The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— The material facts and proceedings leading up to the present reference are as follows:

2. Union Carbide India Ltd., the assessee, carries on business of manufacture of various products. In the assessment year 1975-76, the relevant accounting year ending on December 25, 1971, the assessee acquired some trawlers with sophisticated equipment like echo-sounders, electronic fish finding equipment, trawlers, radars, etc., for deep sea fishing and set up a “Deep Sea Fishing Division” for fishing shrimps in the deep sea.

3. The trawlers and the equipments were utilised not only for fishing but also for decapitating, peeling and packing shrimps in special containers and freezing them in special quick-freezing chambers installed in the vessels. In the assessment year 1975-76, the assessee was assessed to income-tax. In the assessment, the assessee claimed relief under section 80J oi the Income-tax Act, 1961, in respect of its undertaking, “Deep Sea Fishing Division”. The Income-tax Officer, following the decision of the Bombay High Court in New India Fisheries Ltd. v. ITO, [1971] 82 ITR 765, held that the profits and gains from the activity of catching fish in the deep sea with ships could not be regarded as profits and gains derived from ships and disallowed the claim.

4. Being aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the term “manufacture” or “processing” of goods had not been defined in the Act. In its ordinary meaning, “manufacture” is a process which results in an alteration or a change of the goods subjected to manufacture and a commercially new article is produced. Under section 80J, if the undertaking was not engaged in manufacturing or processing or production of the goods, the industrial undertaking would not be entitled to any relief. Following a decision of the Kerala High Court in CIT v. Casino (Pvt.) Ltd., [1973] 91 ITR 289, the Appellate Assistant Commissioner held that the Deep Sea Fishing Division of the assessee was not an industrial undertaking entitled to claim any deduction under section 80J.

5. Being aggrieved, the assessee preferred a further appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the assessee that to find out whether the assessee was manufacturing or producing any article within the meaning of section 80J, Schedule V of the Income-tax Act, 1961, which provided for concessions in respect of particular production and manufacture, should be looked into. One item, viz., item 30 in the said Schedule, refers to processed (including frozen) fish and fish products. It was contended that in view of the said item in the said Schedule, if an industrial undertaking was entitled to development rebate, on the same analogy, the same ought to be entitled to relief under section 80J.

6. A decision of the Allahabad High Court in Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342 was relied on. On the facts on record, the Tribunal held that the assessee was engaged in the production of an article being processed fish and fish products. The Tribunal held further that the “Deep Sea Fishing Division” of the assessee fulfilled all the conditions of a new industrial undertaking as laid down in section 80J(4). The only dispute raised by the Revenue was whether the said undertaking manufactured or produced articles. On the facts and in view of the operations carried on by the assessee in the said undertaking, the Tribunal held that the assessee was actually engaged in the production of articles, namely, frozen fish and fish products, if not manufacturing the same.

7. The Tribunal found further that the “Deep Sea Fishing Division” of the assessee was a separate undertaking and carried on an integrated activity for the purpose of marketing shrimps. The Tribunal found that unless the shrimps caught underwent the process carried out by the undertaking, they would not be marketable in the export market. The Tribunal held that if a particular item was required to be processed in order to become marketable, the operation involved was processing. The Tribunal followed and applied the decision of the Supreme Court in Chrestien Mica Industries Ltd. v. State of Bihar, [1961] 12 STC 150 and held that the said undertaking of the assessee, namely, “Deep Sea Fishing Division”, was engaged in manufacture and production.

8. The other contentions raised before the Tribunal by the assessee, namely, that the income was derived from ships and was thus otherwise entitled to relief under section 80J and that the assessee was also operating a cold storage in its “Deep Sea Fishing Division” were not considered nor decided.

9. On an application of the Revenue under section 256(2) of the Income-tax Act, 1961, the Tribunal, as directed, has referred the following question, as a question of law arising out of its order, for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Deep Sea Fishing Division of the assessee was an ‘industrial undertaking’ within the meaning of section 80J of the Income-tax Act, 1961?”

10. At the hearing before us, the learned advocate for the‘Revenue contended that the Tribunal had erred in holding that the “Deep Sea Fishing Division” of the assessee was carrying on an activity of production or manufacture. He submitted that the operations carried on by the said division of the assessee in preparing the shrimps for the export market would not amount to either manufacture or production inasmuch as the item produced remained the same, namely, shrimps. He submitted that the assessee was not entitled to relief under section 80J also on the ground that the income involved arose from the ships of the assessee. In support of his contentions, the learned advocate for the Revenue cited the following decisions:

(a) New India Fisheries Ltd. v. P.M Mehra, ITO, [1971] 82 ITR 765 (Bom). In this case, Tulzapurkar J. of the Bombay High Court, as his Lordship then was, held that the expression “any profits and gains derived from a ship” in section 80J(1) of the Income-tax Act, 1961, was required to be construed as profits and gains directly derived from that source. Benefits of the section could not be availed of if the assessee was using the ship or ships as instruments for carrying on other business activities which produced the income. It was held further that profits and gains from a business activity like catching fish in deep sea with the aid of ships and selling the same could not be regarded as profits and gains derived from, ships and deduction under section 80J could not be claimed in respect of such income.

(b) CIT v. Casino [Pvt.) Ltd., [1973] 91 ITR 289 (Ker). In this case, it was held by a Division Bench of the Kerala High Court that the activity carried on in a hotel of preparing articles of food from raw materials would not constitute “manufacture or processing of goods” within the meaning of section 2(6)(d) of the Finance Act, 1968. A company carrying on the above activity will not come within the definition of “industrial company” under the said section of the said Finance Act.

The High Court held that the term “manufacture or processing of goods” had not been defined in the Finance Act, 1968, and in its ordinary meaning, the expression “manufactured” meant a process which resulted in alteration or change in the goods to the extent that a commercially new article was produced. It was, however, held that the term “processing” had a wider meaning than manufacture.

(c) Commissioner Of Income-Tax v. Cochin Refineries Ltd., [1982] 135 ITR 278 (Ker). In this case, the assessee was engaged in the business of refining mineral oils and for that purpose borrowed substantial funds from the U.S.A for purchase of machinery and erection of a refinery plant. In carrying on the said business, it generated sufficient profits and had surplus cash in its hands from time to time. Such surplus cash was not utilised in repaying the loans forthwith as the same had not fallen due and were kept in deposit with banks. The assessee earned interest from such deposits and claimed that it was entitled to deduction under section 80J on the amount of interest inasmuch as such interest was income arising from the industrial undertaking of the assessee engaged in the business of production or refining mineral oil. On these facts, it was held by the Kerala High Court that the expression occurring in section 80J was “derived from”. Such derivation of income must be directly connected with the business of the assessee. The fact, that the income was generated by the exploitation of any particular asset of the business, would not be sufficient to entitle the assessee to claim relief under section 80J. It was held that the interest earned was not derived from the business activity of the undertaking of the assessee.

11. The learned advocate for the assessee contended, on the other hand, that the Tribunal had categorically found that the assessee was engaged in production or manufacture of processed or frozen fish or fish products. This finding has not been challenged. It was further found by the Tribunal that the operations carried on by the assessee in its “Deep Sea Fishing Division” resulted in the processing of the goods to make it marketable and that, without such processing, the goods, namely, the shrimps, would not be marketable for export. This finding also remains unchallenged.

12. The learned advocate submitted further that the operations carried out by the assessee in its “Deep Sea Fishing Division” were an activity of production, if not manufacture. He submitted that production consisted of one or several processes from which some product other than the original products which were being processed came into existence. In the instant case, it could not be said that fresh or raw shrimps was the same thing as processed, packed and frozen shrimps which was an entirely different commercial commodity meant for the export market.

13. In support of his contentions, the learned advocate for the assessee cited the following decisions:

(a) Tarai Development Corporation v. Commissioner Of Income-Tax, Lucknow., [1979] 120 ITR 342 (All). In this case, the assessee which carried on manufacture and sale of processed seeds claimed relief under section 80J of the Income-tax Act, 1961. The operations carried out by the assessee consisted of obtaining harvested seeds, testing them for purity, viability and moisture content and thereafter subjecting them to grading and cleaning by mechanical process and sorting them out into categories. Thereafter, the seeds were treated with various chemicals, mixed mechanically, packed and stored. On these facts, a Division Bench of the Allahabad High Court held that the processing of seeds fell in the category of either manufacture or production. The High Court noted item 28 of Schedule V of the Income-tax Act, 1961, mentioning processed seeds which were treated as an article or thing to be manufactured or produced for the purpose of section 33 of the Income-tax Act, 1961. The same item also appeared in Schedule VI of the Act which entitled it to relief under section 80-1. On the principle of interpretative uniformity, the High Court held that the item “processed seeds” should be held to be an article obtained either by the process of manufacture or production and an undertaking producing the said article would be eligible for relief under section 80J.

(b) Chrestien Mica Industries Ltd. v. State of Bihar, [1961] 12 STC 150. In this case, the Supreme Court construed section 2(g) of the Bihar Sales Tax Act, 1947, which, inter alia, laid down that the sale of any goods produced or manufactured in Bihar by the producer or manufacturer would, wherever the delivery or contract of sale was made, be deemed, for the purpose of the Act, to have taken place in Bihar. The assessee in the case before the Supreme Court carried on the business in Bihar in mining mica. The operations consisted of taking out crude mica from the mines and thereafter processing it into split mica, a commercial commodity. The processing consisted of splitting the crude mica into thinner plates and cutting to sizes. In respect of the split mica sold, the assessee was assessed to sales tax. The assessee contended that it did not produce or manufacture as the only operation carried out was splitting up of mica from crude mica, without any change in the product.

14. The Supreme Court after considering standard texts on mica and the operation of obtaining split mica from crude in detail, distinguished between the expressions “production” and “manufacture” and observed as follows (at page 153):

“Neither of the words ‘production’ or ‘manufacture’ is defined in the Bihar Sales Tax Act but according to the Oxford English Dictionary, ‘production’ means, amongst other things, that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort.

It is obvious that what is described in the report above quoted would fall within the dictionary meaning of the word ‘production’. It is unnecessary to decide what the word ‘manufacture’ means.”

15. On the facts, it was held by the Supreme Court that the assessee was engaged in producing mica in Bihar and, as such, was exigible to Bihar sales, tax.

(c) Chowgule & Co. Pvt. Ltd. v. Union of India, [1981] 47 STC 124 (SC) : (1981) 1 SCC 653 : AIR 1981 SC 1014. In this case, it was held by the Supreme Court that though the blending of different qualities of ore possessing differing chemical and physical compositions in order to produce ore of the contractual specifications could not be said to involve the process of manufacture since the ore which was produced as a result of such blending could not be regarded as a commercially new and distinct commodity from the original ore of different specifications which were being blended, yet the operation of blending would amount to processing of ore within the meaning of section 8(3)(b) of the Central Sales Tax Act, 1956, and rule 13 of the Central Sales Tax Rules. The Supreme Court further observed that whenever a commodity was subjected to any processing or treatment for the purpose of marketing, it would amount to a processing of the commodity and wherever a commodity underwent a change as a result of any operation performed on it, such operation would also amount to processing.

16. In the facts of this case, we are not inclined to interfere with the order of the Tribunal. The Tribunal has found as a fact that as a result of the operations carried on by the assessee in its “Deep Sea Fishing Division”, the natural produce, i.e, the shrimps caught from the deep seas, were converted into frozen fish and fish products. The operations consisted of cleaning, peeling, packing and freezing the shrimps without which the same were not marketable. The unavoidable corollary is that by the result of such processing carried on by the assessee, a new commercial product comes into existence. This, in our view, results in production of an article.

17. In any event, in item 30 in Schedule V of the Income-tax Act, 1961, the entry covers processed (including frozen) fish and fish products. In view of the said entry, a person who owns machinery or plant engaged in manufacture or production of processed fish (including frozen) and fish products is entitled to development rebate under section 33 of the Income-tax Act, 1961, at a higher rate. If for the purpose of higher development rebate under the said section, processed fish (including frozen) and fish products are the result of production or manufacture, on analogy, it should be held that for the purpose of section 80J, such items should be capable of being produced or manufactured.

18. On both grounds, the assessee is entitled to succeed in this case. It is clear from the finding of the Tribunal that as a result of the operations carried on by the assessee in its “Deep Sea Fishing Division”, a commercially new product comes into existence. This product is processed and frozen fish. On a construction of section 80J and in view of the scheme of the Income-tax Act, 1961, we hold that for production or manufacture of processed and frozen fish, the assessee would be entitled to relief under section 80J.

19. For the above reasons, we answer the question referred in the affirmative and in favour of the assessee. There will be no order as to costs.

Monjula Bose, J.:— I agree.