place as a result of such processing. That being the position, the provisions of section 80HH of the Act would not apply to the undertaking of the assessee which is engaged in the processing of prawns for making them fit for the market.
23. Having regard to the above discussion, we answer the question referred to us in the negative, i.e, in favour of the Revenue and against the assessee.
24. Under the facts and circumstances of the case, there shall be no order as to costs.