1997 (3) TMI 167 - AT - Income Tax

Summary

Issues Involved:
1. Levy of additional tax under section 104 of the Income-tax Act, 1961.
2. Classification of the assessee as an industrial company.
3. Applicability of the decision of the Tribunal and various High Courts.
4. Interpretation of the term "processing" in the context of section 104.
5. Consideration of smallness of profit as a factor against the levy of additional tax.

Detailed Analysis:

1. Levy of Additional Tax under Section 104:
The primary issue is whether the levy of additional tax under section 104 of the Income-tax Act, 1961, was justified. The assessee contended that the levy was a consequence of not following the Tribunal's directions in its own case. The Assessing Officer had issued notices for additional tax due to the non-disclosure of dividends and minimal declared dividends for the assessment years 1981-82 and 1982-83, respectively. The Tribunal remanded the matter back to the Assessing Officer to determine if the assessee's activities fell under "manufacture or processing of goods," which would exempt it from the additional tax under section 104.

2. Classification of the Assessee as an Industrial Company:
The assessee argued that it should be classified as an industrial company, which would affect the applicability of sections 104 to 109. The CIT(Appeals) initially ruled in favor of the assessee, considering the revenue's previous classification of the assessee as an industrial company for section 80J purposes. However, the Tribunal, relying on various High Court decisions, held that a company engaged in civil construction work cannot be treated as an industrial company. The Tribunal directed the Assessing Officer to re-examine the nature of the assessee's activities to determine if they fell under "manufacture or processing of goods."

3. Applicability of the Decision of the Tribunal and Various High Courts:
The Tribunal considered decisions from the Orissa High Court, Bombay High Court, and a Full Bench decision of the Tribunal at Delhi, which collectively held that civil construction activities do not classify a company as an industrial company. The Tribunal remanded the case to the Assessing Officer to assess the predominant activities of the assessee for each year separately. The CIT(Appeals) later upheld the Assessing Officer's decision, influenced by the Supreme Court ruling in CIT v. N.C. Budharaja & Co., which stated that construction activities do not amount to manufacturing or producing articles.

4. Interpretation of the Term "Processing" in the Context of Section 104:
The assessee contended that its activities constituted "processing of goods," which should exempt it from additional tax under section 104. The Tribunal examined various definitions and judicial interpretations of "processing," noting that it involves subjecting goods to a process or treatment, leading to a change or alteration. However, the Tribunal concluded that the assessee's activities, which included laying heavy concrete foundations and casting concrete pillars/slabs/columns, did not qualify as "processing" under section 104. The Tribunal emphasized that the assessee's work was part of a larger construction project, aligning with the Supreme Court's interpretation in N.C. Budharaja & Co.

5. Consideration of Smallness of Profit as a Factor Against the Levy of Additional Tax:
The assessee sought to introduce an additional ground, arguing that the smallness of profit should exempt it from additional tax under section 104. The Tribunal rejected this additional ground, noting that it had not been agitated at earlier stages and did not go to the root of the case. The Tribunal emphasized that the issue had not been raised before the CIT(Appeals) or the Tribunal in previous proceedings.

Conclusion:
The Tribunal dismissed the appeals by the assessee, upholding the levy of additional tax under section 104 for the assessment years 1981-82 and 1982-83. The Tribunal concluded that the assessee's activities did not qualify as "manufacture or processing of goods" and affirmed the applicability of the Supreme Court's decision in N.C. Budharaja & Co. to the assessee's case. The Tribunal also rejected the additional ground related to the smallness of profit, as it had not been raised in earlier proceedings.