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Issues involved: Determination of whether the assessee qualifies as an industrial company under section 2(9)(c) of the Finance Act, 1976 for the assessment year 1976-77.
Summary: The assessee claimed to be engaged in the manufacturing and sale of various goods, with a significant portion of sales attributed to granite blocks. The Income-tax Officer noted that the company was involved in the sale of various products, including granite blocks, and incurred minimal expenses related to supervisory charges for ensuring compliance with specifications. The Appellate Assistant Commissioner accepted the claim that the assessee was an industrial company due to the processing involved in preparing granite blocks. However, the Appellate Tribunal disagreed, emphasizing that the main business activity was the export of stones, with processing being incidental. The Tribunal held that the assessee did not meet the criteria of an industrial company, even considering a Circular issued by the Central Board of Direct Taxes. The assessee argued that processing of goods is a fundamental part of its business, citing various legal precedents on the broad interpretation of processing activities. However, the court found that the processing of granite blocks was primarily done by sellers to meet the assessee's specifications, with the assessee's involvement being marginal. The court also considered the Explanation to the provision, concluding that the income derived from processing activities was not significant enough to attribute the assessee as an industrial company. Referring to a previous court decision, the court highlighted the importance of the effect of operations on commodities in determining processing or manufacture. It was noted that the main objective of the assessee's activities was the sale or export of granite blocks, with processing being a secondary aspect. Ultimately, the court upheld the Tribunal's decision that the assessee did not qualify as an industrial company under the Finance Act, 1976. Therefore, the court answered the question in the affirmative, ruling in favor of the Revenue.
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