1983 (7) TMI 77 - AT - Income Tax

Summary

Issues:
Whether the assessee can be regarded as an industrial company for the purpose of being charged at the concessional rate of tax as provided under the relevant Finance Act, 1966.

Detailed Analysis:

1. Background and Facts:
The appeals filed by the department concern the classification of the assessee, a limited company, as an industrial company for tax purposes. The main issue in all three appeals is whether the assessee qualifies as an industrial company under the relevant Finance Act.

2. Assessee's Position:
The assessee, initially engaged in manufacturing activities, stopped production in 1976 due to labor troubles. It leased out its plant and machinery for income. The assessee claimed to be treated as an industrial company based on a CBDT circular and its intention to resume manufacturing activities in the future.

3. Commissioner (Appeals) Decision:
The Commissioner (Appeals) agreed with the assessee's contention, relying on the CBDT circular. He held the assessee to be an industrial company for the relevant years, allowing the set off of carried forward losses and directing the ITO to treat the assessee as such.

4. Department's Appeal:
The department appealed the Commissioner (Appeals) decision, arguing that the assessee did not meet the criteria to be classified as an industrial company. The department contended that the income from manufacturing activities did not exceed 51% of the total income, and the assessee was not mainly engaged in manufacturing activities.

5. Appellate Tribunal Decision:
The Appellate Tribunal analyzed the definition of an industrial company under the Finance Act, which requires a company to be mainly engaged in manufacturing or related activities. The Tribunal found that the assessee's income from manufacturing activities did not meet the threshold of 51% of total income. Additionally, the assessee was primarily earning income from leasing out machinery, not manufacturing goods.

6. Case Precedents Considered:
The Tribunal examined case precedents cited by both parties but found them inapplicable to the current situation. The Tribunal highlighted the distinction that in the cited cases, the companies were actively engaged in manufacturing activities, unlike the assessee in this case.

7. Rectification Order and Final Decision:
The Tribunal concluded that the Commissioner (Appeals) decision was incorrect, vacating the orders and restoring those of the ITO. The Tribunal emphasized that the assessee's activities did not align with the criteria for being classified as an industrial company under the Finance Act.

In conclusion, the Appellate Tribunal allowed the department's appeals, determining that the assessee did not qualify as an industrial company based on the lack of substantial manufacturing activities and income derived primarily from leasing out machinery.