1995 (1) TMI 14 - HC - Income Tax

Summary

Issues:
1. Whether the assessee, a partner in a firm engaged in manufacturing activities, can be considered as an industrial company?
2. Whether the assessee satisfies the conditions under the Explanation to section 2(7)(c) of the Finance Act for being classified as an industrial company for tax relief purposes?

Analysis:

The case involved a dispute regarding the classification of the assessee, a private limited company, as an industrial company for taxation purposes. The assessee, holding a 40% share in a partnership firm engaged in manufacturing tea, claimed to be considered as an industrial company under section 2(7)(c) of the Finance Act. The Department argued that the assessee, primarily a plantation company, could not be classified as an industrial company merely based on receiving share income from a manufacturing firm.

The Assessing Officer initially held the assessee to be an agricultural company, but on appeal, the Commissioner of Income-tax deemed the assessee as an industrial company. Subsequently, the Tribunal upheld the Commissioner's decision. The Tribunal considered two key questions: whether the assessee qualifies as an industrial company and whether it meets the conditions specified in the Explanation to section 2(7)(c) of the Finance Act for tax relief.

The Tribunal referenced the Supreme Court decision in CIT v. A. Dharma Reddy [1969] 73 ITR 751, emphasizing that the business of the partnership-firm should be attributed to the partners. It was argued that the income attributable to manufacturing activities should be at least 51% of the total income as per the Explanation. The assessee contended that since 60% of its income was exempted, only 40% should be considered, meeting the 51% threshold. The Tribunal concluded that the assessee satisfied both conditions and qualified as an industrial company for tax relief.

Ultimately, the Court dismissed the tax case petitions, stating that no referable question of law arose from the Tribunal's orders. The decision was supported by the legal principles laid down in CIT v. A. Dharma Reddy [1969] 73 ITR 751 and the relevant provisions of the Finance Act.