The Judgment of the Court was delivered by

Thanikkachalam, J.:— Pursuant to the direction of this court, the Tribunal referred the following two questions said to arise out of the order of the Tribunal for the assessment year 1970-71 in Tax Case No. 742 of 1982. So also in Tax Cases Nos. 301 to 303 of 1983 at the instance of the Department, the Tribunal referred the following question said to arise out of the order of the Tribunal for the assessment years 1972-73 to 1974-75 for the opinion of this court under section 256(2) of the Income-tax Act, 1961:

Tax Case No. 742 of 1982:

“1. Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 80J(4) of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that the assessee is entitled to relief under section 80J in respect of its seed unit?

2. Whether the Appellate Tribunal's view that the seed unit of the assessee did either processing or manufacturing and, therefore, the assessee is entitled to relief under section 80J of the Income-tax Act, is sustainable in law?”

Tax Cases Nos. 301 to 303 of 1983:

“Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduction under section 80J in respect of seed processing and cattle feed unit?”

2. The assessee is a company deriving income among other activities, from business in the manufacture and sale of sugar, fertilizers, chemicals, sanitary wares, etc. For the assessment years 1970-71 and 1972-73 to 1974-75, the assessee claimed the relief under section 80J of the Act in respect of the seed unit. This relief was claimed not before the Income-tax Officer for the assessment year 1970-71, but for the first time before the Appellate Assistant Commissioner. For the assessment years 1972-73 to 1974-75, this relief was claimed before the Assessing Officer. For the assessment years 1972-73 to 1974-75, the Income-tax Officer refused to grant the relief under section 80 in respect of the seed unit-because, according to him, the assessee has not satisfied the conditions prescribed under section 80J(4) of the Act. It means, according to the Income-tax Officer, the assessee was not either manufacturing or producing any article for claiming relief under section 80J. For the assessment year 1970-71, the Appellate Assistant Commissioner refused to grant the relief under section 80J in respect of the seed unit. But, in the assessment years 1972-73 to 1974-75, the Appellate Assistant Commissioner granted the relief under section 80J in respect of the seed unit. On appeal in all these assessment years under consideration, the Tribunal came to the conclusion that the assessee is either producing or manufacturing an end-product and, therefore, the assessee is entitled to relief under section 80J of the Act.

3. Before this court, learned standing counsel for the Department submitted as under:

In so far as the seed unit is concerned, the assessee is only processing the seeds for the purpose of cultivation. The assessee is not indulging in either manufacturing or producing an end-product so as to claim the benefit under section 80J of the Act. According to learned standing counsel, even after processing, the seeds remain as seeds and there was no change in it. It was further submitted that the processing would not amount to production of an end-product. In order to support his contention, learned standing counsel relied upon various decisions in ITO v. Mani Ram, [1969] 72 ITR 203 (SC); Davies Jenkins and Co. Ltd. v. Davies (Inspector of Taxes), [1969] 72 ITR 444 (HL); Additional Commissioner Of Income-Tax, Madras-I v. Chillies Export House Ltd., [1978] 115 ITR 73 (Mad); Commissioner Of Income-Tax v. Veena Textiles Pvt. Ltd., [1985] 155 ITR 794 (Mad); Dy. CST v. Pio Food Packers, [1980] 46 STC 63 (SC) and CIT v. N.C Budharaja and Co., [1993] 204 ITR 412 (SC).

On the other hand, learned counsel appearing for the assessee, while supporting the order passed by the Tribunal contended that the assessee was manufacturing and producing a new article while processing the seeds in the seed unit. According to learned counsel, the seed would undergo various treatment before it is finally packed for marketing. According to learned counsel, processing of seeds would amount to manufacturing or producing of an article and hence, under section 80J, the assessee would be entitled to the relief. It was pointed out that under section 33 and the Fifth Schedule-and under section 80B and the Sixth Schedule, processing of seeds would be entitled to the benefit under those sections as manufactured and as finished products. Benefit under section 80J is available to all manufactured goods and products since there is no schedule attached to section 80J. According to learned counsel, a combined reading of the schedules to section 80B and section 33 along with section 80J would go to show that the processing of seeds would amount to manufacturing or producing an article. In order to support this contention, reliance was placed upon a decision of the Allahabad High Court in Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342. Thus, according to learned counsel, on the facts, it was proved that the assessee was manufacturing or producing an article in the seed unit and, therefore, the assessee is entitled to the benefit under section 80J of the Act.

It remains to be seen that the assessee is claiming relief under section 80J in the assessment years under consideration, as the assessee is running a separate seed unit for manufacturing or producing the seeds for sale. The assessee does the following operations in the seed processing unit:

(a) Rough cleaning (physical);

(b) Mechanical drying;

(c) Final cleaning (physical size grading);

(d) Chemical treatment on the exterior of the seed material; and

(e) Packing.

4. With these activities, according to the assessee, the raw seed would become a marketable seed for the purpose of cultivation. For the purpose of claiming relief under section 80J, the assessee has to satisfy the conditions prescribed under section 80J(4) of the Act. In order to claim the benefit under section 80J, the assessee should either manufacture or produce an article. According to the assessee, the processing of the seeds would amount to manufacturing or producing of a new article for marketing.

5. A similar question came up for consideration before the Allahabad High Court in the case of Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342. According to the facts arising in that case, “after the produce is harvested, seed samples are collected by the officers of the company, and tested for purity, viability and moisture content in the laboratory” at the University of Pantnagar. On the samples meeting the required standard, the farmers are asked to supply their produce. The seeds supplied are again tested, and if found suitable, approved for processing. The seeds are then graded and cleaned by mechanical processes, and sorted out in three categories. The approved category is treated with mixtures of various chemicals, and then passed to a mixing tank where the seeds and chemicals are mixed mechanically, as a result of which the chemical mixed is coated on each grain and, thereafter, it is bagged and kept in godowns where precaution is taken to avoid any damage by pests. On these facts, the assessee claimed the relief under section 80J of the Act/The Allahabad High Court considering the provisions contained in sections 33, 80B, 80-1 and 80J, Schedule V, item 28, Schedule VI held as under (page 345):

“One of the articles or things, which are treated to be manufactured or produced for purposes of section 33, as set out in the Fifth Schedule is processed seed, which finds a place as item 28 thereof. Processed seed is thus treated as an article, which is obtained by the process of manufacture or production for purposes of this section too. Considering the fact that, section 33, and the Fifth Schedule, section 80B, and the Sixth Schedule treat processed seeds as an article obtained by the process of manufacture or production, it will be safe to infer that the Legislature did not exclude processed seed from the category of manufactured or produced article for purposes Of section 80o. It is also worth remembering that sections 80B and 80-1 which grant relief to specified industries including those which sell processed seeds occur in Chapter VI-A of the Act along with section 80J. This being so, interpretative uniformity supports the view that processed seeds should be taken as an article which is obtained either by the process of manufacture or production for purposes of section 80J.”

6. However, learned standing counsel for the Department submitted that the Allahabad High Court in Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342 on the basis of assumption and presumption held that the processing of goods would amount to manufacturing or producing a new article. But, in our opinion, on a reading of the judgment of the Allahabad High Court it was correct in coming to the conclusion that the processing of goods, especially processing of seeds would amount to manufacturing activity in view of the Schedules contained under sections 33, 80B and 80-1 of the Act. Therefore, the decision in Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342 (All) was rendered not on the basis of presumption and assumption as submitted by learned standing counsel. Hence, the decision in the case of ITO v. Mani Ram, [1969] 72 ITR 203 (SC) and the decision in the case of Davies Jenkins and Co. Ltd. v. Davies (Inspector of Taxes), [1969] 72 ITR 444 (HL) cited by learned standing counsel for the Department are not applicable to the facts of this case.

7. In order to show in what manner the meaning of the word “manufacturing” should be understood, learned counsel placed reliance on a decision rendered by the Supreme Court in CIT v. N.C Budharaja and Co., [1993] 204 ITR 412, wherein while considering section 80HH of the Act, the Supreme Court held that (headnote) “the principle adopting a liberal interpretation which advances the purpose and object underlying the provisions, cannot be carried to the extent of doing violence to the plain and simple language used in the enactment. It would not be reasonable or permissible for the court to rewrite the section or substitute words of its own for the actual words employed by the Legislature in the name of giving effect to the supposed underlying object”. On the basis of the abovesaid decision, learned standing counsel submitted that processing would not amount to manufacturing or producing of a new article. It remains to be seen that in the schedules enumerated under sections 80B, 80-1 and section 33 activities in processing the seeds were considered to be manufacturing or producing a new article. Under section 80J no Schedule was given. The words “production” and “manufacture” were not defined in that section. Therefore, the Allahabad High Court on a combined reading of sections 80J, 80B, 80-1 and section 33 came to the conclusion that processing of seeds would amount to manufacturing or producing a new article or an end-product. Therefore, it cannot be said that the view taken by the Allahabad High Court would amount to rewriting section 80J of the Act.

8. Learned standing counsel appearing for the Department relied upon a decision of this court in the case of Commissioner Of Income-Tax v. Veena Textiles Pvt. Ltd., [1985] 155 ITR 794. According to the facts arising in that case, the assessee purchased cloth, embroidered designs thereon and dyed the embroidered cloth. The assessee claimed for grant of development rebate under section 33(1)(b)(B)(i) read with item 32 of Schedule V to the Income-tax Act, 1961. But this court held that mere purchase of textiles already manufactured by another and dyeing or printing or otherwise processing it, resulting in the retention of its identity as a cloth material, would not be comprehended within the expression “manufacture or production” of textiles. But in the present case, the raw seeds after processing the same were converted into seeds for cultivation. After processing, the raw seeds will not remain as raw seeds but they would be fit only for cultivation and they would not be fit for consumption. Therefore, this decision would render no assistance to the Department to contend that there was no manufacturing activity in processing the seeds.

9. Learned standing counsel again placed reliance upon a decision of this court rendered in Addl CIT v. Chillies Export House Ltd., [1978] 115 ITR 73. According to the facts arising in that case, the assessee, an exporter of chillies, purchased the chillies, sorted them, graded them as per Agmark specifications, clipped and stemmed them, subjected them 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. The assessee got the fumigation done by a third party. The assessee claimed that it was an industrial company within section 2(6)(c) of the Finance (No. 2) Act, 1971, and hence entitled to be taxed at the concessional rate of 55 per cent. On these facts, this court held that a reading of the definition of “industrial company” in section 2(6)(c) of the Finance (No. 2) Act, 1971, suggests that it is the company which should engage itself in what should be the business of the company and that company must do the processing of goods. As the assessee merely prepared or made goods fit for export markets it cannot be held to be mainly engaged in the continued course of activity of processing and hence the assessee cannot be treated as an industrial company within the definition and hence is not eligible for the concessional rate of tax. Therefore, on the facts this court came to the conclusion that the assessee is not engaged in processing the goods. Hence, this decision would also not be applicable to the facts of the present case.

10. Lastly, learned standing counsel appearing for the Department relied upon the decision in Deputy CST v. Pio Food Packers, [1980] 46 STC 63 (SC). According to the facts arising in that case, the assessee used to slice the pineapple for the purpose of being sold in sealed cans. In its return under the Kerala General Sales Tax Act, 1963, the assessee claimed the benefit under section 5A(1)(a) of the Act. On these facts, the Supreme Court held that it was erroneous to say that there was consumption of pineapple fruit in the manufacture of can food. Therefore, it was pointed out that the case would not fall within section 5A(1)(a) of the Kerala General Sales Tax Act. In that decision, the Supreme Court further pointed out that (at page 66): “manufacture implies a change, but 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…. There must be transformation; a new and different article must emerge, having a distinctive name, character or use”. It was also pointed out that “at some point processing and manufacturing will emerge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been ‘manufactured’.” But according to the facts arising in the present case, after processing, the new raw seed would not remain as it is. The processed seeds would not be fit for human consumption or edible. The processed seeds would be fit only for cultivation. Therefore, the raw seeds are entirely different from the new product emerged after they were processed through various means. In view of the abovesaid facts, we are fortified in saying that by processing the seeds, the assessee manufactured and produced an entirely new article which is quite different from the raw materials used. Thus considering the facts arising in this case in the light of the decision of the Allahabad High Court in Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342, we hold that the order passed by the Tribunal in granting the relief under section 80] in respect of the seed unit in the assessment years for consideration is in order. Accordingly, we answer the question referred to us in the assessment years 1970-74 and 1972-73 to 1974-75 in the affirmative and against the Department.

11. In so far as the assessment years 1972-73 to 1974-75 are concerned, the question referred relates to cattle feed also. According to the assessee, cattle feed was manufactured and produced by the assessee in its cattle feed unit and, therefore, the assessee claimed benefit under section 80J of the Act. Though the Assessing Officer refused to grant relief under section 80J in respect of the cattle feed unit, this benefit was made available to the assessee by the Tribunal. A plain reading of the order passed by the authorities below as well as the Tribunal, would go to show that there are no facts recorded warranting relief under section 80J of the Act. It is not known what kind of cattle feed was being manufactured by the assessee. It is also not known what is the manufacturing activity or processing activity which the assessee has indulged in for producing the cattle feed. Without any facts on record, on these aspects, it is not possible to come to the conclusion that the assessee is manufacturing or producing the cattle feed in its cattle feed unit. Therefore, we are unable to answer the question referred to us on this point. Therefore, the Tribunal is directed to ascertain and gather the facts with regard to the manufacturing activity of the assessee in the cattle feed manufacturing unit. After ascertaining the facts on this aspect, the Tribunal is directed to consider whether the assessee is entitled to relief under section 80J of the Act in accordance with law after giving opportunity of being heard to the assessee. Accordingly, the common question referred to us with regard to the relief claimed under section 80J to the cattle feed unit in the assessment years 1972-73 to 1974-75, is returned unanswered. Counsel's fee Rs. 1,000.