Delhi High Court
Commissioner Of Income Tax vs Industrial Ancillaries P. Ltd. on 11 November, 1992
Equivalent citations: [1993]200ITR514(DELHI)
Author: B.N. Kirpal
Bench: B.N. Kirpal
JUDGMENT B.N. Kirpal, J.
1. This judgment will dispose of I.T.R. No. 310 of 1980, in respect of the assessment year 1977-78 and I.T.R. No. 175 of 1982, in respect of the assessment year 1979-80. While in the former reference the question of law referred is as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessed is an 'industrial company' within the meaning of section 2 (7) (c) of the Finance (No. 2) Act, 1977, and hence, assessable to tax at 55 per cent. for the assessment year 1977-78 ?", in the latter reference, the question of law has been slightly differently worded though the content is the same, and is as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the assessed is an 'industrial company' within the meaning of section 2 (7) (c) of the Finance (No. 2) Act, 1977, and hence, assessable to tax at 55 per cent. for the assessment year 1979-80 ?"
2. Briefly stated, the facts as found by the Tribunal are that the assessed is a limited company. It purchased moulds from Plycast P. Ltd. and after reshaping the moulds and after polishing, they are sold to other parties. While completing the assessment under section 143 (3) of the Act, the Income-tax Officer charged tax at the rate of 65 per cent.
3. The assessed filed an appeal to the Appellate Assistant Commissioner and contended that it was an industrial company and, therefore, tax should have been levied on its income at the rate of 55 per cent. The Appellate Assistant Commissioner did not accept this contention. A second appeal was filed to the Tribunal and the same contention was reiterated. The Income-tax Appellate Tribunal came to the conclusion that the assessed was covered by the term "processing of goods" appearing in section 2 (7) (c) of the Finance (No. 2) Act, 1977, and that the rate of tax applicable was 55 per cent.
4. At the instance of the Revenue, the aforesaid questions of law had been referred. What has to be examined in this case is whether the assessed is an industrial company or not. If it is an industrial company then it is liable to pay the lower rate of tax, i.e., 55 per cent. But if it is not an industrial company, then the rate of tax is 65 per cent. The definition of "industrial company" as contained in the aforesaid provision of the Finance (No. 2) Act, 1977, is as follows :
"'industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining."
5. The aforesaid provision came up for consideration before a Division Bench of this court in the case of CIT (Additional) v. Kalsi Tyre (P) Ltd. [1981] 131 ITR 636. In that case, the assessed was carrying on the business of re-treading tyres. A question arose as to whether it was an industrial company which was carrying on manufacture or processing of goods. This court came to the conclusion that the words "processing of goods" used in the definition refer to a wide category of activities. In the dictionary, we find the expression as referring to "the subjection of the goods to some special process of treatment". It may be for the purpose of manufacture, for the purpose of development, for preparation for sale in the market or for conversion into a marketable form such as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing and fruit and vegetables by sorting and repacking. It was further held in that case that the assessed employed certain industrial process on worn out tyres and gave them a new lease of life and while the process may not be equivalent to the manufacture of a new tyre, nevertheless, it amounted to processing of goods.
6. Applying the aforesaid principle to the present case, it is clear that the assessed, after purchase of moulds from Plycast P. Ltd. reshaped them and, after polishing the same sold them to other parties. The original shape of the moulds was obviously not retained. Just as a rough diamond has to be cut and polished to make it marketable, similarly moulds purchased by the assessed were reshaped and polished and made fit for the market. The Income-tax Appellate Tribunal was, therefore, correct in holding that the assessed was carrying on this process on the goods.
7. The aforesaid question of law is, therefore, answered in the affirmative and in favor of the assessed. There will be no order as to costs.