Bombay High Court
Commissioner Of Income-Tax vs Ahmed A. Fazalbhoy (P.) Ltd. on 29 April, 1991
Equivalent citations: [1991]189ITR663(BOM)
JUDGMENT B.N. Srikrishna, J.
1. In this reference made under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the Tribunal has referred the following question of law for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the assessee-company is entitled to be termed as an "industrial company" as defined by section 2(7)(c) of the Finance Act, 1973 ?"
2. The assessee is a company whose main business is running a cold storage plant and also selling spare parts of refrigerators on a small scale. The relevant accounting year is calendar year 1972 and the assessment year 1973-74. The assessee claimed during the assessment proceedings before the Income-tax Officer that it was an "industrial company" as defined by section 2(7)(c) of the Finance Act, 1973, and, as such, it was entitled to be charged at a lower rate of tax. This claim of the assessee was rejected by the Income-tax officer without any discussion on this point. The Appellate Assistant Commissioner, in appeal, accepted the assessee's claim but he relied on the fact that, for the assessment years from 1964-65 to 1966-67, the Income-tax Commissioner himself had accepted the asessee to be an industrial company for the purpose of granting deduction under section 84 (corresponding to the present section 80J) of the Income-tax Act and even for the subsequent year, deduction had been granted under section 84/80J of the Act. In the appeal by the Revenue, the assessee claimed before the Tribunal that the business of cold storage carried on by it required heavy investment of capital and was meant to enable clients to maintain their goods like fruits, vegetables, fish, meat, etc., fresh for extended period of time. The assessee also claimed that running a cold storage plant was a technical affair as different parameters of humidity and temperature had to be maintained for keeping different items of food fresh. The assessee also relied on certain pamphlets to show that the range of temperature varied from O faenite F to 45 faenite F for preserving different items of food. The assessee's contention was that it was engaged in processing of goods. The Tribunal decided in favour of the assessee and held that it was an industrial company as defined by section 2(7)(c) of the Finance Act, 1973, inasmuch as the assessee was engaged in the business of processing of goods.
3. Much of the debate before us Centered on the issue as to whether running a cold storage plant involves processing of goods. Mr. Jetly, learned counsel for the Revenue, strongly relied upon the judgment of the Delhi High Court in the case of Delhi Cold Storage P. Ltd. v. CIT [1985] 156 ITR 97 and contended that processing necessarily involved some change in the state of the goods and, as cold storage merely preserved the goods stored therein from decay and preserved their original state, it did not amount to processing of the goods. It is true that the Delhi High Court, in the decision cited by Shri Jetly, has taken the view that a company engaged in the running of a cold storage cannot be said to be an industrial company entitled to concessional rate of income-tax. In doing so, the Delhi High Court placed reliance upon the judgment of Supreme Court in the case of Chowgule and Co. P. Ltd. v. Union of India . The Delhi High Court seems to have emphasised the observations of the Supreme Court made in the said case to the following effect : (at p.101) "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." On the other hand, we find that the Supreme Court itself observed in the said case (at page 131 of 47 STC) "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. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. "We may mention here that the Supreme Court, in the said case, was considering whether the blending of two different specifications of iron-ore for being loaded on a ship amounted to "manufacture" or "processing". We have to read the observations of the Supreme Court in this context. The Supreme Court was quite conscious of the fact that the extent of processing may vary from commodity to commodity and that the extent of processing may vary from commodity to commodity and that the decision as to whether there was a processing or not would vary from case to case.
4. The import of the observations of the Supreme Court in Chowgule's case has been brought about by a subsequent judgment of the Punjab and Haryana High Court in CIT v. S. Warrian Singh Cold Stores [1989] 178 ITR 585. Though the Punjab and Haryana High Court has not referred to the observations of the Supreme Court in Chowgule's case, [1981] 47 STC 124, we see from the discussion in the report that that was also a case concerning cold storage. The Punjab and Haryana High Court also relied on CIT v. Yamuna Cold Storage [1981] 129 ITR 728 for arriving at its conclusion. Looking at the matter on principle, we are of the view that the change to be brought about as contemplated by the observations of the Supreme Court in Chowgule's case [1981] 47 STC 124 need not always be a positive one. In a situation such as the assessee's, the fact that putting the commodity in the cold storage plant brings about an arrest in the natural process of delay-on account of temperature and humidity-would itself be a process, in our view. The process would be the process of arresting bacterial or other action by which the commodity naturally decays. This, in our opinion, amounts to a qualitative change in the state of the goods, inasmuch as the goods, which would have otherwise deteriorated, are kept fresh in their original form.
5. We, therefore, respectfully disagree with the reading of the Supreme Court's observations in Chowgule's case as done by the Delhi High Court and we would prefer to follow the reasoning of the Punjab and Haryana High Court in CIT v. S. Warriam Singh Cold Stores [1989] 178 ITR 585.
6. Accordingly, we hold that the assessee in an "industrial company" within the meaning of section 2(7)(c) of the Finance Act, 1973. We answer the question referred to us in the affirmative and in favour of the assessee.
7. There will be no order as to costs.