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TMI Blog1981 (4) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly in the manufacture or processing of goods within the meaning of Explanation 2 to section 2(18) of the Act ? Briefly stated the facts relating to the assessee-company, which are on record, are as follows: The company was established in 1962. Admittedly, as stated in sub cl. (1) of cl. 3 of its memorandum and articles of association, its first object is to carry on the business of manufacturers of, and merchants in, glass fibres and all kinds of articles made of or formed from glass fibres or of any other glass or similar organic or inorganic substance. The rest of the objects mentioned in the said cl. 3 and contained in its various sub-clauses are incidental to the said main object of manufacturing the glass fibres and all other such articles. The company's capital to the extent of 50% is held by Fibreglass Ltd., U.K., which is a private limited company under the United Kingdom law. 4% of the shares are held by Bombay Company P. Ltd. 0.8% by another private company and the balance of 45.2% is held by the members of the public. The company went into trial production in July, 1965, and commercial production in September, 1965. Its products were put in the market in Novem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts, an import licence on the 29th June, 1963, to import plant and machinery of the value of Rs. 22,86,700 for the said manufacture. (d) That the orders for the plant and machinery were placed in the U. K. soon after the receipt of the manufacturing and import licences and steps had been taken even before the commencement of the relevant previous years to set up the manufacturing plant of the company. (e) That the interest received during the relevant year was from bank accounts in the U.K. and from U.K. Treasury bills. This was incidental to the main object of the company, being the proceeds of the issue of shares to Fibreglass Ltd., U.K., retained in the U.K. with the permission of the Reserve Bank of India for the purchase of plant and machinery for the company's plant in India." The Commissioner, however, rejected this contention also and held that the use of the present tense " consists " in Expln. 2 was very important and the term could not be extended to include those companies whose manufacturing business was yet to take place. The Commissioner further held that the income of the company was wholly from non-manufacturing activities since, according to the Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, but also to encourage old companies engaged in other activities to switch over to the manufacturing activities and, hence, argued the revenue, the crucial test was whether there was manufacturing activity in the accounting year. The Tribunal upheld the assessee's contention and took the view that a liberal construction must be adopted in the case of a provision granting a tax concession. The Tribunal also held that the assessee had, for its avowed object, the manufacture of a new type of product in a big way and it had also started the manufacture within three years of its formation. According to the Tribunal, initially the capital has to be called up and funds kept ready for setting up the factory, and till the moneys are actually required, they are kept in short-term investments. That, however, did not mean that in the interregnum between the formation of the company and the commencement of manufacturing activity, the company had a different character and, therefore, it can be said to be engaged in other activity. According to the Tribunal, it was against prudent management of the business, to keep large sums of moneys idle in the company's till without investing in short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if for the words 'not less than fifty per cent. and more than fifty per cent. the words 'not less than forty per cent. and more than sixty per cent. had been substituted." From the aforesaid definition of the expression, it is clear that in order to qualify itself as a company in which the public are substantially interested, firstly, it must not be a private company as defined in the Companies Act, and secondly, when it is an Indian company it must be one whose business consists wholly of the manufacture or processing of goods and whose shares carrying not less than forty per cent. of the voting power are held by the members of the public. It is not disputed that about 45.2 per cent. of the assessee's shares are held by the members of the public. Therefore, the only other condition that the assessee has to satisfy is whether its business consists wholly of the manufacture or processing of goods. If it satisfied the said test, then, admittedly it would qualify to a higher rebate of 30 per cent. Hence, the controversy is whether the assessee's business consists wholly of the manufacture or processing of goods. Shri Kotwal, the learned counsel appearing for the revenue, urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paper and the actual start of its manufacturing activity, the company has no production of the goods as such, it is not without its character as a manufacturing concern. It is both unrealistic as well as unimaginative to divide the stages of such companies into two parts and label it with a different character merely because prior to the actual start of the manufacturing activity, the company has to undergo the work-pains preliminary to production. We fail to understand as to how the company could be described as one other than a manufacturing concern during this preliminary stage when the concern is busy collecting and putting together its assets and resources for starting the manufacturing activity which is its avowed object and for which it has come into existence. Therefore, merely because during the accounting year ended on 31st March, 1965, the company had not started its manufacturing activity although it was preparing for the same, it could not be said that the company did not partake of the character of a concern whose business consisted wholly of the manufacture or processing of goods. The argument, therefore, has only to be stated to be rejected. As regards the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the company to undertake activities other than the activity of manufacture, we may point out that even a casual perusal of the other objects mentioned in the said cl. 3, would convince anyone that the said objects are incidental to and necessary for its main activity, viz., the manufacture of the said goods. In fact, if the so called other objects which follow sub-cl. (c) of the said cl. 3 are not mentioned and powers are not given to the company to undertake the said activities, it would not be possible for the company to carry out its main activity, viz, the manufacture of the said goods. In the first instance, it is wrong to call the said other activities as the objects of the assessee-company. They are powers conferred on the company., Were it not for those powers as stated earlier, it would not be possible for the company to carry on its main business of activity. The said powers are necessary to undertake any manufacturing activity. As and by way of illustration, we may point out that sub cls. (2) gives power to carry on all or any of the trades or business of mechanical, electrical, insulating, heating, etc. ; sub-cl. (3) gives power to acquire, construct carry out, equ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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