2009 (8) TMI 819 - HC - Income Tax

Industrial company - assessee took the plea that its income from shares exceeding 51 per cent being from the shares of a company which was engaged in the manufacture, the assessee should be treated as an industrial company for which the rate of tax was lower than for a non-industrial company - Held that - company is deemed to be an industrial company if its income from manufacture is more than 50 per cent. - share income cannot be treated as equal to income of a partner or a manufacturer. The assessee cannot, thus, be held to be an industrial company. - CIT v. Bharat Ram Charat Ram P. Ltd. (1984 -TMI - 27004 - DELHI High Court) - Decided in favour of the Revenue and against the assessee.

Summary

Issues:
Interpretation of the definition of "industrial company" for tax purposes.

Analysis:
The case involved a reference from the Income-tax Appellate Tribunal regarding the classification of an assessee-company as an industrial company for the assessment year 1985-86. The main question was whether the assessee should be treated as an industrial company due to its income from shares of a manufacturing company. The assessee argued for a lower tax rate applicable to industrial companies, but the Revenue contended that the assessee did not meet the criteria of being engaged in specific industrial activities as per the Finance Act's definition of an industrial company.

The Commissioner of Income-tax (Appeals) and the Tribunal had previously upheld the assessee's plea based on the assessment for the previous year. However, the Revenue argued that the earlier decision was based on an erroneous concession and that the assessee did not meet the criteria outlined in the definition of an industrial company under the Finance Act.

The definition of an "industrial company" as per the Finance Act includes companies mainly engaged in specific industrial activities such as generation or distribution of electricity, carriage of passengers or goods, construction of ships, or manufacturing and processing of goods. The court emphasized that to qualify as an industrial company, the assessee must be engaged in these specified activities, which the assessee in this case was not.

The court highlighted that merely deriving income from shares of a manufacturing company does not automatically classify an assessee as an industrial company. Referring to a judgment of the Delhi High Court, the court emphasized that the nature of income and the level of involvement in industrial activities determine the classification as an industrial company.

Ultimately, the court ruled in favor of the Revenue, concluding that the assessee did not meet the criteria to be classified as an industrial company. The reference was disposed of accordingly, affirming the higher tax rate applicable to the assessee.

In conclusion, the judgment clarified the criteria for classifying a company as an industrial company for tax purposes, emphasizing the need for direct involvement in specified industrial activities outlined in the statutory definition.