1993 (12) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee-company was mainly engaged in the manufacture of goods and thus qualifies as an "industrial company" under the Finance Act, 1974.

Detailed Analysis:

1. Definition of "Industrial Company":
The core issue revolves around the interpretation of "industrial company" as defined under Section 2(8)(c) of the Finance Act, 1974. This section defines an industrial company as one engaged in the manufacture or processing of goods, among other activities. The court had to determine whether the assessee met this definition.

2. Historical Treatment and Change in Assessment:
Historically, the assessee was treated as an industrial company until the assessment year 1974-75, when the Income-tax Officer reclassified it as a trading company. The Appellate Assistant Commissioner reversed this decision, but the Income-tax Appellate Tribunal upheld the reclassification. The court had to consider whether this change was justified.

3. Agreement with Dunlop Rubber Co. (India) Ltd.:
The agreement dated April 30, 1960, between the assessee and Dunlop was pivotal. Dunlop manufactured goods for the assessee under the latter's supervision and control. Key clauses included:
- Clause (b): Goods manufactured must meet the assessee's quality standards.
- Clause (c): The assessee reimbursed Dunlop for raw materials and production costs.
- Clause (d): The assessee provided necessary moulds and equipment.
- Clause (e): Manufacturing was at the risk of the assessee.
- Clause (f): Dunlop acted on behalf of the assessee, binding the latter to various operational decisions.

4. Licences and Regulatory Compliance:
The assessee held necessary licences under the Central Excise Rules, 1944, and relevant sales tax legislation. The Central Government also appointed statutory cost auditors under Section 233B of the Companies Act, 1956, indicating the government's recognition of the assessee as engaged in manufacturing.

5. Tribunal's Misinterpretation:
The Tribunal's decision was based on the absence of a licence under the Industries (Development and Regulation) Act, 1951, and the fact that the assessee did not supply raw materials to Dunlop. The court found this reasoning flawed, emphasizing that the Finance Act's criteria were met regardless of the Industries (Development and Regulation) Act, 1951.

6. Precedents and Legal Interpretations:
The court referred to several precedents:
- CIT v. Neo Pharma Pvt. Ltd. [1982] 137 ITR 879: The court held that a company could be considered an industrial company even if it did not own the manufacturing plant, provided it supervised the manufacturing process.
- CIT v. Anglo French Drug Co. (Eastern) Ltd. [1991] 191 ITR 92: The court reiterated that employing another company for manufacturing under one's supervision qualifies as manufacturing.
- Addl. CIT v. A. Mukherjee and Co. (P.) Ltd. [1978] 113 ITR 718: The Calcutta High Court held that a publisher could be considered a manufacturer even if it did not own a printing press.

7. Conclusion:
The court concluded that the assessee was indeed engaged in the manufacture of goods, satisfying the criteria under Section 2(8)(c) of the Finance Act, 1974. The Tribunal erred in its interpretation and application of the law, particularly in disregarding the statutory cost audit report and the binding precedents.

Judgment:
The court answered the referred question in the negative, favoring the assessee. It held that the assessee was an industrial company as defined in the Finance Act, 1974, during the relevant assessment year, thus entitled to the concessional tax rate. There was no order as to costs.