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TMI Blog1998 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1977. The assessment years are 1973-74 to 1977-78. "Industrial company" is defined in section 2(7)(c) of the Finance (No. 2) Act, 1977, as follows : " 'Industrial company' means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. Explanation.---For the purposes of this clause, a company shall be deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining, if the income attributable to any one or more of the aforesaid activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total income is derived from an activity which can be regarded as manufacture or processing of goods. That was indeed the endeavour of the assessee before the authorities below, and it had succeeded in convincing the Commissioner, who in his order dated July 27, 1982, relating to the assessment years 1973-74, 1974-75, 1976-77 and 1977-78 had, after calling for the details from the assessee and after perusing the data so furnished, held that the data relating to 17 items of work completed by the assessee during the period from January 28, 1971 to December 1, 1978, showed that the total value of the bills was Rs. 53.60 lakhs of which the bill amount relatable to the activities accepted to be manufacture or processing activities amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and further since the activity is construction of building any fabrication done by it for windows or doors or the production of concrete slabs is only for the purpose of building and such activity cannot be regarded as manufacturing activity. The primary requirement of section 2(7)(c) according to counsel, is that the activity in which the assessee is engaged should be an activity of a kind set out in the sub-section and as that is not the main activity of the assessee it cannot be treated as an industrial company. The Explanation to that provision, according to counsel is not to be read as part of the main provision and if the assessee is unable to show that its main activity is manufacture or processing of goods such assessee cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of processing or manufacturing goods. Counsel also placed reliance on the decisions of the Supreme Court in the case of CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, in support of her submission that an assessee who is engaged in the business of construction cannot be regarded as industrial undertaking. Counsel referred to the observation of the court at page 424 of the report wherein it was observed that the manufacture by the assessee in that case of some of the articles like gates, windows and doors which go into the construction of a dam made little difference to the principle, for deciding as to whether the assessee is entitled to the benefit under section 80HH of the Income-tax Act. The court also proceeded to observe in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing windows, doors, shutters and other goods for the purpose of constructing the buildings, and the goods manufactured by it were used in the construction made by it. The court thereafter took note of the Explanation to section 2(7)(c) of the Finance (No. 2) Act of 1977, and observed that the burden lay upon the assessee to establish the requirement of the Explanation but the defendant had failed to adduce any material to establish that the income attributable to the manufacturing activity undertaken by it represented not less than 51 per cent. of its total value. The appellant was thus denied relief on the ground that it had not adduced the requisite evidence. The denial was not on the ground that the assessee was a construction compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from manufacturing activity or from the processing of goods or other activities referred to in section 2(7)(c). The Revenue's contention that all construction companies are wholly excluded from section 2(7)(c) irrespective of the extent to which their income is attributable to manufacturing activity must therefore be rejected. In the case of Minocha Brothers P. Ltd.'s case [1993] 204 ITR 628, the Supreme Court clearly recognised the eligibility of a construction company to be regarded as industrial company if such company was able to adduce evidence to demonstrate that 51 per cent. or more of its income was derived from manufacturing or processing of goods. The question is one of proof and not one of eligibility for claiming that sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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