1991 (8) TMI 3 - SC - Income Tax

Whether the assessee-company running a cold storage could be held to be an industrial company for purposes of section 2(7)(c) of the Finance Act, 1973, and the First Schedule thereto - While, as a result of long storage, scientific examination might indicate loss of moisture content, that is not sufficient for holding that the stored articles have undergone process within the meaning of section 2(7)(c)

Summary

Issues:
1. Determination of whether a company running a cold storage can be classified as an "industrial company" for tax purposes under the Finance Act, 1973.

Analysis:
The case involved an appeal challenging the judgment of the High Court of Delhi regarding the classification of a private limited company running a cold storage as an "industrial company" for taxation benefits under the Finance Act, 1973. The primary issue was whether the company's activities fell under the definition of "industrial company" as per section 2(7)(c) of the Act. The company claimed to be engaged in the processing of goods, thus qualifying for the tax concessions. The Income-tax Officer initially rejected the claim, but the Appellate Assistant Commissioner accepted it, leading to a dispute that reached the High Court.

The definition of "industrial company" under section 2(7)(c) of the Finance Act, 1973, includes companies engaged in the manufacture or processing of goods. The key question was whether the cold storage facility could be considered as engaged in the processing of goods. The High Court referred to various dictionaries and precedents to interpret the term "processing" in the context of the statute. It concluded that the preservation of goods in a cold storage facility, preventing natural decay, constituted processing of goods, thus supporting the company's claim.

The judgment also referenced a decision by the Allahabad High Court and a three-judge Bench decision of the Supreme Court to define the term "processing." The Supreme Court emphasized that processing involves bringing into existence a different substance from the original material. It highlighted that mere preservation by refrigeration in a cold storage, without substantial alteration of the goods, does not qualify as processing under the Act. The Supreme Court's interpretation contradicted the views of the Allahabad and Calcutta High Courts, leading to the dismissal of the appeal and affirmation of the Delhi High Court's opinion.

In conclusion, the Supreme Court dismissed the appeal, upholding the Delhi High Court's decision that the company running a cold storage did not qualify as an "industrial company" for tax benefits under the Finance Act, 1973. The judgment clarified the distinction between preservation and processing of goods, emphasizing the need for substantial alteration to constitute processing under the relevant statute.