THE COMMISSIONER OF INCOME TAX versus M/S CYNAMID INDIA LTD.

Citation: [1999] 2 S.C.R. 601 · Decided: 13-04-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

THE COMMISSIONER OF INCOME TAX 
A 
v. 
MIS CYNAMID INDIA LTD. 
APRIL 13, 1999 
[S.P. BHARUCHA AND R.C. LAHOTI, JJ.] 
B 
Income-tax Act 1961-Section 35 B & C-Exemption claimed towards 
expenditure incurred-Disallowed by the Tribunal on the ground that the 
product on which claim was made was not an agricultural product-High 
Court set aside the order of Tribunal-On appeal, held, the term "agricultural C 
product" should be construed liberally and exemption claimed could be 
allowed. 
Respondent-Assessee manufactured animal feed with rice husk as 
the main raw material The Assessee incurred certain expenditure towards 
distribution of Literature and pamphlets containing ~odern ·techniques for D 
increasing yields, amongst the cultivators. The asseslee claimed deduction 
U/s 35 B and C of the Income-tax Act for the expenditure incurred for 
distribution of pamphlets and also for export promotion. 
The Tribunal disallowed the deduction claimed by the assessee on the, E 
ground that rice husk was not a "Product of agriculture" because the same 
was not the direct outcome of agricultural endeavour. 
Rice husk is the process of dehusking and therefore paddy alone could 
be considered as an agricultural product. The High Court however disagreed 
with the view taken by the Tribunal and set aside the order of the Tribunal F 
Hence this appeal. 
Dismissing the appeal, this Court 
HELD : The High Court was right in holding that the operation of 
dehusking of paddy is not an industrial or manufacturing operation; it is an G 
agricultural operation; both rice and husk remain in their natural form as 
a result of dehusking and are covered by the term "Agricultural Product" 
which is to be construed liberally so as. to include not only the primary 
product but also a product which undergoes a simple operation. (603-E-FJ 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4403-4404 H 
601 
-. 
602 
SUPREME COURT REPORTS 
[1999) 2 S.C.R. 
A of 1996. 
From the Judgment and Order dated 8.12.93 of the Bombay High Court 
in 1.T.R. NO. 41of1982. 
J. Ramamurthy, SJ( dwivedi, S. Rajappa and B. Krishna Prasad for the 
B Appellant. 
Ex-parte for the Respondent. 
The Judgment of the Court was delivered by 
C 
R.C. LAHOTI, J. In a reference under Section 256 of the Income-tax 
D 
E 
F 
Act, 1961, the following three questions amongst others were answered by 
the High Court in favour of the assessee and against the Revenue :-
For Assessment Years 1974-75 and 1975-76. 
4. 
Whether, on the facts and in the circumstances of the case, the 
Tribunal was right in holding that the assessee was not entitled 
to deduction of Rs. 66,352 plus Rs. 1,60,428 for assessment year 
1974-75 and Rs. 2,00,599 for the assessment year 1975-76 under 
Section 35C of the Income Tax Act, 1961 ? 
For Assessment Year 1974-75. 
6. 
Whether, on the facts and in the circumstances of the case, the 
Tribunal was right in holding that the assessee's claim for 
weighted deduction at 33 l/3% being export promotion expenses 
incurred from l.12.1972 to 28.2.1973 and at 50% on Rs. 42,207 
being export promotion expenses from l.3.1973 to 30.l l.1973 
ought not to be allowed ? 
For Assessment Year 1975-76. 
8. 
Whether, on the facts and in the circumstances of the case, the 
Tribunal was right in holding that the weighted deduction under 
G 
Section 3 SB of the Income-tax Act, 1961 on only 50% of the 
amount of Rs. 20, 706 ought to be allowed ? 
I 
There were in all eight questions forming subject-matter of reference 
before the High Court and as to which the Revenue had filed these appeals. 
However, vide order dated 3.l l.1995,this Court has entertained the appeals 
H confined to abovesaid three questions only. 
C.l.T. v. CYNAMID INDIA LTD. [R.C. LAHOTI, J.] 
603 
So far as question numbers 6 and 8 are concerned, at the very outset A 
the learned counsel for the Revenue has very fairly stated that the quantum 
of revenue involved is very small and therefore the Revenue does not press 
the appeals to that extent. He has made his submissions confined to question 
no. 4 only. 
Section 35C of the Income-tax Act, 1961 (as it stood ·during the B 
assessment years 1974-75 and 1975-76) provided for deduction in respect of 
certain expenses referable to use as raw material of any product of agriculture 
etc. in manufacture or processing. The assessee manufactures an animal feed 
known as "AUROFAC" wherein rice husk is mainly used as raw-material. The 
deductions claimed by the assessee were in r

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