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DEPUTY COMMISSIONER OF INCOME TAX & ANR. vs. SMT. PADMA S. BORA*

ITAT, PUNE ‘A’ BENCH

D. Manmohan, J.M. & D. Karunakara Rao, A.M.

ITA Nos. 1076 & 1151/Pn/2007; Asst. yrs. 2003-04 & 2004-05

9th February, 2010

(2010) 133 TTJ (Pune) 108 : (2010) 44 DTR 66

Section 80JJA,

Asst. Year 2003-04, 2004-05

Decision in favour of Assessee, Revenue

Counsel appeared :

Amrender Kumar, for the Revenue : Sunil Pathak, for the Assessee

ORDER

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D. Karunakara Rao, A.M. :
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There are four appeals under consideration involving asst. yrs. 2003-04 and 2004-05 and the main appeals are
filed by the Revenue and the assessee filed the cross-appeals for both assessment years. Grounds in both the
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main appeals are identical and the same read that the ‘CIT(A) erred in allowing the deduction under s. 80JJA
in respect of business of making fuel briquettes from bagasse’. Similarly, the objections in both cross-
objections are also identical and the same are against the denial of benefits of s. 80JJA in respect of the job
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work receipts. AO passed a speaking order for the asst. yr. 2003-04 and therefore, the same is taken as lead
order for the purpose of these four appeals.
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2. Briefly stated the relevant facts are that the assessee is engaged in manufacturing of fuel briquettes from
bagasse. As per the assessee, the bagasse is generated by the sugar factories and the same is made in form of
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large cubical compressed and dried blocks. After collecting the bagasse blocks by the assessee, the same are
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crushed and converted into powder form, then it is fed through conveyer to the press unit, which recompress it
and passes the material to a feeder box and then the material is forced by the machine through a tapered dye
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to result the small sized high caloric briquettes for fuel purposes. Assessee claimed that it is engaged in the
business of collecting and processing or treating the bagasse which is biological waste or bio-degradable
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waste into briquettes for fuel and therefore, he is entitled for deduction under s. 80JJA of the IT Act for both
assessment years under consideration.

3. During the assessment proceedings, the AO examined the provisions of s. 80JJA and relevant Circular No.
772, dt. 23rd Dec., 1998 [(1999) 151 CTR (St) 9] and another Circular No. 779, dt. 14th Sept., 1999 [(1999)
156 CTR (St) 17] issued by the CBDT for the proposition that waste referred in the said section relates to
municipal waste generated within the municipal limits only and not the waste generated in rural areas, which
has nothing to do with urban population in this regard. AO also relied on the report on Class-I cities submitted
by the committee constituted by the Supreme Court of India. As per the said report, the waste in municipal
areas is classified into four types of waste such as 1. Domestic/trade/institutional waste; 2. Construction and
demolition waste; 3. Bio-medical waste; and 4. Industrial waste. AO also referred to the Central
Government’s notification of the Municipal Solid Waste Management Rules, 2000 to strengthen the above
views that the benefits of s. 80JJA are in fact in respect of solid waste generated in the municipal limits only.

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As per the AO the following conditions need to be fulfilled for the availing of s. 80JJA and they are on p. 8 of
the assessment order which are reproduced as under : "(i) The raw material for the production process should
be a ‘waste’, (ii) Waste should be a bio-degradable waste, meaning thereby that any bio-degradable substance
cannot be considered as bio-degradable waste unless such bio-degradable substance is classified as a waste
also. (iii) The word ‘waste’ referred in the section would refer to the one generated in municipal limits. (iv)
The assessee should be engaged in business of ‘collection’ of waste and not in purchase of waste, (v) Such
‘bio-degradable waste’ collected should undergo a processing treatment involving biodegradation such as
anaerobic digestion, composting etc. (vi) The result of such process of treatment should be in the form of
generation of power or production of biofertilize, bio-pesticides, bio-gas or for making pellets or briquettes
for fuel or organic manure." Thus, the AO is of the opinion that the bagasse is not a waste rather it is residuary
product which is marketed by the sugar factories for consideration after capital consumption. Further, the bio-
degradable waste generated outside the municipal limits and more so when the same is purchased and
collected, the same is not eligible for the benefits of s. 80JJA of the Act. Collection and purchases are two
different expressions with different meanings. The ‘waste’ as per the AO should not have price and should be
freely available for collection by the assessee. If waste is purchased then it cannot be called as waste. Since
the bagasse is not a waste and only a residual product and is a saleable product, the benefits of s. 80JJA are
not available though the bagasse is bio-degradable. Further, he linked that the genesis of the provisions of s.
80JJA to the report submitted by the committee at the instance of the Supreme Court and mentioned that it is
intended for only in connection with the municipal waste, which is bio-degradable only. Regarding the
processing or treatment, the AO is of the opinion that the bagasse before the processing and after processing
remains the same, both for the size of the briquettes.

In response to the show-cause notice dt. 17th Feb., 2006, assessee made the submissions and the summary of

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the same is given in the assessment order on pp. 12 and 13 which is reproduced as under : "(a) That bagasse is
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a waste of sugar factories and not a bye-product of sugar factories as it is not deliberately produced by the
sugar factories. It has been stated that since the word waste has not been defined under IT Act, the said word
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has to be accepted in common parlance. Whether a substance is a waste or not has to be seen with reference to
the person who generates it. For sugar factories therefore bagasse being left-over and of no use and hence it is
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a waste.(b) The assessee has relied upon the Schedule of Tariff of Central Excise Department stating that the
bagasse which is included in residues and waste from the food industry, the excise duty is nil. The assessee
has also furnished a letter from the Sugar Commr. dt. 4th Feb., 2006 to support her contention that the
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bagasse is waste. A certificate from food hygiene and health laboratory has also been furnished to claim that
bagasse has a bio-degradable efficacy. (c) The condition referred by the AO that the waste referred under s.
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80JJA should be generated in municipal limits only is nowhere mentioned in the section. (d) The s. 80JJA is
applicable for purchases also as the section speaks of ‘business’ of collecting, treating or processing bio-
degradable waste and the word business means trade which means purchase and sale and hence the view of
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AO that it is applicable only when the waste is collected free of cost and not purchased is untenable. As per
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the assessee the word collection does not mean that assessee should physically collect the waste. (e) Since
bagasse is bio-degradable substance therefore making briquettes from it would satisfy the condition of
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processing a bio-degradable waste it to make briquettes. (f) The bagasse generated from sugar factories and
the briquettes made by assessee are entirely two different commodities. The later is more compact, has more
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calorific value and less moisture content and convenient to use and store or transport."

The above reply of the assessee proposes that the when the expression ‘waste’ is undefined in the Act, general
meaning needs to be adopted and the provision of s. 80JJA has to be interpreted by applying the principles of
literal interpretation of jurisprudence and finally, the other conditions relating to purposes of making
briquettes are met too. Further, as per the assessee, the briquettes processed are of more caloric value though
they are more compact in size and end-product of the processing is not merely the one with just change in size
as alleged by the AO.

6. AO is of the view that the bagasse is not a waste it is a residual product. The reason for such opinion is that
the bagasse is generally used for the captive consumption of the sugar factories as fuel it is a saleable product
for consideration. In view of the very potential use of the bagasse for fuel purpose the same cannot be termed
as waste. The other uses of the bagasse include the use in manufacturing of paper book, hardboards, files etc.

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In connection with the assessee’s reliance on Excise Department Tariff Schedule, the said classification is not
sacrosanct. Further, the assessee’s reliance on Circular No. 779 is also rejected by the AO as words ‘any
location’ mentioned therein refer to availability of deduction to the units irrespective of the location of the
units and not with reference to the ‘place of generation of waste’. Regarding the assessee’s contention that the
collection includes the situation of the collecting bio-degradable waste for price, the AO is of the view that
the collection is only with reference to the ‘business of collecting’ without involving purchase of bagasse for
price. Therefore, both the words business and collection assume importance. As per the Municipal
Management Rules, 2000, the word collection has been defined to mean the lifting and removal of solid waste
from collection points or any other locations’ [r. 3(v)]. AO relied on the apex Court judgment in the, case of
K.P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) for the proposition that the statute
must be interpreted so as to avoid absurdity or mischief. Further, AO mentioned that for the purposes of s.
80JJA and the Circular No. 772, the waste referred in the said section has to be the municipal waste only as it
only poses the serious problems of disposal for the local authorities and the public at large and the same is not
a saleable product and nobody is interested in purchasing of such waste for money and it is freely available
for reuse or recycling. Finally, the AO summed up his finding as follows i.e., "(1) the bagasse is not a waste at
all of the nature intended by s. 80JJA, (2) it is not generated in municipal/urban limits, (3) It is not causing
any serious problem in disposal to the local authorities, (4) it is not collected rather purchased and (5) the
process does not involve any bio-degradation as required in case of treatment or recycling of a bio-degradable
waste. Rather activity of assessee cannot be said to be even recycling as the raw material and the end-products
are hardly any different in intrinsic content and usage." Accordingly, AO denied the claim of deduction under
s. 80JJA for the asst. yr. 2003-04 as well as asst. yr. 2004-05. Aggrieved with the same, assessee filed an
appeal before the CIT(A). Job works receipts : On the job works receipts, whether they are eligible for
deduction under s. 80JJA, the AO noted that the assessee is engaged in briquetting job works and earned

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profit of Rs. 3,43,750 for the asst. yr. 2003-04 out of this business activity of job works. In view of the
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assessee’s failure to file details relating to the direct expenses attributable to the job works and also in view of
the AO’s opinion on the ‘waste’, ‘collection of bio-degradable waste’ etc., AO held that the assessee is not
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entitled for benefits of deduction for the asst. yr. 2003-04 and also for the asst. yr. 2004-05. Aggrieved with
the same, assessee filed an appeal before the CIT(A).
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During the first appellate proceedings, the assessee relied on the express provisions of s. 80JJA and the
Circular No. 772 of CBDT and requested for literal interpretation of the statute to his advantage in case of
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ambiguity of the provisions. Assessee submitted that there is no need for supply of words in the statute i.e., s.
80JJA as they are self-explanatory and mentioned there is no use of the word ‘purchase’ or ‘municipal limits’
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qualifying the expression ‘bio-degradable waste’ in the statute and thus, questioned the AO’s contention that
it is restricted to bio-degradable municipal waste only located within the boundaries of the municipal limits
and not for rural biodegradable waste. Assessee relied on various definitions to demonstrate that the bagasse
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is a waste for the sugar industries and also the Government of Maharashtra for levy of excise duty and he also
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relied on the letter from the authorities of Government for the proposition that the bagasse is a waste.
CIT(A) discussed the provisions of s. 80JJA as well as the said circular and other material relied by the AO as
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well as the assessee’s submissions and gave a finding that the bagasse is a biodegradable waste. Para 3.16 of
the impugned order is relevant in this regard. CIT(A) is of the opinion that the AO cannot rely on the
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resolution passed by the municipal corporation in the light of the report submitted at the behest of the
Supreme Court on the management of waste. He opined that it has nothing to do with the provisions of s.
80JJA of the Act. CIT(A) also relied on the ratio of judgment of the apex Court in the case of K.P. Varghese
(supra) and held that the words used in s. 80JJA are plain and simple. Finally, he held that the assessee is
entitled for deduction under s. 80JJA of the Act and ordered for grant of deduction under the said provisions.
The same is the decision of the CIT(A) in respect of the asst. yr. 2004-05 too.

So far as briquettes job work is concerned, assessee submitted before the CIT(A) that he is collecting,
processing and treating bio-degradable waste for making briquettes for fuel purpose and therefore, the
assessee is entitled for deduction under s. 80JJA on these receipts also. CIT(A) considered the above
submissions and held that the business activities of collection of biodegradable waste and its processing or
treatment have to be done by the assessee and assessee did not execute the business activity of ‘collecting of
bio-degradable waste but only the business activity of ‘processing or treatment...’ CIT(A) is of the opinion

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that the deduction is available to the persons who are engaged in the business of collection and processing or
treating of bio-degradable waste. In respect of the job work done by the assessee, the collecting activity is
made by someone else and processing or treatment is carried out by the’ assessee. Since both the conditions
i.e., collecting and processing or treating have to be performed by the assessee and they are not met in the
instant case, therefore, the assessee is not entitled for deduction under s. 80JJA in respect of the job work
receipts. He accordingly confirmed the AO’s decision on the issue. The same is the decision of the CIT(A) in
respect of the asst. yr. 2004-05 too. Thus, there are two categories of receipts i.e., (i) receipts of the assessee
relatable to the collection of degradable waste and (ii) the job works receipts relatable to the collection of
degradable waste relatable to the others. At the end of the first appellate proceedings, the assessee is found
entitled to the benefits of deduction under s. 80JJA in respect of the receipts at (i) above and not in respect of
the job works receipts mentioned at (ii) above. Aggrieved with the CIT(A)’s decision in respect of receipts at
category (i) above, Revenue is before us. Aggrieved with the confirmation/denial of deduction in respect of
job works receipts at (ii) above, the assessee filed the cross-objections for both years i.e., asst. yrs. 2003-04
and 2004-05.

12. We shall now undertake appeal-wise adjudication in the following paras. Revenue’s appeal for the asst.
yr. 2003-04 is made use of as a lead order as the order of the AO is more speaking one. ITA
No.1076/Pn/2007—Asst. yr. 2003-04—Revenue’s appeal

13. The grounds raised by the Revenue are reproduced as under : "1. On the facts and in the circumstances of
the case, the learned CIT(A) erred in allowing the deduction under s. 80JJA in respect of business of making
fuel briquettes from bagasse."

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14. During the proceedings before the Tribunal, in connection with the above ground, Mr. Amarendra Kumar
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senior Authorised Representative for the Revenue argued stating that the order passed by the AO is a
speaking order and he heavily relied on the same. Further, learned Departmental Representative brought to
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our attention the provisions of s. 80JJA of the Act and engaged in demonstrating that the ‘business of
collecting’ and ‘business of processing or business of treating’ of bio-degradable waste does not imply the
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purchase of the said waste before collecting or processing of said waste. He attempted to make out a case that
these provisions are applicable to the person, who collects the said waste free of cost. Further, he reiterated
the AO’s assertion that bagasse is bio-degradable product or residual product and it is not a waste. He further
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mentioned that the waste can never be purchased and it should be freely available for collecting and
processing/treating. Further, he is of the opinion that the problem of the modern world is the municipal waste
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generated in municipal limits and provisions of s. 80JJA are meant for such waste only and not the rural
waste, which is not a social problem at all. In other words, he is of the opinion that the legislative intent is not
properly translated into proper expressions in the said section. He is surprised as to how the bagasse is waste,
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which is a marketable product and commands money in the market as it has multiple uses.
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15. On the other hand, learned counsel for the assessee reiterated all the submissions made by him before the
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Revenue authorities and requested for confirming few points of the CIT(A) with regard to above ground.
Further, he took us through a paper book filed before us and attempted to demonstrate that bagasse is a
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residual waste generated in the sugar industries (p. 15A of paper book) and it is a bio-degradable product (pp.
16 and 17 of paper book). The counsel stated that the bagasse is waste of sugar manufacturing. Referring to
pp. 19 and 20, a letter mentioned of non-conventional energy sources, the counsel mentioned that the bagasse
is a type of waste of renewal nature. Similarly, referring to Technology Innovation Management and
Entrepreneurship Information Services’, the learned counsel read out that the agricultural engineers in India
developed an agro-waste compaction device for converting agro-forest waste such as bagasse, dry leaves and
saw dust into briquettes. Referring to p. 28, the counsel read out that sugar factories follow textile
manufacturing industry and typical sugar and distillery complex generates large quantities of wastes like
bagasse, filter cake, molasses and distillery spentwash. Bagasse is a solid waste of the sugar mill that is
typically used as fuel in boilers for power generation. Relying on pp. 29 to 32, the counsel stated that "in the
natural world, there is no such thing as waste and it is also mentioned that green waste emanating from sugar
industries waste". Referring to word ‘collecting’ in s. 80JJA, the counsel borrowed the meaning of the said
word from the Oxford Dictionary, 3rd edition and stated that it means, "1. to gather together into one place or

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group; to gather in (money, debts, etc.); to make a collection of (specimens, curiosities, etc.) 2. To assemble,
accumulate 3. To regain control over (one’s thoughts, feelings, or energies); to summon up (courage, etc.), 4.
To form a conclusion, draw an inference."

16. We have heard both the parties and perused the orders of the Revenue as well as the paper book filed
before us. Before going to adjudicate the appeals on hand, we find it necessary to analyze the relevant
provisions in this regard. To start with, we proceed to analyse the provisions of s. 80JJA and section reads as
follows : "80JJA. Where the gross total income of an assessee includes any profits and gains derived from the
business of collecting and processing or treating of bio-degradable waste for generating power or producing
bio-fertilizers, bio-pesticides or other biological agents or for producing bio-gas or making pellets or
briquettes for fuel or organic manure, there shall be allowed, in computing the total income of the assessee, a
deduction of an amount equal to the whole of such profits and gains for a period of five consecutive
assessment years beginning with the assessment year relevant to the previous year in which such business
commences."

17. From the above it is evident that the assessee’s gross total income should include any profits and gains
derived from the business of collecting and processing or treating of bio-degradable waste. Such profits and
gains must have been derived from the said business. The business must consist of twin activities of the (i)
business of collecting of bio-degradable waste and (ii) business of processing or treating of bio-degradable
waste. The purpose of the said business activities is ultimately for generating power or producing bio-
fertilizers, bio-pesticides or other biological agents or for producing bio-gas or making pellets or briquettes
for fuel or organic manure. The expression ‘bio-degradable waste’ is not defined in the Act and the Act is
silent on if the ‘waste’ in question must be the (a) municipal waste, (b) available free of cost and (c) only from

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the locations within the municipal limits as held by the AO.
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18. Next, we take up the examination of the contents of Circular No. 772, dt. 23rd Dec., 1998 explaining the
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provisions of s. 80JJA and the relevant parts read as follows : "80JJA Deduction in respect of profits and
gains from business of collecting and processing of biodegradable waste. Increasing population and
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urbanization pose challenges for planners. Waste management has been an area of serious concern, which so
far has been primarily the responsibility of local bodies. Waste is now being thought not as a useless resource
but a resalable and reusable one given the proper framework the waste can be utilized for generating energy
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and useful resources by way of composting, vermin compost and anaerobic digestion. The potential for power
generation is also tremendous........."
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From the plain reading of the above section with the help of the CBDT’s Circular No. 772, we find that the
said section is created for attending to the problems of the planners of the local bodies in the general
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environment of the ‘increasing population and urbanization’. While the urbanization refers to change of rural
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areas in the towns and cities, the population problem is uniform in all parts of the country. Further, the ‘local
bodies’ refer to Panchayats as referred to in cl. (d) of Art. 243 of the Constitution, municipalities as referred to
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in cl. (e) of Art. 243P of the Constitution, cantonment boards as defined in s. 3 of the Cantonments Act, 1924
etc. As such the expression ‘local authorities’ is defined in the Act for the limited purpose of said clause vide
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Explanation to s. 10(20) of the Act. The said Explanation does not imply the expression ‘waste’ the one which
is freely available. In fact, it explains that the waste is substrate or raw material for many other useful
activities, when recycled. We have also considered the source material relied upon by the assessee’s counsel
and find that the bagasse is a waste for the persons of sugar industry and it is undoubtedly an organic and bio-
degradable product.

We have so far considered the relevant provisions and the scope of s. 80JJA of the Act. We shall now discuss
the objections of the Revenue for granting the deduction in this case. Essentially, the Revenue’s objections in
granting the benefits of s. 80JJA to the assessee are as follows : (a) the persons engaged in purchase of bio-
degradable waste in addition to collection and processing or treatment of bio-degradable waste are outside the
scope, (b) bagasse is not a waste, (c) waste must be collected from the municipal limits only, (d) waste must
be available free of cost, (e) the processing activity reported by the assessee does not constitute the processing
or treatment etc.

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From the above scope of the provisions and the objections of the Revenue, we need to address to the said
objections in the same order. Sec. 80JJA does not bar the person for the benefits of said section as long as
they comply with the other conditions of the section. It is not that the persons engaged in the business from
the point of collection of bio-degradable waste alone are entitled. Therefore, we dismiss such an interpretation
of the AO considering the fact that said provisions are aimed at solving the problems of the planners of local
bodies in the areas of population and urbanisation. In the instant case, undisputedly, the assessee did collect
the said waste and complied with the twin conditions discussed above. In continuation, it is not fair to restrict
the location of municipal limits only, when the Circular No. 772 refers to ‘local bodies’ which include the
Panchayats as well. The Panchayats refer to the villages or rural areas where the sugar industries are
essentially located. There are planners for every nook and corner of the country. Therefore, the problem is
common both for municipalities and the other areas of the country. Regarding the definition of waste, we find
that there is nothing like waste in the universe and everything has a use and that is how system is created or
evolved on this planet-earth and expression ‘waste’ has to be understood depending on the person owning
such waste as such the expression is generic in its use. In any case, the Government terms the bagasse
generated from the sugar industry as a waste. Regarding the cost to the waste, it again depends on the demand
and supply and cost is commanded by the nuisance value attached to such waste. Therefore, there are no
provisions in the statute that the waste must be collected only when the same is available free of cost. So long
as the assessee fulfils the twin conditions of collecting and processing the bio-degradable waste, he is entitled
to these beneficial provisions of s. 80JJA of the Act. Regarding the objection relating to the end-product after
processing is one and the same as the waste collected, we do not agree with said objection as there is great
amount of change in terms of caloric value of the briquettes before and after the said processing or treatment.
As such, the requirement of the ‘treatment’ is met once a particular substrate i.e., bagasse is subject to certain
procedures i.e., washing or cleaning or addition of chemicals etc., whereas in the instant case the bagasse is

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subjected to various stages as described in the opening paras of this order. Considering the above, we are of
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the opinion that the assessee is entitled to benefits of s. 80JJA in respect of the profits and gains derived from
the business of collecting and processing or treating of the bio-degradable waste. Therefore, the order of the
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CIT(A) does not call for interference in this regard for the reasons mentioned above too. Accordingly,
grounds raised by Revenue in this regard are dismissed.
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In the result appeal of the Revenue is dismissed. C.O. No. 50/Pn/2008—Asst. yr. 2003-04—Assessee
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24. The grounds are reproduced as under : "1. The learned CIT(A) erred in holding that the assessee was not
eligible to claim deduction under s. 80JJA in respect of the profits of Rs. 3,43,750 derived from job work
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charges.

2. The learned CIT(A) failed to appreciate that the job work is itself a treatment of the biodegradable waste
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and it had satisfied the condition laid down under s. 80JJA and therefore, it was entitled to deduction under s.
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80JJA in respect of the profits arising from job work charges."

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25. Ground No. 1 related to CIT(A)’s decision in confirming the denial of deduction under s. 80JJA in respect
of job work receipts. The case of the assessee is that the assessee when complied with the condition of
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treating the bio-degradable waste, he should be entitled to deduction under said section. Per contra, the case of
the Revenue is that assessee was not engaged in the business activity of collecting of the bio-degradable waste
and this activity is done by the job work customers and therefore assessee is not eligible for deduction in
respect of the job work receipts. As per the learned counsel, the assessee becomes party to the collection of
bio-degradable waste as all the customers bring their collection of the waste to the assessee for job work
purposes.

We have heard both the parties and perused the orders of the Revenue. In the preceding paras, we have
analysed the scope of the provisions of s. 80JJA and arrived at the conclusion that the said section refers to
twin conditions of ‘business of collecting and processing or treating...’ Business of collecting and the business
of processing or treating are qualified by ‘and’ and not ‘or’. Therefore, it is essential, the business of
collecting should be done by assessee as part of his business activities, whereas in the job work related
activities, this part is done by the job work customers and assessee has no role in such activity. In respect of

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the job work receipts, the profits and gains of the assessee relatable to the activity of collecting of bio-
degradable waste are not derived from the business activities of the assessee. In other words assessee should
be engaged in business of collecting. Therefore, we are of the considered opinion that the order of the CIT(A)
in this regard does not need interferences. Accordingly, grounds raised by the assessee are dismissed.

In the result cross-objection of the assessee is dismissed. ITA No. 1151/Pn/2007 & C.O. No. 3/Pn/2007—
Asst. yr. 2004-05

As mentioned above, the grounds raised in the Revenue’s appeal and objections raised by the assessee in the
cross-objection for the asst. yr. 2004-05 are exactly identical. Therefore we are of the opinion that the same is
covered by our decisions mentioned in connection with appeal ITA No. 1076/Pn/2007 and C.O. 50/Pn/2008,
as the case may be.

In the result, appeal of the Revenue and cross-objection of the assessee are dismissed.

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