Expert Advisory Committee
ICAI-Expert Advisory Committee
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1.4  Query:      

Application of MAOCARO to a company engaged in growing and export of cut-flower roses.

 

1. A company is engaged in the business of growing and export of cut flower roses to Germany, Holland and Japan. The mother rose plants were imported from Holland and planted at the company’s site under a Green House made of polyfilms, which are also imported from France. Covered Green House protects the plants from manynatural calamities. Rose requires certain conditions of growth like temperature, relative humidity, heat etc. These have been provided through fixing pad fans at the Green House and heaters for heating. To bring maximum efficiency the company has also installed computers for climate controls and irrigation systems for watering the plants. The basic facilities installed above helps to grow roses throughout the year and place the produce in the world market.

 

2.  Rose being a perishable product needs cold storage facilities for storage after harvest. The company therefore has a cold storage at its site for storage after harvest. The roses are transported in a refrigerated truck to the airport for export purposes. Apart from the use of normal fertilizers and pesticides no other materials are used.

 

3. The querist has stated that the idea of the above brief is for judging whether the above is an agricultural operation or not. The products grown by the company are fresh roses and the products exported by the company are also fresh roses. There is no process involved apart from the normal process used for any other agricultural activity. The produce grown and exported by the company is the same, i.e., roses and roses alone (Emphasis by the querist). There is no change in the identity of the produce grown and exported by the company. There is no semblance of any manufacturing activity involved. Comparison of rose-growing to tea-growing is not correct as tea undergoes a definite process and there is a change in the identity of the final product which is not the case in rose.

 

4. The company is a pioneer in rose growing and export in an organised form and the first limited company to be engaged in this activity. The querist has also stated that the Expert Advisory Committee in the Compendium of Opinions on a query has opined that MAOCARO does not apply to agricultural operations.

 

5. The querist has sought the opinion of the Expert Advisory Committee of the Institute of Chartered Accountants of India on the following issues:

 

                        (i)  Whether the above said activity is agricultural or not.

 

(ii) If the answer to (i) is in the affirmative, whether Manufacturing and Other Companies Order (MAOCARO) will apply.

 

                                                                                Opinion                                  April 19, 1996

 

1. The Committee notes para 1(2) (b) of the Manufacturing and Other Companies (Auditor’s Report) Order, 1988, which is reproduced below:

 

                        “(b) It shall not apply to,……………

 

(i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949).

 

(ii) An insurance company as defined in section 2 (21) of the Companies Act, 1956 (1 of 1956), and

 

(iii) A company licensed to operate under section 25 of the Companies Act, 1956 (1 of 1956).”

 

2. Based on the above, the Committee is of the view, that the Order has specifically stated the specified categories of companies which are exempted. Therefore, the Order would apply to companies which are not exempted.

 

3. The Committee notes para (2) (a) of the Manufacturing and Other Companies (Auditor’s Report) Order, 1988, which states as below.

 

“It shall apply to every company including a foreign company as defined in Section 591 of the Companies Act, 1956 (1of 1956), which is engaged or proposes to be engaged in one or more of the following activities namely-

 

(i)  Manufacturing, Mining or Processing

 

(ii)  Supplying or rendering services

 

(iii)   Trading, and

 

(iv) The business of financing investment, chit fund, nidhi or mutual benefits societies.”

 

4. The Committee further notes from para 2 of Manufacturing and Other Companies (Auditor’s Report) Order, 1988, which defines a processing company as below:

 

“(f) ‘processing company’ means a company engaged in the business of processing materials with a view to their use, sale, delivery or disposal.”

 

5. The Committee notes from the facts of the query that the company in question is engaged in the business of growing and export of cut flower roses to various countries. For this purpose evidently it has to perform certain processes, such as, appropriate cutting and packing of the roses so that the roses are kept fresh and in undamaged condition during transit. The Committee is, therefore, of the view that the company is a processing company for the purpose of MAOCARO 1988.

 

6.  Based on the above, the Committee is of the following opinion on issues raised at para 5 of the query.

 

(i) Applicability of MAOCARO 1988 does not depend upon whether or not a company is an agricultural company. It applies to all four categories of companies specified in para 3 above. Thus, only for purposes of MAOCARO the company in question can be said to fall in the category of processing companies.

 

                       (ii) MAOCARO, 1988, is applicable to such companies.

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