2007 (4) TMI 206 - HC - Income Tax

Summary

Issues:
1. Interpretation of the term "industrial company" under the Income-tax Act, 1961.
2. Justification of the Tribunal's decision on the status of the assessee as an industrial company.
3. Application of the 51% income threshold to determine the status of an industrial company.
4. Dismissal of reference applications filed by the Revenue under section 256(1) of the Act.

Analysis:
The High Court of BOMBAY heard applications filed by the Revenue under section 256(2) of the Income-tax Act, 1961, concerning the status of the assessee as an industrial company for the assessment years 1983-84 to 1987-88. The court noted that the Assessing Officer initially held that the assessee was not an industrial company and was liable to pay additional income-tax under section 104(1)(a) of the Act due to non-declaration and distribution of dividends. However, the Commissioner of Income-tax (Appeals) ruled in favor of the assessee, stating that it is an industrial company, and the Tribunal upheld this decision. The Tribunal also considered the financial constraints of the company in declaring dividends. The Revenue, dissatisfied with the dismissal of its reference applications under section 256(1), filed new applications under section 256(2) based on the same issues.

The primary issue revolved around whether the respondent-assessee qualified as an industrial company. The Assessing Officer's decision was based on the percentage of income from manufacturing activities not exceeding 51%, leading to the conclusion that the assessee was not an industrial company. However, the Board's Circular No. 103 clarified that the 51% threshold is not the sole determining factor; a company could still be classified as an industrial company if mainly engaged in manufacturing or processing goods. In this case, the Tribunal found that the assessee's substantial income and expenditure were from the manufacturing activity at its Adilabad unit, leading to the determination that the assessee is indeed an industrial company. The court upheld this factual finding, emphasizing that no legal question arose from the Tribunal's decision.

In conclusion, the High Court dismissed all applications, affirming the Tribunal's decision on the status of the assessee as an industrial company. The court highlighted the importance of considering the company's primary business activities rather than solely relying on income percentage thresholds. The Revenue's applications were rejected, and no costs were awarded in this matter.