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TMI Blog1991 (6) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... centage) of distributable income, the assessee would be hit by the provisions of section 104 of the Act. Further, the IAC noticed that the assessee should be treated as 'Trading Company' since the purchase of finished products amounting to Rs. 2,44,52,016 had been shown in the manufacturing account which otherwise should have been rightly debited to the Trading account. Viewed in this manner, the trading activities of the assessee would be more than 51 per cent. He, therefore, issued a notice on the assessee to show cause why the provisions of section 104 of the Act could not be attracted in its case. The assessee resisted the action of the IAC on the ground that it was engaged in manufacturing/processing activity and that therefore the provisions of section 104 of the Act would not be applicable to it by virtue of sub-section (4) of section 104 of the Act. In this connection, it was stated before the IAC that the assessee purchases standardised dyes which are further processed by drying pulverisation and standardisation to prepare dyes as per the special requirement of its customers. In doing so, the dyes so purchased are given special treatment of salt/soda to get different shade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has shown licensed capacity and/or installed capacity as nil. If the appellant was manufacturing company it should have maintained the licensed and installed capacity. " 5. Before the CIT(A), a part from reiterating the submissions which were made before the IAC, the assessee also submitted that since in the assessment framed under section 143(3) of the Act, the Assessing Officer had treated it as an Industrial company, he ought not to have invoked the provisions of section 104 of the Act. The assessee once again explained to the CIT(A) the activities carried on by it in the following manner : " Two or more duty paid formulated, standardised and prepared dyestuffs bought from dyestuff manufacturers are further blended in a Ball Mill for 6 to 8 hours till satisfactory physical blending of the ingredients is achieved. If necessary this material is then pulverised in order to obtain a fine powder. The dyestuff is packed in different packings according to the requirements of the customer before being sold. In this process, the dyestuffs which are used are excise duty paid dyestuffs and this process does not involve any chemical reaction hence it is exempted from excise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the appellant's association of which he is a member have themselves claimed before the Collector of Central Excise in their letter dated 18-3-1986 that they were not carrying on any such activity which could be termed as manufacture. The raw material which is purchased in the form of finished goods is such on which no excise duty is leviable. Lastly in the information given by the appellant themselves under the head licensed or installed capacity, the information has been indicated as nil by the appellant. The order under appeal also gives sufficient indication that the IAC has arrived at the conclusion after conducting an enquiry in the factory premises of the appellant. I also do not see much in the appellant's contention that in the assessment order it had been mentioned as an industrial company. Apart from the fact that each proceeding is separate proceeding, section 104(4) does not talk of Industrial company. 4. Above all the issue before me is clinched by referring to the word 'mainly' in section 104(4). Even assuming therefore that the appellant was involved in processing of goods as claimed by them unless that activity is the main activity, it could not be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the provisions of section 104 of the Act. He also invited our attention to page 8 of the Paper-book containing the computations of Commercial profits and distribution of the same for the purposes of applicability of section 104 of the Act and highlighted the fact that here also the assessee has declared large dividend than that required of it in respect of the trading profits. 5B. Relying on the aforesaid decision of the Hon'ble Supreme Court in the case of Chowgule Co. Ltd., the learned counsel for the assessee strongly argued that the entire activities carried on by the assessee is nothing but processing activity and, therefore, the provisions of section 104 of the Act would not be applicable in its case by virtue of sub-clause (4) of that section. In this connection he also invited our attention to the decision of the Hon'ble Calcutta High Court in the case of G.A. Renderian Ltd. v. CIT [1984] 145 ITR 387 and pointed out that while interpreting the provisions of clause 2(7)(c) of the Finance Act 1978, the Hon'ble High Court was pleased to hold that the assessee, engaged in mixing and blending different qualities of tea, was engaged in 'processing' and, therefore, entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which is pending in the Tribunal. 6. In view of the aforesaid submissions, the learned counsel for the assessee strongly urged that the orders passed by the IT authorities in the present proceedings should be set aside. 7. The learned representative for the department on the other hand, strongly supported the action of the IT authorities. In this connection, he invited our attention to the Schedule 13 of the Printed Accounts for the year 1981-82 and pointed out that against the licensed capacity and installed capacity under the head 'Dyes Manufactured', there is a remark "N.A." which according to him, clearly shows that the assessee is not engaged in any manufacturing activity. He also referred to Schedule 5 containing list of Fixed Assets and pointed out that the assessee does not have any significant plant and machinery which would show that it is engaged in any manufacturing activity. Finally he invited our attention to Note No. 10 of the Auditor's report, namely, "according to the records of the Company, no by-products or significant saleable scrap are generated" ; and urged that it is not possible to accept the stand taken on behalf of the assessee that it is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " activity, if not, "manufacturing" activity. We have carefully gone through the letter of the Dyestuff Manufacturers Association of India addressed to the Collector of Central Excise and are of the view that the said Association has taken a stand that it was not engaged in a manufacturing activity in an altogether different context. Therefore, according to us, no adverse inference should be drawn against the assessee in this regard. As per the workings given at pages 1 and 2 of the paper-book, the profits attributable to the manufacturing activity are 79.62%. In this view of the matter, the provisions of section 104 of the Act would not be applicable in the instant case in view of the Explanation to sub-section (4) of the said section. 9. Even assuming for the sake of argument that sub-section (4) of section 104 is not applicable in the instant case, the profit of the assessee has to be bifurcated between the manufacturing and trading activity. In view of the aforesaid decision of the Hon'ble Bombay High Court in the case of Hoechst Dyes Chemicals Ltd. the provisions of section 104 could be applied only in the case of the profits attributable to the trading activity. Under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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