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TMI Blog1989 (2) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to be a non-industrial company for purposes of levy of tax. The Income-tax Officer ascertained the total income at Rs. 7,37,969 and 51 % of the gross total income was worked out at Rs. 3,77,639. The tannery income should be 51% of the gross total income, if the assessee is to be regarded as an industrial company. The Income-tax Officer computed the tannery income at Rs. 3,29,008 which fell below 51 % determined by him at Rs. 3,77,639 and he proceeded to tax the company as a non-industrial company. In making adjustments to arrive at the figure of Rs. 3,29,008, the Income-tax Officer took into account three items, viz., (1) profit on sale of imported chemicals-Rs. 3,501 ; (2) nomination premium Rs. 1,54,898 ; and (3) Rs. 50,000 representing the interest apportionable to the manufacturing unit. On appeal preferred by the assessee, the Appellate Assistant Commissioner found that the assessee's head office did business in trading in hides and skins, including goods purchased from others by way of export as well as internal sales and that for the ascertainment of the proportion of industrial profits over other profits, it was necessary to make a distinction between the manufacturing u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion whether the assessee would be an industrial company. Reliance in this connection was placed by learned counsel on the decisions in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) ; Addl. CIT v. Abbas Wazir (P.) Ltd. [1979] 116 ITR 811 (All) and Obeetee (P.) Ltd. v. CIT [1983] 143 ITR 793 (All). On the other hand, learned counsel for the Revenue contended that in so far as the amount representing the sale of chemicals is concerned, in the prior assessment years, with reference to the assessee, it had been decided that the assessee is not entitled to claim them as attributable to the manufacturing activity and relied on India Leather Corporation (P.) Ltd. (No. 2) v. CIT [1989] 179 ITR 179 (Mad) and India Leather Corporation (P.) Ltd. (No. 3) v. CIT [1989] 179 ITR 181 (Mad). In relation to the other amounts, learned counsel submitted that those items do not relate to the manufacturing activity of the assessee, but only to its trading activities and, therefore, they were rightly excluded by the authorities below in the computation of the income as an industrial unit. We first proceed to consider why it becomes necessary to determine the profits of the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failing which the company cannot be considered to be an industrial company for purposes of subjecting it to the concessional rate of tax. The tax concession so made available appears to us to have been intended only with view to encourage and promote manufacturing activities and industrial development and growth with reference to the processing of goods and others as set out in section 2(6)(c) of the Finance Act, 1970, read with the Explanation and not to take in cases where some resources are generated purely from trading activities like dealing and trafficking in import entitlements, etc. From the very scheme of the concession so made available, it becomes necessary, in any given case, to ascertain the income which is referable or relatable to the manufacturing activities and other activities, and if the requirements of section 2(6)(c) read with the Explanation are fulfilled, only then, the benefit of the concessional rate of tax can be availed of by the assessee as an industrial company. It is in the above background that the amounts excluded by the authorities below in considering the percentage of profit referable to the manufacturing activities of the assessee have to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity of the tannery and the receipt of the export incentive licence or even the premium received by the sale of those licences. This factual finding had not been challenged by the assessee before the Tribunal, as could be seen from para 5 of the order of the Tribunal. The receipt of premium or the incentive licences cannot be attributed to the manufacturing activities of the assessee, but they are relatable to the activity of export of goods. It may be that unless goods are manufactured, there may not be; an occasion for the export of the, manufactured goods. Even so, the export of either leather or other goods by the assessee has to be considered as the remote cause for the export entitlement. Such connection or nexus is not so sufficiently proximate as to enable us to hold that the income obtained therefrom is attributable to the manufacturing process undertaken by the assessee. Besides, the export was made by the assesseecompany and not by the manufacturing unit. For the purpose of ascertaining the proportion of industrial profits over other profits, it is essential to bear in mind the distinction between the manufacturing activity and the rest of the activities and if that di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the question whether it is an industrial company or not. We may observe that even before this court, no exception was taken to the manner of apportionment of the interest in respect of the trading activities of the assessee and the manufacturing activities of the tannery of the assessee. We may now briefly refer to the decisions relied on by learned counsel for the assessee. In Cambay Electric Supply Industrial Corpn. Ltd. v. CIT [1978] 113 ITR 84 (SC), section 80E of the Act, prior to its amendment by the Finance (No. 2) Act, 1967, came up for consideration and it was in that context, that the Supreme Court pointed out that for the purpose of granting special deductions under section 80E of the Act by the use of the expression "attributable to" instead of "derived from", a wider import to cover receipts from sources other than the actual conduct of the business of the specified industry was intended. We are of the view that that decision cannot be pressed into service for the purpose of deciding the question whether the assessee is an industrial company within the meaning of section 2 (6) (c) and the Explanation appended thereto, as introduced by the Finance Act, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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