1978 (3) TMI 21 - HC - Income Tax

Attributable To, Concessional Rate, Income Tax, Manufacture Or Processing Of Goods, Plant Or Machinery, Total Income

Summary

Issues:
1. Reopening of assessment under section 147(b) justified?
2. Entitlement to concessional tax rates under Finance Acts for manufacturing activities?

Analysis:
1. The case involved a private limited company engaged in pharmaceutical business for assessment years 1965-66 and 1966-67. The Income Tax Officer (ITO) reopened the assessments after objections raised by the Comptroller and Auditor-General of India. The ITO held that the company was not entitled to concessional rates under the Finance Acts as it was not a manufacturer of goods. The assessee appealed, but the Appellate Assistant Commissioner (AAC) and the Tribunal upheld the reopening and denied the concessional rates.

2. The Tribunal found that the company did not own any plant or machinery for manufacturing goods in the relevant accounting year. The company had entered into a manufacturing agreement with another entity to produce goods on its behalf. The Tribunal held that the company did not qualify as a manufacturer under the Finance Acts and was not entitled to concessional rates. The company argued that it had overall control and management of the products, but the Tribunal disagreed.

3. The High Court noted that to qualify for concessional tax rates, a company must mainly engage in manufacturing or processing goods under its control or direction. The Court cited previous judgments to emphasize that owning manufacturing plants or machinery is not a prerequisite for being considered a manufacturer. The Court directed the Tribunal to determine if the goods were manufactured under the actual control of the company and whether it was mainly engaged in manufacturing for the assessment year 1965-66.

4. For the assessment year 1966-67, the Court found that the company's manufacturing activity resulted in a net loss, and its income from manufacturing was less than 51% of the total income. The company failed to provide evidence supporting its claim of being mainly engaged in manufacturing. Therefore, the Court upheld the Tribunal's decision that the company was not entitled to concessional rates for that year.

5. The Court returned answers against the assessee for both issues. The judgment was agreed upon by both judges, and no costs were awarded.