Gujarat High Court
Commissioner Of Income-Tax vs Kutch Oil And Allied Industries Pvt. ... on 21 October, 1985
Equivalent citations: [1987]163ITR237(GUJ)
Author: A.M. Ahmadi
Bench: A.M. Ahmadi
JUDGMENT Kapadia, J.
1. The following two questions are referred to us for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the assessee was an industrial company under section 2(8)(c) of the Finance Act, 1974, and entitled to benefit of concessional rate of tax ?
2. Whether, the finding of the Tribunal that the activity of the assessee of pulverising bentonite was an industry within the meaning of section 2(8)(c) of the Finance Act, 1974, and hence the assessee was an industrial company is correct in law and sustainable from the material on record ?"
Short facts leading to this reference are as under :
2. The assessment year is 1974-75. The assessee is a company carrying on business in purchase and sale of copra, oil cake as well as bentonite. It also earned during the relevant accounting period pulverising charges of bentonite from Kutch Mineral of Mandvi. The company claimed before the Income-tax Officer that it was an industrial company. The Income-tax Officer came to the conclusion that the assessee-company had not done any manufacturing process during the year of account in respect of crushing of oil cakes and the pulverising charges received by the assessee-company were earned on job work done by it on behalf of Kutch Minerals of Mandvi. Hence, in the view of the Income-tax Officer, the assessee-company was a trading company and not an industrial company. The benefit of lower rate of taxation, therefore, was not made available to the assessee-company, as claimed.
3. The assessee company filed an appeal before the Appellate Assistant Commissioner and contended that the assessee was processing lumps of bentonite in raw form into mesh (powder) on job work basis. The income from this source exceeded 51% of its total income. It was urged that the industrial company included a company whose business consisted of processing of goods under the provisions of Finance Act, 1974. The Appellate Assistant Commissioner accepted the contention raised by the assessee-company and held that the assessee company should be treated as an industrial company.
4. Being aggrieved by the said decision of the Appellate Assistant Commissioner, the Revenue filed an appeal before the Tribunal. It was submitted on behalf of the Revenue that the assessee-company had received pulverising charges of Rs. 2,89,823 during the year in question. Admittedly, the said charges were received on job work carried out by the assessee-company. However, it was submitted that the activities of the assessee-company could not be called as the activities of an industrial company. On behalf of the assessee, it was urged that the activity of the assessee in pulverising bentonite was of an industry which manufactured powder out of systematically treated raw lumps of mineral. It was also urged that looking to the process involved, it could be said that the assessee-company was an industrial company. Relying on two decisions in CIT v. Casino (Pvt.) Ltd. [1973] 91 ITR 289 (Ker) and CIT v. Ajay Printery Private Ltd. [1965] 58 ITR 811 (Guj), the Tribunal after considering the rival contentions came to the conclusion that the assessee-company was entitled to a lower rate of tax as industrial company. Hence, at the instance of the Revenue the aforesaid reference has been made.
5. Shri S. N. Shelat, the learned advocate appearing for the Revenue has invited our attention to two decisions on the point and he has rightly pointed out that these decisions are against the Revenue. The first decision cited by him is the judgment in the case of Chowgule and Co. Pvt. Ltd. v. Union of India, AIR 1981 SC 1014. The second decision quoted by him is the judgment in CIT v. Lakhtar Cotton Press Co. (Pvt.) Ltd. [1983] 142 ITR 503 (Guj).
6. Before adverting to the decisions cited, it would be necessary to point out that the definition of the expression "industrial company" given in section 2(8)(c) of the Finance Act, 1974, means a company which is mainly engaged....... in the manufacture or processing of goods. So, if the company is mainly engaged in either manufacturing or processing of the goods it can be termed as an "industrial company". Whether the activity carried on by the assessee-company was of manufacturing or processing would be in question. There is no dispute on the point that even if the assessee-company is engaged in the activity of processing of the goods, it would come within the definition of "industrial company". In that view of the matter, if the activity of the assessee-company comes within the meaning of processing of the goods, it would not be necessary to further examine whether it would be manufacturing goods or not.
7. In the case of Chowgule & Co. Pvt. Ltd. v. Union of India, AIR 1981 SC 1014 in para 6, p. 1018 [1981] 47 STC 124 (SC), it has been observed by the Supreme Court as under :
"It still remains to consider whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is blended. The answer to this question depends upon what is the true meaning and connotation of the word 'processing' in section 8(3)(b) and rule 13. This word has not been defined in the Act and it must therefore be interpreted according to its plain natural meaning. Webster's Dictionary gives the following meaning of the word 'process'; '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 pasturizing, fruits and vegetables by sorting and repacking.' Where, therefore, any commodity is subjected to a process or treatment with a view to its development or preparation for the market', as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of section 8(3)(b) and rule 13. 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."
8. In the second decision in the case of CIT v. Lakhtar Cotton Press Co. P. Ltd. [1983] 142 ITR 503, this court also considered the aforesaid decision. the Supreme Court and observed as under (at p. 509) :
"Therefore, 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."
9. In the instant case, the assessee-company carries out pulverising process by treating raw lumps of mineral chemically and thereafter converting the lumps into powder. Applying the aforesaid test, the Tribunal has rightly come to the conclusion that the activity of the assessee-company, therefore, could be described as the activity of "processing of goods" as coming within the meaning of the expression set out in the definition of "industrial company" under section 2(8)(e) of the Finance Act, 1974.
10. In view of what is stated above, we answer both the questions in this reference in the affirmative, i.e., in favour of the assessee and against the Revenue. Accordingly, the reference stands disposed of with no order as to costs.