A. Satyanamyana, Accountant Member
1. This appeal filed by the assessee is against the order of the CIT (Appeals) dated . 24-3-1984 for the assessment year 1980-81 for which the previous year ended on 31-3-1980.
2. The assessee is a company deriving income from the business of centrifuging rubber latex. For the assessment year under consideration the assessee filed a return of income admitting income of Rs. 2,04,670. In the computation statement the assessee had claimed deductions under Sections 80J and 80HH of Rs. 38,808 and Rs. 60,871 respectively. The ITO rejected the claim of the assessee. He held that the claim of the assessee Under Sections 80J was untenable for the reasons that Sections 80J was applicable only to an industrial undertaking which manufactured or produced articles and that the assessee did not carry on any manufacturing operations and did not produce any article but only made the latex more concentrated by adding preservatives. He also held that the assessee's claim Under Sections 80HH was not tenable as the assessee's concern was not an industrial undertaking which manufactured or produced any article or thing.
3. Aggrieved by the order of the ITO, the assessee preferred an appeal to the CIT (Appeals). The CIT (A), following the order of the Tribunal dated 23-12-1983 in ITA Nos. 187 & 188 (Coch.) 82 in the assessee's own case for the assessment years 1977-78 and 1978-79 upheld the action of the ITO. He also examined the assessee's claim Under Sections 80J by looking to the provisions of Sections 80J(4)(iv) of the IT Act, 1961. He asked the assessee's counsel to furnish information in that regard. After examining the statement filed by the assessee's counsel before him he held that he was not convinced that 10 persons had been employed by the assessee even if it was to be held that they were engaged in a manufacturing operation. Against the order of the CIT (A) the assessee preferred the present appeal.
4. At the time of hearing the assessee's counsel filed a paper book of 16 pages containing agreement dated 1-4-1976 between the assessee and M/s Kurion Abraham, a registered partnership having places of business at Kottayam, Nagarcoil, etc., copy of the order of the Tribunal dated 23-12-1983 relied on by the CIT (A), copy of the wages account in the assessee's books in the previous year relevant to the assessment year under consideration and copy of the notification dated 8-7-1983 issued by the Government of India under the Central Excises and Salt Act, 1944. His arguments were to the following effect : The assessee has a centrifugal machinery, which is intended for the purpose of preparing preserved concentrated natural rubber latex. The natural rubber latex that is passed through the centrifugal machinery does not belong to the assessee but belong to the planters. The preserved latex is prepared out of the natural latex that is brought to the assessee by the rubber planters and the assessee puts it through the centrifuge and obtains what has been described by the Indian Standard Institution as ammonia preserved concentrated natural rubber latex. By this process, the water content of the natural rubber latex is reduced while the rubber content is increased from 15 per cent to 20 per cent in the natural latex to 60 per cent. This process is adopted for two reasons, namely, to preserve the rubber latex in its colloidal form and to reduce the bulk of the latex for convenient transport. The preserved latex is used for the manufacture of foam beds, etc. Normal latex is generally not commercially known to the market. Preserved latex is commercially a different product from normal latex. In the assessment year under consideration the centrifuging was done by the assessee for others. The assessee receives the charges for centrifuging. Under Section 3 of the Central Excises and Salt Act, 1944 excise duty is leviable on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the First Schedule. Clause 2(d) of the said Act says that "excisable goods" means goods specified in the First Schedule as being subject to a duty of excise. The excisable goods in the First Schedule are exhibited under different item numbers. For example, tobacco is shown under item No. 4. Kerosene is shown under item No. 7. Soap is shown under item No. 15. All other goods, not specified elsewhere, are shown under item No. 68. They are to be taxed at 10% ad valorem. The Government of India by virtue of the powers conferred on it under Rule 8(1) of the Central Excise Rules, 1944 exempted "preserved latex", "latex concentrate", "smoke rubber sheets" and "crepe rubber and crump rubber", falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944, from the whole of the duty of excise leviable thereon under Section 3 of the said Act. The said notification is dated 8-7-1983 in No. 189/83-Central Excises. From this notification it is evident that the Government of India considered the preserved latex, latex concentrate, etc., as manufactured goods. But they have granted exemption from the duty of excise leviable Under Section 3 of the said Act. This notification was not brought to the notice of the Tribunal when it considered the assessee's case for the assessment years 1977-78 and 1978-79. As the assessee is manufacturing the preserved latex it is entitled to the deduction Under sections. 80J and 80HH. The decision of the Kerala High Court in CIT v. Woodland Estates Ltd.  58 ITR 612 applies only to the case of conversion of latex into sole crepe. The said decision is not applicable to centrifuged latex. Further the Hon'ble High Court itself mentioned in the judgment that "a fuller investigation indicated in regard to sole crepe and that the answer we have given should not form a precedent for the future". This caution of the High Court can be seen at page 617 of 58 ITR. The Special Bench of the Tribunal in the case of ITO v. Poyilakkada Fisheries (P.) Ltd.  14 ITD 224 (Coch.), after examining several decisions of the Supreme Court and High Courts, held that processed fish constituted an article of production. In that case the assessee-company's business was that of catching or purchasing fish which, after a series of processes such as cleaning, washing, peeling, cutting of heads and tails, deveining, etc., was subjected to high pressure at below 200 degree temperature, finally emerging as frozen block. The same is the view of the Calcutta High Court in the case of CIT v. Union Carbide India Ltd.  165 ITR 550. In the present case also by means of centrifuging process normal latex is converted into preserved latex which is entirely a different commercial product. So, following the decision of the Special Bench, the assessee should be given deduction Under sections. 80J and 80HH. The Bombay High Court in the case of Shree Mulchand Co. Ltd. v. CIT  24 Taxman 188 held that the activities of the assessee in sorting out, washing, drying and blending of wool can be said to be manufacturing or processing of goods so as to bring the assessee within the scope of Section 2(6)(c) of the Finance (No. 2) Act, 1971 as industrial company. The Supreme Court in the case of Osmania University v. Regional Director, Employees' State Insurance Corpn.  24 Taxman 270 (Mag.) held that the department of publications and the pre ss of the University is a factory within the meaning of Section 2(12) of the Employees' State Insurance Act, 1948. There the Supreme Court had taken the view that the said department was engaged in the carrying on of "manufacturing process" in the printing of text books, journals, forms and other items of stationery. The Gujarat High Court in the case of CIT v. J.B. Khar war & Sons held that the assessee engaged in dyeing and printing of customer's cloth was entitled to relief Under Sections 80J(4)(iii). The Madras High Court in the case of CIT v. Perfect Liners  142 ITR 654 held that the polishing of rough castings and supplying them for use as component parts in internal combustion engines amounted to manufacture. The Kerala High Court in the case of CIT v. West India Steel Co. Ltd.  108 ITR 601 (PB) held that conversion of steel ingots and billets into M.S. Rods and steel sections by machinery amounted to manufacture of iron and steel. The Madras High Court in the case of CIT v. R. Narayanaswami Naicker & Sons  149 ITR 283 held that ginning of cotton by which cotton and seeds are separated amounted to manufacturing process. Regarding the observations of the CIT (A) with reference to the employment of 10 workers by the assessee-company kind attention of the members of the Tribunal is invited to page No. 4 of the paper book wherein the details of wages and the number of workers employed month-wise have been furnished. From this it could be seen that more than 10 workers have been employed in the months of September 1979 to February 1980. Thus, there has been substantial compliance with the provisions of Sections 80J(4)(iv) of the IT Act, 1961. Reliance is placed on the decision of the Bombay High Court in the case of CIT v. Harit Synthetic Fabrics (P.) Ltd.  162 ITR 640.
5. The arguments of tha departmental representative were to the following effect: As a matter of fact rubber sheet is an agricultural product. Similar is the case with preserved latex. The assessee's activities cannot be termed as manufacture or production. It is like the launderer removing the dirt from the soiled cloth. The assessee is reducing the water content from the natural latex. Further the assessee should own the product at some stage or other. Here the assessee is doing the centrifuging for other's latex. The decision of the Special Bench in Poyilakkada Fisheries (P.) Ltd.'s case (supra) is distinguishable on facts. The Kerala High Court in the case of Dy. CST v. Neroth Oil Mills Co. Ltd.  49 STC 249 held that commercially prawns which are purchased by the assessee and prawns exported after processing are substantially the same. The said view of the Kerala High Court has been upheld by the Supreme Court in the case of Sterling Foods v. State of Karnataka AIR 1986 SC 1809. In the assessee's case, as can be seen from the wages account filed by the assessee before the CIT (A) and the Tribunal, more than 10 workers are employed in the months of September 1979 to February 1980 only. For the remaining months, the number of workers is less than 10. So there is no substantial compliance with the provisions of Section 80J(4)(iv). The facts of the present case are distinguishable with the facts in the case in Harit Synthetic Fabrics (P.) Ltd. (supra).
6. We have considered the rival submissions. Section 3 of the Central Excises and Salt Act, 1944 provides for the levy of duty of excise on all excisable goods produced or manufactured in India as per rates specified in the First Schedule. Rule 8 of the Central Excise Rules, 1944 authorises the Central Government to issue notifications exempting any excisable goods from the whole or any part of duty leviable on such goods. The Central Government, In exercise of its powers conferred on it by Rule 8 of the Central Excise Rules, 1944, granted exemption to "preserved latex, latex concentrate, smoke rubber sheets, crepe rubber and crump rubber", falling under item 68 of the First Schedule of the said Act from the whole of the duty of excise leviable thereon Under Section 3 of the said Act. This notification is dated 8-7-1983 in No. 189/83-Central Excises. The Govt. of India granted exemption to preserved latex, latex concentrate, etc., by the above notification because it considered the said goods as goods produced or manufactured in India. If preserved latex was not to be considered as goods produced or manufactured in India, there would have been no necessity of exempting the same by issuing the notification under Rule 8 of the Central Excise Rules, 1944. From this it has to be fairly inferred that the Government of India itself considered that preserved latex was an item manufactured or produced. The Central Excises and Salt Act, 1944 and the Income-tax Act, 1961 are both Central enactments. The words used in the relevant sections are "produced or manufactured". So the decision of the Government taken under the Central Excise Act has to be applied with equal force under the Income-tax Act, 1961 also. In this view of the matter we hold that the assessee is entitled to deduction Under sections. 80J and 80HH. The assessee also succeeds in its claim as per the reasonings given in the order of the Special Bench of the Tribunal in Poyilakkada Fisheries (P.) Ltd.'s case (supra) which has almost been approved by the Calcutta High Court in Union Carbide India Ltd.'s case (supra) and the Kerala High Court in CIT v. Maxwell Sea Foods  1 KLT 696. Regarding the requirements of employment of more than 10 persons in the assessee's concern as per Sections 80J(4)(iv), we are convinced that there has been substantial compliance with that section on the basis of material filed before us. As regards the decisions relied on by the departmental representative, namely, Nerolh Oil Mills Co. (P.) Ltd.'s case (supra) and Sterling Foods (supra) those decisions have been rendered under the sales-tax enactments. It would be useful here to quote the observations of the Special Bench in the order referred to above regarding the applicability of the decisions in the sales tax cases for cases to be decided under the Income-tax Act :
In those cases their Lordships were concerned with the identity of the commodities at two stages of processing for the purpose of Sections 5(3). The purpose of legislation was to relieve an assessee dealing in certain specified type of products. This is based on a matter of policy. It would defeat the very purpose of the legislation if processing alone deprived the assessee of the exemption. It was in that context that stress was laid on the absence of an essential difference in identity between the original commodity and the processed article. What we are concerned with in the present case is a legislation laying emphasis as a matter of policy on processing, production, manufacture, operating a cold storage plant, etc., rather than encouraging the production of an article like pineapple or prawns. The very object of the legislation in the present case, therefore, is certainly different if not even opposed to the objects of the sales tax enactments. It would, therefore, not be proper even to adopt the criteria considered in sales tax cases for the purpose of interpreting the income-tax decisions. That this is so is clear from the specific items mentioned as items 28 and 30 in the Fifth Schedule on which emphasis has been laid by the Allahabad High Court in income-tax decisions. Apart from the position obtaining for sales tax purposes, and without going into the question of 'manufacture' or consumption in the manufacture of a commodity, the decision in the present appeal would rest on the clear case of production.
7. In the result, the appeal is allowed.