I.TAS. NOS.4080/LB AND 4081/LB OF 1986-87, DECIDED ON 6TH DECEMBER, 1990. VS I.TAS. NOS.4080/LB AND 4081/LB OF 1986-87, DECIDED ON 6TH DECEMBER, 1990.
1991 P T D (Trib.) 404
[Income-tax Appellate Tribunal Pakistan]
Before Mian Abdul Khaliq, Judicial Member and Mirza Muhammad Wasim,
Accountant Member
I.TAs. Nos.4080/LB and 4081/LB of 1986-87, decided on 06/12/1990.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 10 & First Sched., Part II, Cl. A(1)(v)---Super-tax rebate ---Assessee, deriving income from sale of packed milk, loose milk, butter, cream and ghee-- Assessee, being engaged in the processing and preserving of milk, which was an article of food, was entitled to 10% rebate in super-tax.
(b) Income Tax Ordinance (XXXI of 1979)---
----First Sched., Part II, Cl. A(1)(v)---Term "processing"---Meaning---Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity-- Nature and extent of the change is totally immaterial.
Sri Om Prakas Gupta v. Commissioner of Commercial Taxes (1965) 16 S.T.C. 935; Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 Sales Tax Cases 124 and Messrs Rafhan Maize Products Company v. C.I.T. 1988 PTD 571 ref.
(c) Words and phrases---
......Processing"---Meaning.
Munir Qureshi, A.C./D.R. for Appellant.
Muhammad Qadeer Alam, I.T.P. for Respondent.
Date of hearing: 5th October, 1988.
ORDER
MIAN ABDUL KHALIQ (JUDICIAL MEMBER).---For the assessment years 1984-85 and 1985-86 the Department has come up in appeals against a combined order passed by the learned C.I.T. (A) Zone-1, Lahore, dated 25-11-1986 on the issue of allowance of 10% rebate of super-tax under clause A(1)(v) of Part II of the First Schedule to the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance).
2. The facts in brief are that the assessee, a Private Limited Company, derived income from sale of packed milk, loose milk, butter, cream and ghee. In the return for the charge year 1984-85, 10% super-tax rebate was claimed on sale of packed milk but the I.T.O. while making assessment under section 62 of the Ordinance on 30-12-1985 did not adjudicate that issue. Super-tax was charged at the normal rate of 25%. Subsequently on 25-2-1986 the assessee-company moved an application before the I.T.O. for rectification of charged rate of super-tax. It was claimed before the I.T.O. that the company being involved in processing of milk was entitled to super-tax rebate of 10% under clause A(1)(v) of Part II of the First Schedule to the Ordinance. The I.T.O. vide order dated 11-3-1986 rejected the claim holding that the company's nature of business did not involve any element of processing. For the assessment year 1985-86 in the return 10% super-tax rebate was claimed by the assessee on sales of packed milk but while processing assessment under section 59(1) of the Ordinance no such rebate was allowed by the I.T.O.
3. On appeal, the learned C.I.T.(A) accepted the assessee's plea that milk was an article of food and element of processing and preserving was involved to increase the sale life of milk and for maintaining its nutritive value. The first appellate authority held that milk being an easily perishable item, it could not last beyond few hours except passing through the stages of processing and preserving as undertaken by the assessee-company. 10% super-tax rebate was directed to be allowed on sale of packed milk for both the years under review.
4. The learned D.R. contended that the first appellate authority erred in law in allowing 10% rebate in super-tax under clause A(1)(v) of Part II of the First Schedule to the Ordinance as sale of milk undertaken by the assessee-company did not qualify for such rebate. The other reason advanced on behalf of the Department was that the legislature never intended to give 10% rebate in super-tax in sale of milk otherwise it could have very conveniently inserted in item "milk" alongwith vegetables, food grains, meat, fish and poultry in the contemplated provision. The learned D.R. did not challenge the finding of the first appellate authority regarding milk to be an article of food as no such ground was taken up by the appellant I.T.O.
The assessee's learned authorised representative in his turn, stated that the Department having accepted the finding of the first appellate authority that milk is an article of food, the only requirement was to establish whether an element of processing or preserving was involved in the sale of packed milk. It was explained in detail by the assessee's A.R., that the method of processing and preserving of milk was fully involved as that raised the normal life of fresh milk from three to five hours to four weeks. On behalf of the assessee it was submitted that fresh milk received through milk containers/milk canes passed through stages of processing, sterilization and asceptic filling in tetra pack containers. It was further explained that on receipt of milk it was filtered, measured, chilled at 30 C and stored in insulated stainless steel storing tanks for processing. Thereafter the stored milk was clarified of all the impurities and standardised at 3.5% fat (cream) and 9% solid non-fat before putting to sterilization. Then the milk is-pre-heated at 85 C and sterilized at 145 C for 1.5 seconds to destroy all the germs and bacteria. Thereafter the milk was deodorised of all foul smells and taste which could have been caused on account of feed or fodder consumed by milk animals. After that the milk was homogenised by mixing cream or fat with liquid milk under high pressure. Finally after chilling at 30 C, it was packed asceptically on tetra pack machines. On the preserved packs of tetra pack milk expiry date of four weeks was stamped with effect from the date of packing. In these circumstances the plea of the assessee's learned AR was that the explained procedure established fully involvement of processing and preserving of fresh milk at all stages till tetra packing. The milk having been admitted to be an article of food, the assessee's learned authorised representative claimed that in view of the involvement of a good deal of processing and preserving, exemption of 10% rebate in super-tax was rightly allowed by the learned C.I.T. (A).
5. Before examining the issue whether any element of processing or preserving is involved in the business of the assessee-company, we deem it appropriate to bring on record the relevant provision of clause A(1)(v) of Part-II of the First Schedule to the Ordinance under which the rebate is claimed. That runs as under:--
"A rebate of 10% to such company in respect of its income, profits and gains to which clause (c) of section 26 applies or which are derived by it in Pakistan from processing, freezing, preserving and canning of food, vegetables, fruit, grams, meat, fish and poultry."
6. After closely examining the stages involved in the packing of milk as well as the provisions of allowance of 10% rebate in super-tax under clause A(1)(v) of Part II of the First Schedule to the Ordinance, we are of the view that the assessee-company being engaged in the processing and preserving of milk, which is admittedly an article of food, is entitled to 10% rebate in super-tax. But for the processing and preserving process undertaken by the assessee-company life of fresh milk is few hours only. Fresh milk loses its nutritive value and turns sour after lapse of few hours. It is because of processing and preservation methods adopted by the assessee-company that life of packed milk is extended from few hours to a period of four weeks.
The term `processing' means bringing into existence of product after processing the raw material in a manner which may not change the inherent quality of chemical composition of the raw material. In Webster's Dictionary processing has been defined as "to subject to some special process or treatment, to subject especially (raw material) to a process of manufacture, development or preparation for the market, etc., to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasturising, fruits and vegetables by sorting and repacking." When any commodity is subjected to a process or treatment with a view to its development or preparation for the market, it would amount to processing of the commodity. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive, but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The, nature and extent of the change is totally immaterial.
In the case of Sri Om Prakas Gupta v. Commissioner of Commercial Taxes (1965) 16 S.T.C. 935 it was held that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder. It was further concluded that what is necessary in order to characterise an operation as processing is that the commodity must, as a result of the operation, experience some change.
In Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 Sales Tax Cases 124, the Supreme Court of India was of the view that blending of an ore in the course of loading through the mechanical ore handling plant amounted to processing of ore within the meaning of section 8 (3) (b) and rule 13 of Central Sales Tax Act.
In a recent decision in the case of M/s. Rafhan Maize Products Company v. C.I.T. reported as 1988 PTD 571 the Supreme Court of Pakistan while dealing with the case of an assessee involved in extracting corn oil from maize refused a similar rebate in super-tax holding:
"It is clarified that whenever a definition is sought to be culled out from the dictionary meaning of a word used in a legal provision, that meaning cannot be adopted in isolation of the context in which the word is used in the particular provision. If a statutory definition is normally to be given effect in' the context of the provision in which the word concerned is used, it will be against the normal rules of interpretation to read the dictionary meaning either out of or against the relevant context in the legal provision concerned. In this case the word "processing" has to be co-related firstly to the end-product in connection with which the income, profits and gains are being claimed for qualification regarding rebate on super-tax; and, secondly, the processing involved should have some nexus with the other modes of treatment of the commodities, namely, freezing, preserving and canning."
7. In the light of the above discussion, we maintain the impugned order of the learned C.I.T.(A) holding that the assessee-company was entitled to 10% super-tax rebate on account of processing and preserving of milk. Both the departmental appeals being devoid of any merits are dismissed.
M.BA./967/TAppeal dismissed.