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TMI Blog1994 (3) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... y thereby as an industrial company. After discussing the facts of the case and taking into consideration the various case-laws as put forward by the assessee before him, the CIT finally set aside the assessments for both the years with a direction to the Assessing Officer to pass fresh orders by treating the assessee as a non-industrial company. 3. It was found out during the course of the hearing of the proceedings before us that the assessee-company, much earlier was engaged in the business of manufacture of liquor and leased out its plant and machineries to a sister concern some time in the year 1976-77. However, the assessee still retained for itself a bottling unit at Pondicherry and also another unit engaged in manufacturing of stationery goods at Bangalore. The learned counsel for the assessee stressed on the point that the liquor plant of the assessee had been leased out to a sister concern simply for the sake of convenience and also as a temporary measure only. In support of this contention he pointed out that the assessee-company still went on maintaining the labels relating to the liquors as approved by the Excise Commissioner by incurring sufficient amount of costs. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee can be considered as mainly engaged in manufacturing activities. In support of his contentions he relied on the decision of the Supreme Court as reported at Minocha Bros. (P.) Ltd. v. CIT [1994] 116 CTR 476 and of the Madras High Court at Addl. CIT v. Chillies Export House Ltd. [1978] 115 ITR 73. 5. For deciding the issue, it will first of all be necessary for us to examine the definition of an 'industrial company'. as provided in the relevant Finance Acts for the two years. The said definition runs 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 carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of projects or in the manufacture or processing of goods or in mining. Explanation: For the purposes of this clause-- (i) 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 carriage, by road or inland waterways, of passengers or goods or in the construction of ships or in the execution of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om those of the present case but also the issue as to whether the lease rent in such circumstances can be considered as income attributable to manufacturing operations or not was not decided. We do not find much support for the assessee's case from the decision of the Supreme Court in Sri Lakshmi Silk Mills Ltd.'s case inasmuch as in that case also the point to be decided was whether the rental income was of the nature of business income or not. The assessee has tried to argue that the reliance placed by the CIT on the decision of the Delhi High Court in the case of Super Fine Cables (P.) Ltd. is not of much relevance to the present issue. We find that in that particular case also, the Delhi High Court had merely held that in absence of any specific factual finding communicating that the factory leased out by that assessee continued to be commercial asset even after the letting out, the income arising from the said lease had rightly been assessed as income from other sources. We agree with the assessee that since this particular decision was based on the factual findings given by the lower authorities and also since the issue did not involve the consideration of whether the lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as follows: "(iii) In defining 'industrial company' in section 2(7)(d) of the Finance Act of 1966. Parliament has used the words 'mainly engaged in the business of. This does not mean that the object of the definition clause is to take within its scope only companies engaged in a plurality of business activities. On the other hand, Parliament has used the word 'mainly' in its broadest sense so as to take in companies which are 'entirely' engaged in the business of the specified description and also companies principally engaged in such types of business. The purpose intended to be served by the Explanation added to the definition is only to clarify how in respect of companies engaged in more than one type of business the criterion of being 'mainly' engaged in any of the specified business laid down in the body of the definition clause is to be applied. The test laid down in the Explanation has no applicability at all where the sole business activity carried on is of the type referred to in the definition clause. The proper function of an Explanation is to make plain or elucidate what is enacted and not to add to or subtract from it. An Explanation is different in nature from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities included in its total income for the previous year is not less than fifty-one per cent of such total income. 2. The question as to the exact meaning of the Explanation to sub-section 7(d) of section 2 of the Finance Act, 1966 came up for consideration and the Board are advised that an 'industrial company' would mean-- (i) 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, even if its income from such activities is less than 51 % of its total income; and (ii) a company which, even though not mainly so engaged, derives in any year, 5 1 % or more of its total income from such activities." It is clear from above that in the said circular, the CBDT has recognised that for being given the benefit of a lower tax rate as an industrial company, it is not necessary for a company to have its income from manufacturing activities to be actually 51 % or more of its total income in any particular year provided the company be found to be mainly engaged in manufacturing business. The cases decided by the Kerala and the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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