Whether when assessee is engaged in business of manufacturing fuel briquettes from bagasse, a waste of sugar industry, merely because assessee pays for purchase of such waste, it loses entitlement to benefits u/s 80JJA - NO: Bombay HC

THE issues before the Bench are - Whether when the assessee is engaged in the business of manufacturing fuel briquettes from bagasse, a waste of the sugar industry, merely because the assessee pays for the purchase of such waste, it loses entitlement to benefits u/s 80JJA; Whether the wordings of a circular issued by the CBDT, can override the provisions of the statute and Whether bagasse is a 'waste' or a 'by product' of sugar industry. And the verdict goes against the Revenue.

Facts of the case

Assessee, an individual, is engaged in the business of manufacturing fuel briquettes from bagasse. It had filed its ROI after claiming deduction u/s 80JJA. During assessment, AO disallowed the claim for deduction u/s 88JJA on the ground

that bagasse was not a waste; it was not generated in municipal/urban limits i.e. by local authorities; it was not collected but it was purchased and the process of its manufacture had not involved any treatment or recycling of a biodegradable waste. On appeal, CIT(A) allowed the respondent's appeal. It was held in the order for both the AYs, that bagasse was purchased from sugar factories and processed by it for making briquettes to be used as fuel. Further it was held that all the conditions laid down in Section 80JJA were satisfied and the assessee was entitled to claim a deduction thereunder. On further appeal by the Revenue, Tribunal held that bagasse generated in the sugar industry was a waste and merely because it was purchased for a price it did not cease to be a waste. It was further held that the assessee satisfied the conditions for availing of the benefit of Section 80JJA namely collecting and processing bio-degradable waste in respect of profits and gains derived there from.

Before HC, the Revenue's counsel submitted that bagasse which was purchased by the respondent was not a waste but a by product of sugar industry. Therefore, Section 80JJA cannot be applied in this case. As per a circular of CBDT, the intention behind the insertion of section 80JJA was to encourage local bodies to manage waste arising in Urban areas. Thus the benefit was available only to local bodies. As it was already mentioned that the bagasse was not collected by the assessee but was purchased from the sugar factories. Therefore, the pre-requisite for claiming deduction u/s 80JJA was not satisfied. On the other hand, the assessee's counsel submitted that bagasse was a waste which arose in the manufacture of sugar and it was not a by product of a sugar industry. In support of his contention, reliance was placed upon a letter of the Sugar Commissioner, Maharashtra State certifying that bagasse was a residual waste generated in sugar industry and on the provisions of the CETA, 1985 wherein bagasse was classified as waste of sugar manufacture. Section 80 JJA merely requires that bio degradable waste should be collected and processed for making briquettes fuel . The mere fact that the bagasse was collected from the sugar factory by making a payment would not by itself result in bagasse not being a waste or the same not being collected.

Having heard the matter, the High Court held that:

++ bagasse is a waste of the sugar factory. This waste is a bio-degradeable waste and the same is collected on consideration by the respondent assessee from the factory. There could be no universal definition of the word “waste”. The term waste has to be understood contextually i.e. place where it arises and the manner in which it arises during the processing of some article. The fact that sugar industry also regards Bagasse as waste is evident from Circular dated 4/2/2006 issued by the Sugar Commissioner, Maharashtra State, Pune. Besides the ITC classification of the Exim policy also classifies bagasse as a waste of sugar industry under Chapter 23 Heading 23.20 thereof;

++ further, the CETA, 1985 also regards bagasse as waste of sugar manufacture. We do not agree with the submissions of the appellant's Counsel that collection would mean collecting free of charge and not by purchasing the same. The word “collecting” means to gather; to fetch. It is a neutral word and does not mean collection for consideration or collection without consideration. It is an admitted position that the assessee has collected bagasse from sugar factories after having made payment for the same. Therefore, the aforesaid requirement of collecting as provided u/s 80JJA is satisfied. It is a undisputed finding of fact that the collected bagasse has been used by the assessee to make briquettes for fuel as that indeed is the business of the assessee. The reliance upon the circular No.772 dated 23/12/1998 by the appellant is misplaced. The aforesaid Circular does not restrict its benefits only to local bodies. In any event the circular cannot over ride the clear words of Section 80JJA which provides deduction in respect of profits and gains derived from the business of collecting and processing/treating of bio- degradable waste i.e. bagasse into briquettes for fuel. In these circumstances, we find no fault with the order of the Tribunal both on facts as well as in law;

++ in view of the above, no substantial question of law arises for consideration by this court. Therefore the appeal is dismissed, with no order as to costs.